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Student Loan Deferment vs. Forbearance: What’s the Difference?

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In a Nutshell

Deferments and forbearances provide temporary relief for student loan borrowers who can’t afford the payments on their federal student loans. When money is tight, you can use deferments and forbearances to temporarily pause your monthly student loan repayment until your financial situation improves. The key difference between a deferment and forbearance is the way the interest is treated.

Written by Attorney Natalie Jean-Baptiste.  
Updated January 6, 2021


Deferments and forbearances provide temporary relief for student loan borrowers who can’t afford the payments on their federal student loans. When money is tight, you can use deferments and forbearances to temporarily pause your monthly student loan repayment until your financial situation improves. The key difference between a deferment and forbearance is the way the interest is treated.

You continue to be charged interest even while the loan is in forbearance or deferment. When the account is in deferment, the government pays the interest. When the account is in forbearance, however, you are responsible for the accrued interest. 

You can either pay the interest as it accrues or let it be added to the principal balance of the loan at the end of the deferment period (you’re letting the interest ‘capitalize’.) If you let the interest capitalize, you will pay more over the life of the loan. Private lenders are not obligated to offer either deferment or forbearance. If you have a private student loan, you must contact that lender directly to find out their program requirements. 

Deferment

There are a few different types of deferment.

In-School Deferment

An in-school deferment pauses your loan payments while you’re enrolled in an eligible college or career school at least half-time. This includes graduate or professional schools, and continues for six months after you graduate or leave school.

The in-school deferment is automatic, there is no need to submit an application. If you’re enrolled at least half-time but don’t automatically receive a deferment, contact your school’s admissions or enrollment office. Your school will report the information about your enrollment status to your student loan servicer and your loan will be placed in deferment. 

You may qualify for this deferment if you’re a Parent PLUS borrower, and the student you took the loan out for is enrolled at least half-time at an eligible college or career school. You must request it, however, it’s not automatic like it is for student borrowers. There’s no time limit. This deferment is available as long as you — or the student benefitting from the loan, for parent PLUS borrowers — are enrolled at least half-time.

Economic Hardship Deferment

You may be eligible for an economic hardship deferment if:

  • You’re receiving public assistance payments under a federal or state program, 

  • You work full-time but your income is less than 150% of the federal poverty guideline for your household size and state of residence, or

  • You are serving as a Peace Corps volunteer.

This type of deferment is available for up to three years and you must reapply every 12 months.

Unemployment Deferment

There are two ways to qualify for unemployment deferment:

  1. You’re diligently seeking but unable to find full-time employment in the United States, or

  2. You’re eligible to receive unemployment benefits

Full-time employment is defined as thirty hours per week for at least three consecutive months. If you’ve rejected any offers of full-time employment, even if you were overqualified for the position, you won’t be eligible for the deferment. You must make at least six diligent attempts in the most recent six months to be eligible. You must also register with a public or private employment agency.

Graduate Fellowship Deferment

You may qualify for a deferment if you’re enrolled in an approved graduate fellowship program. The following conditions must be met:

  • You have a bachelor’s degree

  • You have been accepted or recommended by an institution of higher education for acceptance into a graduate fellowship program on a full-time basis

  • Your graduate fellowship program provides sufficient financial support to allow for full-time study for a period of at least six months

  • Your graduate fellowship program requires a written statement from you that explains your objectives before the awarding of financial support

  • Your graduate fellowship program requires you to submit periodic reports, projects, or other evidence of your progress

  • Your graduate fellowship program accepts the course of study from the foreign university toward completion of the fellowship program

Military Deferment

You may be eligible for this student loan deferment if you are on active duty military service in connection with a war, military operation, or national emergency. There is no limit on how long this deferment lasts or how many times it can be used. The deferment ends 180 days after demobilization. The only documentation required is proof via military orders or a written statement from the commanding officer.

Post-Active Duty Deferment

This deferment may be available if you were enrolled in school at the time you were called for active duty or service. You may be eligible for this deferment if you’ve completed qualifying active duty service and any applicable grace period. This deferment ends when you resume enrollment in an eligible college or career school on at least a half-time basis or 13 months following the completion date of active duty service and any applicable grace period, whichever is earlier.

Rehabilitation Training Deferment

You may be eligible for a deferment if you’re enrolled in a course of study that is part of a certified rehabilitation training program for disabled individuals. The program must be certified by a state agency or the Department of Veteran Affairs to provide vocational, drug abuse, mental health, or alcohol abuse rehabilitation treatment.

