Loan Deferment vs Forbearance: Understanding Your Options

When facing financial difficulties, borrowers often consider options like loan deferment and forbearance to manage their student loans or other types of debt. Deferment and forbearance are two ways to temporarily reduce or suspend loan payments, but they have important differences. Here’s a comprehensive comparison to help you understand which option might be right for you.

Loan Deferment: This is a temporary suspension of loan payments. Typically, you don’t have to make payments on your loan while it’s in deferment, and in some cases, interest does not accrue on certain types of loans during this period. Deferment is often available for federal student loans and can be granted for several reasons, such as:

• Enrolling in School: If you go back to school at least half-time, you may be eligible for deferment.
• Economic Hardship: If you’re experiencing financial difficulty, you might qualify for economic hardship deferment.
• Military Service: Active military duty can also qualify you for deferment.

For federal student loans, deferment can be granted for up to three years, depending on your circumstances. Interest generally does not accrue on subsidized loans during deferment, but it may accrue on unsubsidized loans.

Forbearance: This is another form of temporary relief that allows you to pause or reduce your payments, but interest continues to accrue on your loans during the forbearance period. This option is available for both federal and private loans and can be useful if you’re struggling to make payments but don’t qualify for deferment. Forbearance can be granted due to:

• Financial Difficulty: If you’re unable to make your payments due to a temporary financial issue.
• Medical Expenses: If you have unexpected medical expenses that are affecting your ability to pay.
• Unemployment: If you’re temporarily out of work and struggling to meet your loan obligations.

Unlike deferment, forbearance typically has a shorter duration. It can be granted for up to 12 months at a time, and you can apply for it again if needed.

Key Differences:

1. Interest Accrual:

   • Deferment: In most cases, especially with subsidized loans, interest does not accrue during the deferment period.
   • Forbearance: Interest accrues on all types of loans, including subsidized and unsubsidized, making the loan balance grow.

2. Eligibility:

   • Deferment: Usually requires you to meet specific criteria like being enrolled in school or experiencing economic hardship.
   • Forbearance: Often easier to qualify for but generally requires a formal application process and may need to be renewed periodically.

3. Loan Type:

   • Deferment: More common for federal student loans.
   • Forbearance: Available for both federal and private loans.

4. Impact on Loan Balance:

   • Deferment: Less impact on the total loan balance if interest is not accruing.
   • Forbearance: Can significantly increase the total amount you owe due to interest accumulation.

Choosing Between Deferment and Forbearance: When deciding between deferment and forbearance, consider the following:

• Type of Loan: Check whether your loan is federal or private, as this will affect your options.
• Interest Accrual: If avoiding additional interest is crucial for you, deferment might be preferable if you qualify.
• Short-Term vs. Long-Term Relief: If you need short-term relief and can handle the interest accrual, forbearance might be the way to go. For longer-term situations, deferment might offer better benefits.

Example Comparison:

Aspect	Deferment	Forbearance
Interest Accrual	May not accrue (depends on loan type)	Continues to accrue
Eligibility	Specific criteria (e.g., school, hardship)	Broader criteria, easier to obtain
Duration	Up to 3 years (varies by type)	Typically up to 12 months, renewable
Loan Types	Primarily federal student loans	Federal and private loans

Understanding the differences between deferment and forbearance can help you make an informed decision about managing your loan payments during challenging times. Always review the specific terms and conditions of your loans and consult with your loan servicer to choose the best option for your situation.