In navigating the complex world of student loan repayment, you’ll likely encounter terms like deferment and forbearance. These are options offered by lenders that can temporarily pause or reduce your loan payments when you’re facing financial hardship. However, they’re not the same, and it’s crucial to understand their differences to make the best decision for your situation.
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Loan deferment is like a pause button on your loan repayment schedule. During this pause, you don’t have to make payments. The additional charge (interest), that usually grows on your loan may or may not be paused, depending on the type of loan you have.
For instance, with certain government loans (subsidized federal loans) and Perkins loans, the interest doesn’t grow during this pause.
With other types like unsubsidized federal loans and private loans, the interest clock keeps ticking, making the amount you owe larger.
Deferment periods can last for several years and are available for various circumstances, including while you’re in school, in some periods of active military service, during certain types of public service, or if you’re experiencing economic hardship or unemployment.
Forbearance, like deferment, also allows you to temporarily stop making student loan payments or to reduce your payments.
However, unlike deferment, interest continues to accrue on all types of loans during forbearance, including subsidized federal loans. This means your loan balance will grow, making forbearance potentially more expensive in the long run.
Typically, forbearance periods are shorter than deferment periods, usually up to 12 months at a time. It’s often granted at the lender’s discretion, although some situations like financial hardship, medical expenses, or changes in employment may qualify you for mandatory forbearance.
Key Differences and Considerations
The primary difference between deferment and forbearance lies in how interest accrual is handled. With deferment, you might avoid additional interest charges if you have subsidized federal loans, while with forbearance, interest accrues on all loan types.
Before choosing either option, consider the long-term implications. Both options might provide immediate relief, but they can extend the life of your loan and increase the total amount you pay. They should be considered as last-resort options when you’re unable to make your regular payments.
Always explore other alternatives, such as income-driven repayment plans, which adjust your monthly payment based on your income. These can often provide more affordable long-term solutions.
Understanding the deferment and forbearance options can help you manage student loan repayment, especially in times of financial difficulty. Don’t let student loan payments overwhelm you, and know there is always options to not miss a payment, or stress on debt.
Remember to consider the long-term effects of these options, and speak with your loan servicer to find the best approach for your situation.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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