Cancer Deferment

You may qualify for this student loan deferment while you’re receiving cancer treatment and for the six-month period after your treatment ends. Unlike other deferments, a deferment for borrowers receiving cancer treatment will not have interest accrue on any of your federal loans, including unsubsidized loans.

The cancer deferment may not be granted for a period that will result in a refund of previous payments made by you. Furthermore, it only applies to Direct Loans that were made on or after September 28, 2018, and to Direct, FFEL, or Perkins loans that entered repayment on or before September 28, 2018. 

Loans that were made before September 28, 2018—but were not in repayment on that date because the borrower was in an in-grace or in-school status—are not eligible for the deferment and will not become eligible when they do enter repayment. In addition, a deferment cannot be granted for a period of treatment before September 28, 2018.

Parent PLUS Borrower Deferment

Parent PLUS Loan deferment allows you to postpone loan repayment until after your student is no longer enrolled at least half-time. You also have the option to request an additional six-month post-enrollment deferment after your student drops below half-time, graduates, or withdraws.

Perkins Loans Deferments

You may defer repayment on a Perkins Loan based on the same information submitted for a deferment of a Direct, FFEL, or PLUS Loan. Circumstances such as being in school, unemployment, economic hardship qualify you for Perkins Loans deferment. There are a number of deferments available based on the type of employment including, teaching, law enforcement, military service, volunteer service such as the Peace Corps. After each deferment, you are entitled to a six-month grace period.

Forbearance

Most types of forbearances are not automatic, you must submit a request to your loan servicer. You’ll also have to provide supporting documentation to your servicer. There are two types of student loan forbearances, general and mandatory.

General Forbearance

Your student loan servicer decides whether to grant a general forbearance. This is why general forbearance is also known as “discretionary” forbearance. You can request a general forbearance in the following situations:

  • Financial difficulties

  • Medical expenses

  • Change in employment

  • Other reasons acceptable to your servicer

Mandatory Forbearance

If you’re eligible for a mandatory forbearance, your loan servicer is required to grant you forbearance. You’re eligible for mandatory forbearance if:

  • You're in a medical or dental internship or residency

  • The total you owe for all your student loans is 20% or more than your monthly gross income

  • You're serving in the AmeriCorps

  • You’re teaching in a job that makes you eligible for teacher loan forgiveness

  • You qualify for partial repayment of your loans via the U.S. Department of Defense Student Loans Repayment Program

  • You’re a member of the National Guard and have been called up by a governor

Duration of Mandatory Forbearances

Mandatory forbearances may be granted for no more than 12 months at a time. If you continue to meet the eligibility requirements for the forbearance when your current forbearance period ends, you may request another mandatory forbearance.

Mandatory Administrative Forbearance

In certain circumstances, such as a local or national emergency or natural disaster, lenders must grant mandatory administrative forbearances to borrowers. During a mandatory administrative forbearance, everything stops. No payments are due, no collection calls are made, no wage garnishments are issued. Administrative forbearances were ordered after Hurricane Katrina in 2005 and Hurricane Sandy in 2012. 

In 2020, the Coronavirus (COVID-19) caused a global pandemic that has impacted the economy and borrowers’ ability to make student loan payments. To provide relief to student loan borrowers during the COVID-19 emergency, federal student loan borrowers were automatically placed in administrative forbearance.

On March 27, 2020, Congress passed, and the president signed into law, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides the following relief:

  • suspend loan payments

  • stop collections on defaulted loans

  • set interest rates to 0% 

This suspension of payments will last through December 31, 2020, but you can still make payments if you choose. You can take advantage of the 0% interest rate because your federal student loan payments will go toward the principal instead of the interest. 

Income-Driven Repayment Options as an Alternative

In most instances, if you’re facing financial hardship and can’t afford the monthly payment on your federal student loan, enrolling in an income-driven repayment plan is a better option than requesting a deferment or forbearance. 

The government offers four income-driven repayment plans, which calculate your monthly payment based on your income and family size instead of the loan balance. If your monthly income is low enough, your payment could be as low as $0 a month. If your payment is $0, you certainly don’t need a deferment or forbearance. 

Also, when you “pay” even $0 on an income-driven plan, those “payments” count towards the 20 or 25-year repayment term for loan forgiveness. Deferment or forbearance, on the other hand, does not allow you to make progress toward forgiveness.



Written By:

Attorney Natalie Jean-Baptiste

LinkedIn

Natalie Jean-Baptiste is a New York bankruptcy attorney focused primarily on providing debt relief to student loan borrowers. To date, she has helped her clients wipe out nearly $1 million of student loan debt through the bankruptcy process and other administrative tools. Prior t... read more about Attorney Natalie Jean-Baptiste

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