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Student loans have become a necessary tool for many students to finance their education in the USA. However, paying back these loans can be a challenging task, especially for recent graduates who are still struggling to find their feet in the job market. Fortunately, there are two options available to help borrowers with financial difficulties: deferment and forbearance. In this article, we will delve into the differences between the two and how they can help you manage your student loans.
1. What are student loan deferment and forbearance?
Deferment and forbearance are two options for borrowers to temporarily postpone or reduce their monthly student loan payments. During this period, interest may still accrue on the loans, but the borrower will not be required to make payments.
Deferment and forbearance are not the same. Deferment is generally considered more favorable because interest does not accrue on subsidized federal loans during deferment periods. However, forbearance is often easier to obtain than deferment and is available for a broader range of circumstances.
2. Types of deferment
2.1 In-school deferment
If you are enrolled in school at least half-time, you may be eligible for an in-school deferment. This deferment is available for both undergraduate and graduate students and can be used for Direct Subsidized, Direct Unsubsidized, and Perkins loans.
2.2 Graduate fellowship deferment
If you are enrolled in an approved graduate fellowship program, you may be eligible for a graduate fellowship deferment. This deferment is available for Direct Subsidized, Direct Unsubsidized, and Perkins loans.
2.3 Military service deferment
If you are on active duty in the military or have been called for active duty, you may be eligible for a military service deferment. This deferment is available for Direct Subsidized, Direct Unsubsidized, and Perkins loans.
2.4 Unemployment deferment
If you are experiencing unemployment or underemployment, you may be eligible for an unemployment deferment. This deferment is available for Direct Subsidized, Direct Unsubsidized, and Perkins loans.
2.5 Economic hardship deferment
If you are experiencing economic hardship, you may be eligible for an economic hardship deferment. This deferment is available for Direct Subsidized, Direct Unsubsidized, and Perkins loans.
2.6 Parent PLUS borrower deferment
If you are a parent who borrowed a Parent PLUS loan on behalf of a dependent undergraduate student, you may be eligible for a Parent PLUS borrower deferment. This deferment is available for Parent PLUS loans only.
3. Types of forbearance
3.1 General forbearance
A general forbearance is available for Direct Subsidized, Direct Unsubsidized, and Perkins loans. It is granted at the discretion of the loan servicer and can be used for a variety of reasons, such as financial hardship, illness, or other temporary difficulties.
3.2 Mandatory forbearance
Mandatory forbearance is required by law and must be granted by the loan servicer if you meet certain eligibility criteria. For example, if your monthly loan payments exceed 20% of your gross monthly income, you may be eligible for a mandatory forbearance.
3.3 Discretionary forbearance
Discretionary forbearance is granted at the discretion of the loan servicer for reasons such as financial hardship or illness. Unlike mandatory forbearance, you are not guaranteed to receive a discretionary forbearance.
4. Pros and cons of deferment and forbearance
4.1 Pros of deferment
- You can temporarily postpone your student loan payments without incurring late fees or default.
- Interest does not accrue on subsidized federal loans during deferment periods.
4.2 Cons of deferment
- Interest continues to accrue on unsubsidized federal loans and private loans during deferment periods, which can result in a higher total loan balance.
- Deferment periods are generally limited, and you may exhaust your available deferment time before you are able to pay off your loans.
4.3 Pros of forbearance
- You can temporarily postpone your student loan payments without going into default.
- Forbearance is often easier to obtain than deferment and can be used for a broader range of circumstances.
4.4 Cons of forbearance
- Interest continues to accrue on all types of loans during forbearance periods, which can result in a higher total loan balance.
- You may be required to provide documentation of your financial hardship or other circumstances to qualify for forbearance.
5. How to apply for deferment and forbearance
5.1 Deferment
To apply for deferment, you will need to contact your loan servicer and provide documentation of your eligibility. Your loan servicer will determine whether you qualify for deferment and will notify you of the decision.
5.2 Forbearance
To apply for forbearance, you will need to contact your loan servicer and request the forbearance. Your loan servicer will determine whether you qualify for forbearance and will notify you of the decision.
6. Conclusion
Deferment and forbearance are two options available to help borrowers with financial difficulties manage their student loans. Deferment is generally considered more favorable because interest does not accrue on subsidized federal loans during deferment periods. However, forbearance is often easier to obtain than deferment and can be used for a broader range of circumstances. It is important to understand the pros and cons of each option before making a decision.
7. FAQs
Q1. Can I apply for deferment or forbearance if I have already defaulted on my student loans?
No, you cannot apply for deferment or forbearance if you have already defaulted on your student loans. You will need to rehabilitate your loans or consolidate them before you can apply for deferment or forbearance.
Q2. Can I still make payments on my student loans during deferment or forbearance?
Yes, you can still make payments on your student loans during deferment or forbearance if you choose to do so. Making payments during this time can help
reduce the total amount of interest that accrues on your loans.
Q3. How long can I defer my student loans?
The length of deferment periods varies depending on the type of loan and the reason for the deferment. Some deferments can last up to three years, while others may be granted for shorter periods of time.
Q4. Can I apply for both deferment and forbearance at the same time?
No, you cannot apply for both deferment and forbearance at the same time. You will need to choose one option or the other.
Q5. Can I change my mind after I have applied for deferment or forbearance?
Yes, you can change your mind and cancel your deferment or forbearance at any time. However, it is important to understand the potential consequences of canceling these options before making a decision.
In summary, deferment and forbearance are important options available to borrowers who are struggling to make payments on their student loans. It is important to understand the eligibility criteria, pros and cons, and application process for each option in order to make an informed decision. If you are having trouble making payments on your student loans, be sure to contact your loan servicer to explore your options for deferment or forbearance.