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There’s no denying it — the world of student loans can be a confusing one, not least because of the terminology associated with taking out and repaying loans.

Understanding terms like “deferment,” “forbearance,” “delinquency,” and “default” can reduce the stress of paying back your loans, and may help you keep your options open for saving money by refinancing your loans at a better rate.

Some borrowers applying to refinance their student loan debt with lenders through the Credible platform have almost shot themselves in the foot by declaring on their application that they’ve defaulted on a loan.

The average borrower saves $19k refinancing with Credible. Find out how much you can save in 2 minutes →

Upon further investigation, it turns out they’re not actually in default — they’re just not sure what the term means.

Don’t panic! We’re here to break down these scary-sounding terms, and walk you through options for managing your repayments.

Deferment

In certain situations, you could qualify for a loan deferment. Student loan deferments allow you to take a break from your monthly loan payments without facing penalties.

Depending on the type of loan you have, deferment will give you a breather from your monthly payments and will also stop interest from accruing on the unpaid balance. But this doesn’t apply to all loans, so you must ensure that you check your lender’s deferment terms for your type of loan.

There are a few specific scenarios through which you could qualify to defer your student loans. You may qualify for deferment if:

  • You’re going back to school to pursue a graduate degree
  • Unemployed
  • Experiencing economic hardship (deferments granted one year at a time, for up to three years in total)
  • While in the military (eligibility period ends 180 days after active duty ends)

Remember:

  • You *must* keep paying your monthly payments until you have been approved!
  • Depending on the loan, interest might accrue or be put on hold during deferment.
  • For federal loans, you may get up to three years to defer student loans, but you’ll still have to pay interest that accrues unless your loans are federal subsidized.
  • Private and federal lenders will also offer deferment on different terms, depending on your situation, so be sure to check with your lender what these terms are.
  • Some situations, like the ones listed above, automatically qualify you for loan deferment.
  • In general though, you must apply for a deferment, which can involve a lot of time and paperwork.
  • Deferment and forbearance are available for federal student loans, but are usually not available for private student loans. You should talk to the lender for each of your loans to check whether you can apply for either of these options.

Forbearance

If you find that you don’t qualify for student loan deferment, another option you might consider is forbearance. Loan forbearance is similar to deferment in that it allows you to stop making payments towards your loans for a certain period of time, usually up to 12 months.

Forbearance can be easier to set up than a deferment because it doesn’t depend on the type of loan that you have, and isn’t subject to the same laws that apply to deferments. But — there’s always a but — keep in mind that interest continues to accrue during forbearance. This means that your total loan balance will be higher after the forbearance period ends.

There are certain situations in which a lender must provide forbearance. Other times, forbearance is at the lender’s discretion. Mandatory forbearance applies if:

  • The total amount you owe each month for all the student loans you received is 20 percent or more of your total monthly gross income.
  • You are serving in a medical or dental internship or residency program, and you meet specific requirements
  • You qualify for teacher loan forgiveness.
  • You are serving in a national service position for which you received a national service award.
  • You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
  • You are a member of the National Guard and have been called to active duty and are not eligible for a military deferment.

Discretionary forbearance applies:

  • During times of economic hardship
  • An illness is making it difficult for you to make payments

Remember:

  • You must keep paying your monthly payments until you have been approved!
  • Interest will keep accruing on your loan balance even during the forbearance period. To offset this, try and keep making even partial payments if you can, instead of no payments at all.
  • Deferment and forbearance are available for federal student loans, but are usually not available for private student loans. You should talk to the lender for each of your loans to check whether you can apply for either of these options.

Delinquency and default

Learning about options like deferment and forbearance can keep you from defaulting on your loans. Default is when a borrower simply does not meet his or her repayment obligation. If you have missed one or two payments, you are generally considered to be delinquent, not in default!

For most federal student loans, you will be considered to have defaulted if you have not made a payment in more than 270 days.

Defaulting can result in very serious consequences; if you default, your credit score will take a major hit, which could make it harder to borrow money, buy a house or car, or refinance your loans at a better interest rate.

There are many situations that can lead to student loan defaults. The most common reasons are usually related to the borrower dropping out of school, borrowers trying to pay off loans in an unreasonably short amount of time and getting overwhelmed, or simply getting scammed.

Defaulting on a loan is serious business and can result in problems like:

  • Losing eligibility for deferment, forbearance and other repayment options.
  • Losing eligibility for future federal student aid.
  • Damaging your credit history, thereby making it harder to buy a car or house
  • The entire unpaid balance of your loan and any interest may immediately become due and payable.
  • Wage garnishment.

What to do if you’ve missed payments

The first thing you need to do if you have missed payments on your loan is to contact your lender or loan servicer. Your options for clearing up a defaulted loan will largely depend on your financial situation, and whether it is a federal or private loan.

If you default on a federal student loan you can:

  • Appeal a wage garnishment. You may be granted a hearing where you can explain your financial predicament.
  • Apply for loan rehabilitation. Loan rehabilitation requires you to make 9 of 10 consecutive monthly payments with each payment being 15 percent of your income. Loan rehabilitation is kind of like getting a financial and credit do-over, as it includes the removal of the default status on your defaulted loan, any withholding of your income tax refund, and lets you regain eligibility for deferment and other repayment options.
  • Consolidate your loans. Consolidation means you can package multiple loans into a single loan with a single interest rate.

Ariha Setalvad <ariha@credible.com> is a Credible staff writer. Follow us on Twitter at @Credible.