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Student Loan Deferment and Forbearance: Bad for My Credit?

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Student loan deferment and forbearance

If you’re finding it difficult to make your student loan payments on time and in full, you may be eligible for a deferment or forbearance. However, you might be hesitant to take advantage of these options because you’re afraid they might hurt your credit. Here’s what you need to know about student loan deferment and forbearance and their effects on your credit.

What is student loan deferment?

Deferment is a period of time when you don’t have to make principal and interest payments on your student loans. For those with federal Perkins loans, direct subsidized loans or subsidized federal Stafford loans, the government may pay your interest accrued during deferment. Those with unsubsidized or PLUS loans will have to pay the interest accrued, though it isn’t due until the deferment period ends. But keep in mind, your accrued interest may be added to your principal at the end of your deferment period.

You’re eligible for deferment in several circumstances, including:

  • You’re enrolled in college at least part time
  • You’re dealing with an economic hardship that makes it difficult to make payments on time
  • You’re unemployed or lack full-time employment

Here’s a full list of situations when you’re eligible for deferment.

Does student loan deferment affect my credit?

If your student loan deferment was requested before you stopped making payments, your credit report will show your payments as current. However, if you missed payments before getting your student loans deferred, those missed payments will remain on your report after you defer. Future payments will be marked as current for as long as you’re in the deferment period.

What is student loan forbearance?

Forbearance is available for those who don’t qualify for deferment, but can’t make student loan payments in full for one reason or another. You’ll be able to stop making payments or reduce your payment amount for up to 12 months. Interest will accrue on your loans no matter what type of loans you have. If you don’t pay this interest before the forbearance period ends, it may be added to your principal.

There are two types of forbearance — discretionary and mandatory. You can request discretionary forbearance from your lender if you’re experiencing financial hardship or illness. Mandatory forbearance can be requested for several circumstances, including:

  • Your student loan payment amount exceeds 20% of your gross monthly income
  • You’re a member of the National Guard, but not eligible for military deferment
  • You’re part of a teaching program that will qualify for teacher loan forgiveness

Here’s a full list of situations when you’re eligible for mandatory forbearance.

Does student loan forbearance affect my credit?

If your student loan forbearance was requested before you stopped making payments, your credit report will show your payments as current. But if you missed payments before getting your forbearance approved, those missed payments will remain on your report. Future payments will be marked as current, as long as you’re in the forbearance period.

The takeaway: Provided you get approved for student loan deferment or forbearance before missing any payments, your credit won’t be affected when you take advantage of these programs. Until that point, make your minimum student loan payment on time to keep late payment activity off your credit report.

Woman in graduation cap image via Shutterstock