Deferment vs. Forbearance for Student Loans: Which Should You Use?

If you're a student loan borrower struggling with a short-term financial hiccup or a change in circumstance, deferment and forbearance can offer temporary relief by pausing or reducing your payments while keeping your loans in good standing. The option you choose will depend on your circumstances and eligibility, although neither is the best solution for a long-term financial change.

Here's what to know about deferment vs. forbearance for student loans and how to decide which option is right for you.

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What is student loan deferment?

Student loan deferment allows you to temporarily pause your student loan payments to cope with a short-term financial challenge, such as unemployment, cancer treatment, or going back to college. The U.S. Department of Education has outlined eight eligible scenarios for federal student loans, each of which requires a specific application. You can find these applications on the Federal Student Aid website, and you'll need to send your completed form to your loan servicer.

What is student loan forbearance?

Forbearance allows you to pause payments or make smaller payments for a defined period, but offers more latitude if your situation doesn't fit the eligibility guidelines for deferment. Generally, borrowers must request a forbearance from their federal servicer, which then reviews the individual situation.

Private lenders may offer forbearance, but as with deferment, you'll need to inquire about terms.

Key differences between deferment and forbearance

On the surface, deferment and forbearance look similar, but they operate a little differently in a few ways.

Eligibility requirements and usage guidelines

To qualify for either, your federal student loans must meet the Department of Education's criteria for certain qualifying events.

Deferment is allowed for a number of events, including:

• Economic hardship
• Unemployment
• Cancer treatment
• Military service
• Holding a parent PLUS loan (while the student is in school)
• Being in a rehabilitation program
• Being in school (if enrolled at least half-time)
• Being enrolled in a graduate fellowship program

Each situation requires its own application, except for in-school deferment, which is handled by your college.

There are two types of forbearance: general and mandatory.

General forbearance applies to short-term financial challenges or other acceptable situations that don't qualify for a deferment. This type of forbearance isn't automatic. You'll need to request a forbearance from your loan servicer, which will then review your situation to decide if it qualifies.

Mandatory forbearance, on the other hand, must be granted if you meet the eligibility requirements for a few specific situations, such as serving in the National Guard, working toward Teacher Loan Forgiveness, or experiencing a student loan debt burden (when your payments are too high for your income).

Direct Loans, Federal Family Education Loans (FFEL), and Perkins Loans all qualify for deferment or forbearance.

Interest accrual

If your loans are approved for a deferment, your principal and interest payments pause for a specified time frame. Interest continues to accrue on most loans, except for federal subsidized and Perkins Loans. At the end of the deferment period, the unpaid interest gets added to your loan principal if you didn't pay as it accrued, increasing your loan balance and the amount of interest you pay on the new balance.

During forbearance, interest accrues on all loans, regardless of whether any of them are subsidized. At the end of the forbearance, interest doesn't capitalize on most loans, but you're still responsible for paying off the accrued interest through your monthly loan payments.

Time limits

You can defer your loans for up to three years, but timelines can vary, depending on the situation. Forbearance is generally more limited, offering no more than a 12-month pause at a time, although you may request another general forbearance if your situation hasn't changed after 12 months. The cumulative limit is three years.

When to choose deferment vs. forbearance

If you have federal subsidized loans, deferment is usually your best option as long as your situation qualifies, so explore this pathway first.

However, you may not have a choice about which option to use.

“Borrowers initiate the process and make requests from their loan servicers for specific deferments or forbearances, but they don't necessarily always receive what they requested,” says Stacey MacPhetres, senior director of education finance for EdAssist by Bright Horizons.

If your situation doesn't qualify for deferment, explore forbearance.

“It can be a good option for those who don't qualify for deferment but face temporary financial challenges,” MacPhetres says. Borrowers should understand the differences so they can provide the appropriate documentation for the type of loan pause they're requesting.

If you opt for pausing payments, don't lose track of your loans and when they'll come due.

“If you don't have the capacity, find someone you trust to help you stay on top of your bills, especially if you're dealing with a health issue,” says Deanna O'Neal, a financial adviser at Vanderbilt Financial Group.

Pros and cons of deferment and forbearance

Deferment and forbearance have benefits and downsides to consider.

Pros:

• Short-term financial relief while you get back on your feet
• Helps you stay out of delinquency, which protects your credit score and your credit rating
• Prevents default, which makes the entire balance come due immediately, may lead to wage garnishment, and can lead to other serious consequences

Cons:

• Interest still accrues on most loans, leading to higher payments when the deferment or forbearance period ends and increasing the total you owe (if you don't make interest payments along the way).
• It takes longer to pay off your loans because you're not making progress.
• Paused payments generally prevent you from making progress toward Public Service Loan Forgiveness or other types of student loan forgiveness.

Alternatives to deferment and forbearance

Deferment and forbearance may not always be the right option for you. Consider these alternatives:

Income-driven repayment plans

For a longer-term financial change, an income-driven repayment plan is typically the better choice.

“If your income has drastically changed, it's vital to apply for that income-driven repayment plan,” O'Neal says. A low income can garner a payment as low as $0 and put you on the path to forgiveness at the end of 10 to 25 years (depending on the plan).

Student loan refinancing

You may be able to reduce your interest rate or monthly payment by refinancing with a private lender. However, you'll lose federal protections on federal student loans, such as access to income-driven repayment plans and subsidized interest on Direct Subsidized Loans.

Loan forgiveness

Forgiveness is available for certain careers and situations, such as teaching in a low-income area or working for the government or a qualifying not-for-profit organization. It's worth exploring the available forgiveness options to see if you qualify.

Negotiate your other bills

Instead of pausing student loans and racking up interest, try negotiating with your other lenders to pause or reduce other bills, including your mortgage, credit card, or utilities.

“Many lenders are willing to negotiate if you let them know about your situation,” says O'Neal.

Keep in mind that recent court actions have affected borrowers already enrolled in income-driven repayment plans or pursuing student loan forgiveness.