Deferment vs. Forbearance

Attribute	Deferment	Forbearance
Definition	Temporary suspension of loan payments	Temporary reduction or postponement of loan payments
Interest	May not accrue on subsidized loans	Accrues on all types of loans
Eligibility	Based on specific criteria (e.g., unemployment, economic hardship)	Based on specific criteria (e.g., financial hardship, medical expenses)
Duration	Varies depending on the type of deferment	Varies depending on the type of forbearance
Application Process	Requires application and approval	Requires application and approval
Effect on Credit Score	No negative impact	No negative impact
Availability	Available for federal student loans	Available for federal and private student loans

Introduction

When it comes to managing student loans, borrowers often face financial challenges that make it difficult to meet their repayment obligations. In such situations, deferment and forbearance are two options that can provide temporary relief. While both options allow borrowers to temporarily pause or reduce their loan payments, there are important distinctions between the two. This article aims to explore the attributes of deferment and forbearance, shedding light on their similarities and differences to help borrowers make informed decisions.

Deferment

Deferment is a temporary suspension of loan payments that is typically granted for specific reasons, such as enrollment in school, unemployment, economic hardship, or military service. During deferment, interest may or may not accrue depending on the type of loan. For federal subsidized loans, the government covers the interest during deferment, ensuring that the loan balance does not increase. On the other hand, for unsubsidized loans, interest continues to accrue, and borrowers have the option to pay it or allow it to capitalize at the end of the deferment period.

One of the key advantages of deferment is that it allows borrowers to maintain their eligibility for certain benefits, such as loan forgiveness programs or income-driven repayment plans. Additionally, deferment provides a longer period of relief compared to forbearance, with some deferment options lasting up to three years. However, it's important to note that deferment is subject to eligibility criteria and requires proper documentation to prove the qualifying circumstances.

Forbearance

Forbearance, like deferment, allows borrowers to temporarily suspend or reduce their loan payments. However, forbearance is typically granted at the discretion of the loan servicer and is not limited to specific qualifying circumstances. Unlike deferment, interest always accrues during forbearance, regardless of the loan type. This means that borrowers who choose forbearance will have a larger loan balance at the end of the forbearance period.

Forbearance is often used when borrowers are experiencing financial difficulties but do not meet the specific criteria for deferment. It provides a short-term solution to alleviate the burden of loan payments, usually for a period of up to 12 months. However, it's important to note that forbearance should be used sparingly, as the accrued interest can significantly increase the overall cost of the loan.

Similarities

While deferment and forbearance have distinct attributes, they also share some similarities. Both options provide temporary relief from loan payments, allowing borrowers to focus on other financial priorities. Additionally, both deferment and forbearance can be requested through the loan servicer, and borrowers are required to submit the necessary documentation to support their eligibility for these options.

Furthermore, both deferment and forbearance can be used multiple times, although there are limits on the total duration of these options. For example, federal student loans have a maximum limit of three years for general forbearance, while deferment options vary depending on the borrower's circumstances. It's important for borrowers to carefully consider their financial situation and choose the option that best suits their needs.

Key Differences

While deferment and forbearance share similarities, there are several key differences that borrowers should be aware of. One of the main differences is the accrual of interest. During deferment, interest may or may not accrue depending on the loan type, while forbearance always accrues interest. This means that borrowers who choose forbearance will have a larger loan balance at the end of the forbearance period, potentially increasing the overall cost of the loan.

Another significant difference is the eligibility criteria. Deferment is typically granted for specific reasons, such as enrollment in school, unemployment, economic hardship, or military service. On the other hand, forbearance is granted at the discretion of the loan servicer and is not limited to specific qualifying circumstances. This makes forbearance a more flexible option for borrowers who do not meet the specific criteria for deferment.

Additionally, the duration of relief differs between deferment and forbearance. Deferment options generally provide a longer period of relief, with some options lasting up to three years. In contrast, forbearance is usually granted for a shorter period, typically up to 12 months. Borrowers should consider their financial situation and the duration of relief they require when deciding between deferment and forbearance.

Conclusion

Deferment and forbearance are two options that provide temporary relief from student loan payments. While both options serve a similar purpose, there are important distinctions between them. Deferment is typically granted for specific qualifying circumstances, with the possibility of interest subsidy for subsidized loans. Forbearance, on the other hand, is granted at the discretion of the loan servicer and always accrues interest. It's crucial for borrowers to carefully evaluate their financial situation, eligibility criteria, and the potential impact on their loan balance before choosing between deferment and forbearance. By understanding the attributes of these options, borrowers can make informed decisions and effectively manage their student loan obligations.