What is the Difference Between Deferment and Forbearance?
🆚 Go to Comparative Table 🆚The main difference between deferment and forbearance lies in interest accrual. Both options allow you to temporarily postpone or reduce your federal student loan payments, but they differ in a few key ways:
- Interest Accrual: During a deferment, interest doesn't accrue on some types of loans, such as subsidized federal student loans or Perkins loans. In contrast, during a forbearance, interest accrues on all loan types.
- Qualifying Events: Deferment is tied to specific qualifying events, such as going back to school at least half-time or experiencing financial hardship. Forbearance is usually tied to an event that causes a significant reduction in income, and the qualifying events for forbearance and deferment are different.
- Duration: Forbearance generally lasts for up to 12 months at a time, while deferment has differing lengths, depending on the type of deferment.
- Granting: If you qualify for deferment, your servicer must grant it. Forbearance, on the other hand, is sometimes at the loan servicer's discretion, but in some situations, it is mandatory.
In summary, deferment is generally better if you have subsidized federal student loans or Perkins loans and you qualify for it, as it can be interest-free. Forbearance is generally better if you don't qualify for deferment and your financial challenge is temporary.
Comparative Table: Deferment vs Forbearance
Here is a table comparing the differences between deferment and forbearance:
| Feature | Deferment | Forbearance |
|---|---|---|
| Purpose | Temporarily postpones or reduces loan payments | Temporarily suspends or lowers payments during a hardship |
| Repayment | Payments are tacked on to the end of the loan, extending the loan term | Payments are paused or reduced for a period, but must be made up after the forbearance period ends |
| Interest Accrual | Unpaid interest may be added to the total amount and accrue from there, meaning you'll end up paying interest on interest | Interest may or may not accrue during the forbearance period, depending on the terms of the loan |
| Qualification | Varies among lenders and depends on the specific terms of the loan | Determined by the mortgage servicer based on eligibility requirements |
| Credit Impact | Temporary postponement of payments can help avoid damaging your credit score | Temporarily suspending or reducing payments can help avoid a shaky financial situation from becoming worse |
It is essential to understand the terms and conditions of each option, as well as the potential impact on your credit score and overall financial situation. Always consult with your lender or loan servicer before deciding on deferment or forbearance.
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