Deferment and Forbearance: When to Use Each One

Loans, Student Loans
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Deferment and forbearance are both ways to catch a break from your student loan payments while keeping your loans in good standing. Of the two, deferment is the better option if you qualify and have subsidized federal loans. Here’s a quick breakdown of each:

  • Deferment: A period in which your student loan payments are temporarily put on pause, often for a somewhat extended length of time. For example, the federal government and some private lenders will defer your loans while you’re in school or active in the military. Depending on the type of loan you have, you may not have to pay the interest that accrues during a deferment.
  • Forbearance: A period in which your student loan payments are temporarily put on pause, usually for a limited number of months. For instance, you can request a forbearance for federal and private loans if you’re experiencing a financial hardship, such as a medical issue. Unlike with some loan deferments, you’ll be responsible for paying the interest that accrues during a forbearance.

Now that you’ve grasped the basics, let’s dive deeper:

Deferment for federal student loans

Forbearance for federal student loans

Deferment and forbearance for private student loans

Deferment for federal student loans

There are different deferment applications depending on your reason for applying. Ask your federal loan servicer, the company that you pay your student loan bill to every month, for the correct paperwork. You’re entitled to a federal student loans deferment if you’re:

  • In school at least part-time.
  • Unemployed.
  • Receiving state or federal assistance — for example, through the Supplemental Nutrition Assistance Program or Temporary Assistance for Needy Families.
  • Earning a monthly income of less than 150% of your state’s poverty guideline.
  • In the Peace Corps.
  • On active military duty.
  • In the process of qualifying for Perkins loan cancellation.

The best part about federal student loan deferment is that you don’t have to pay the interest that accrues during the deferment period if you have subsidized loans or Perkins loans.

If you have federal unsubsidized loans, however, you will have to pay the interest that accrues while your loans are in deferment. That interest will be capitalized, or added to your balance, when your loans enter repayment again. In other words, you’ll have more debt to repay when your deferment period ends. So if your loans are unsubsidized, only defer them if you absolutely have to.

Federal loan typeDo you have to pay the interest that accrues during deferment?
Direct subsidized No
Subsidized StaffordNo
PerkinsNo
Direct unsubsidized Yes
Unsubsidized StaffordYes
PLUSYes

» MORE: Understanding the different types of student loans

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Forbearance for federal student loans

If you don’t qualify for federal student loan deferment, you can get what’s known as a mandatory forbearance, in circumstances that the Department of Education specifies. You may be eligible if you’re:

  • In a medical or dental internship or residency.
  • In the process of qualifying for Teacher Loan Forgiveness.
  • Active in the National Guard but not qualified for military deferment.

If you don’t meet the above qualifications but want to pause your loan payments temporarily — for example, if you get sick — you can request what’s called discretionary forbearance. Lenders don’t have to say yes to discretionary forbearance, but there’s a fair chance they will.

Interest always accrues on federal loans during a forbearance. And, as with unsubsidized federal loans in deferment, the accrued interest will be capitalized at the end of your forbearance period if you don’t pay it off.

Nerd tip

To avoid interest capitalization, which increases the total amount of interest you pay throughout the life of your loan, pay off any accrued interest before the end of your deferment or forbearance period. Contact your lender or loan servicer to find out how much interest you owe and to pay it off.

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Deferment and forbearance for private student loans

Private lenders don’t have to grant you deferment or forbearance in any situation. Many will do so, but the terms differ by lender, and you always have to pay the interest that accrues during the deferment or forbearance period. Private lenders with forbearance policies typically offer it in three-month increments for up to 12 or 24 months.

If you think you need deferment or forbearance for your private loan, call your lender and explain your situation. Your lender may well be willing to work with you even if its website doesn’t mention deferment or forbearance options. For example, College Ave Student Loans, a private lender, doesn’t have “black-or-white limits” regarding forbearance, says co-founder Joe DePaulo. The company works with borrowers individually to determine if deferment or forbearance is the right option, he says.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

Updated Nov. 21, 2016.