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Deferment and Forbearance: How to Pause Student Loans

July 3, 2018
Loans, Student Loans
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Deferment and forbearance let you postpone student loan payments when you can’t afford them, allowing you to keep your loans in good standing.

Deferment is generally for people who are in school, serving in the military or in the Peace Corps. Forbearance is typically for people facing temporary financial hardship.

But pausing payments is a not a good solution if you don’t foresee your financial situation changing. Interest will increase the amount you owe.

When to use deferment and forbearance

Take these steps when considering deferment or forbearance on federal loans:

  1. If you have subsidized federal student loans or Perkins loans, consider deferment first. These loan types don’t accrue interest in deferment. [Skip to deferment]
  2. If your financial hardship will be temporary, consider pausing payments through either deferment, if you qualify, or forbearance. [Skip to forbearance]
  3. If your financial hardship will be longer lasting, apply for income-driven repayment. Your monthly payment will be tied to earnings, and you’ll get forgiveness after 20 or 25 years. [Skip to income-driven repayment]
  4. If you have private student loans, talk to your lender about your options. Most lenders have forbearance programs.

These programs are popular: 3.3 million federal loan borrowers were in deferment and 2.6 million were in forbearance in the first quarter of 2018. But that doesn’t mean they’re always a good idea.

If you’re seeking them out because you can’t afford your payments long-term, or you’re at risk of default, choosing deferment or forbearance indefinitely will be costly. Options like income-driven repayment, working with a student loan lawyer or even filing for bankruptcy could make sense in your situation.

» MORE:  5 ways to get fast, free student loan help

Use the student loan deferment interest calculator below to see how much more you could owe.

Calculate the cost of forbearance or deferment

What is student loan deferment?

Deferment halts your student loan payments for an extended period of time. The federal government and many private lenders, for instance, will defer your loans while you’re in school or active in the military. Federal loans also offer deferment in certain other situations.

Deferment for federal loans

Apply for deferment through your federal loan servicer. There’s a different application for each circumstance. You’re entitled to a federal student loan deferment if you’re:

  • In school at least part-time.
  • Unemployed (for up to three years).
  • 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.

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, interest that grows will be capitalized, or added to your balance, when your loans enter repayment again. That means you’ll have more debt to repay when your deferment period ends.

Deferment for private student loans

Private lenders aren’t required to grant you deferment in any situation. But many allow borrowers to postpone payments until the six months after they graduate or leave school. Interest will continue to accrue in all cases. If your lender offers the option to make small or interest-only payments while in school, that’s a good way to keep interest from ballooning.

What is student loan forbearance?

Forbearance puts student loans on pause for a limited number of months. Unlike some loan deferments, you’re always responsible for paying the interest that accrues during a forbearance.

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” while you are:

  • Participating in a medical or dental internship or residency
  • Qualifying for Teacher Loan Forgiveness
  • Active in the National Guard but not qualified for military deferment

You can pause your loan payments temporarily even if you don’t meet the above qualifications by requesting a “discretionary forbearance.” It’s up to your servicer whether to grant it.

Accrued interest will be capitalized at the end of your forbearance period if you don’t pay it off. Apply for a discretionary forbearance only if you know you’ll be able to get back on track within a few months.

Forbearance for private student loans

Terms and requirements differ by lender, but 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 be willing to work with you even if its website doesn’t mention deferment or forbearance options. Ask also about paying interest only, or getting an interest rate reduction, for a period of time.

Consider income-driven repayment

Cutting payments to a portion of your income is an alternative to deferment or forbearance for federal student loans, particularly if you don’t have subsidized or Perkins loans. While paying less per month will also cause interest to grow, income-driven repayment has the added benefit of offering forgiveness after 20 or 25 years of repayment.

Also, if you start earning more money and can afford to pay more, you can always pay extra on your loans to get rid of them sooner.

» MORE: Calculate your payments on an income-driven plan

Do deferment or forbearance affect credit?

You will only see a negative mark on your credit report if you miss a student loan payment. While your loans are in deferment or forbearance, they will appear as “current” on your report. It’s crucial to continue paying your loans as required until your student loan servicer confirms your request for deferment or forbearance has been accepted.

Choosing income-driven repayment also keeps your loans in good standing, and you could pay $0 a month if you don’t have income.

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