Not being able to pay off your student loans is detrimental to your financial well-being in many different ways. Falling behind on payments can damage your credit score, send your loans into default or even result in your wages being garnished. You can avoid these painful implications by tackling your student loan debt with the help of deferment and forbearance federal programs.
What Are Deferment and Forbearance?
Both deferment and forbearance allow you to temporarily stop making payments or reduce your payments on your student loans without causing you to fall behind on what you owe. However, each program differs in the type of relief it provides.
Even though both allow you to halt or reduce your student loan payments, you may not be responsible for interest that accrues during deferment. This depends on the type of loan you have and if it’s subsidized or unsubsidized:
|Interest Responsibility for Deferment|
|Responsible for Interest||Not Responsible for Interest|
|– Direct Subsidized Loans |
– Subsidized Federal Stafford Loans
– Federal Perkins Loans
– The subsidized portion of Direct Consolidation Loans
– The subsidized portion of Federal Family Education Loans (FFEL) Consolidation Loans
|– Direct Unsubsidized Loans |
– Unsubsidized Federal Stafford Loans
– Direct PLUS Loans
– FFEL PLUS Loans
– The unsubsidized portion of FFEL and Direct Consolidation Loans
In forbearance, you’re on the hook for the interest that accrues on any type of loan while you aren’t making payments.
Interest that accrues during deferment and forbearance can be capitalized, or added to your principal balance, or you can pay it off as it accrues. If you have it added to your principal balance, the total amount you owe and your monthly payments may cost more. This means it could take you longer to pay back your loans.
Eligibility Requirements for Deferment
To qualify for deferment, you’ll need to meet a few requirements.
- You’re enrolled at least part-time and you’ve received a Direct PLUS loan or FFEL PLUS loan as a graduate or professional student. Deferment is allowed for an extra six months after you’ve dropped below half-time enrollment.
- You are a parent who received a Direct PLUS loan or FFEL loan on behalf of a student who meets the above requirement.
- You’re enrolled in an approved graduate fellowship program.
- You are enrolled in an approved rehab training program for the disabled.
- You’re unemployed or not able to find full-time work for up to three years.
- You are going through an economic hardship for up to three years.
- You’re in the Peace Corps for up to three years.
- You are on active duty military service. Deferment is also allowed up to 13 months following that service or until you return to college or a qualifying school at least half-time (whichever is sooner).
Remember that even if you qualify for deferment, you might still be on the hook to pay for the interest that adds up during that deferment period, depending on the type of loan.
Eligibility Requirements for Forbearance
If you’re exploring forbearance as an option, there are two different types: general and mandatory.
General forbearance is available if you’re experiencing problems affording your basic needs or medical expenses. It may also be available if you’ve had a recent change in employment. It may be wise to talk to your loan provider to see if your specific situation qualifies you for forbearance.
On the other hand, only Direct and FFEL loans qualify for mandatory forbearance. It becomes available if:
- You’re serving a medical or dental internship or residency program.
- The total amount you owe each month for all your loans is 20% or more of your total monthly gross income (available up to three years, and qualifies on Perkins loans, too).
- You’re serving in AmeriCorps and received a national service award.
- Your current teaching status would qualify you for teacher loan forgiveness.
- You qualify for partial repayment through the U.S. Department of Defense Student Loan Repayment Program.
- You’re a member of the National Guard, but not eligible for military deferment.
Both general and mandatory forbearance can be granted for up to 12 months at a time. If you have a Perkins loan, you have a three-year cumulative limit for general forbearance. Direct and FFEL loans don’t have the same limitation, but your loan provider may have its own limitations.
Since there is a 12-month term, you’ll need to apply for forbearance each time you need it. Some loan providers may set a maximum limit on how many times you can receive general forbearance, but mandatory forbearance doesn’t have the same restrictions.
Student Loan Debt Management Alternatives
If you don’t qualify for deferment or forbearance, you may be able to access other debt assistance programs, such as:
- Income-Driven Repayment (IDR) Plans – These are federal student loan repayment plans that are based on your monthly income and family size. There are four IDR plans for which you may qualify.
- Direct Consolidation Loan – This option allows you to combine all your federal student loans into one loan. You’ll have one monthly payment rather than many different payments spread out across different loans. You may get a lower monthly payment because your new loan terms can be up to 30 years, rather than the standard 10-year repayment term.
- Refinance – Refinancing is when you take out one new loan, pay all your outstanding loans, and then make one monthly payment to your new lender. You can refinance both federal and private student loans. Your new interest rate is based on your creditworthiness, so if you don’t have excellent credit, you could end up paying more in interest than if you didn’t refinance. Before refinancing, compare lenders to see if they offer benefits best for you.
Falling behind on student loan payments can hurt your financial future for years to come. You may be able to avoid this, though, by using deferment or forbearance to hit the pause button on your payments. While these programs are meant to help you, interest may still add up while you’re not making payments, which can potentially raise the cost of your payments down the road.
To find out if you qualify for either deferment or forbearance, you’ll need to submit a request on the U.S. Department of Education’s website. Your specific financial situation will dictate which choice is best for you. Most requests have their own unique form to complete, meaning there is no form for both deferment and forbearance.
Tips for Paying Back Student Loans
- If you’re not sure of the best strategy for paying back your student loans, consider working with a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- It may sometimes seem as if your student loan payments will never end. A good start is to pay more than the minimum monthly payment every month, which will pay off the loan faster and save you money in the long run.
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