The Difference Between Deferment and Forbearance
Deferment and forbearance both allow you to postpone making payments on student loans for a set period of time. The major difference is in how interest accrues during this break from payments. When you put your loans into deferment, interest on subsidized loans does not accrue. This means if you have a subsidized loan, such as a Stafford loan, you can defer payments without being charged interest during this time. When you put your loans into forbearance, on the other hand, interest accrues at your normal rate. So, if your rate is at 4%, you are charged interest each month at that rate. If you don’t pay the interest, that interest gets added to your principle at set times throughout the year. Once the interest is added to the principle, you are also charged interest on the interest.
How to Qualify for a Deferment
Because deferments provide you with a break from payments and interest, you generally cannot get a deferment unless you qualify for one. There are a number of different ways of qualifying for a deferment, which vary by lender. Almost all student loan lenders, including the two largest loan servicers- The Department of Education and Sallie Mae- offer deferments automatically for students who are in school at least half the time. Both the Department of Education and Sallie Mae also offer deferments if you make below a minimum amount of income (economic hardship), if you are serving in the Armed Forces, if you are doing various forms of community service, or if you are unemployed. The Department of Education offers more deferment options than Sallie Mae, also offering deferments to working mothers and teachers who teach in low income areas.
To qualify for a deferment, you must submit the appropriate forms which prove that you meet the requirements. Deferments are generally granted for a 12 month period and you may have to reapply at the end of 12 months if you continue to qualify.
How Does Forbearance Work?
Forbearance is available for people who don’t qualify for a deferment, or who have used up the maximum amount of time that the lender will allow for deferments. Because you continue to accrue interest during periods of forbearance, forbearance is generally easier to qualify for then deferment.
According to the Department of Education, borrowers can qualify for a forbearance if they are willing but unable to make their payments. This could be for any number of reasons: your income might be too small but not small enough to qualify for deferment, or you may have too much debt and be unable to pay it all. Sallie Mae has similar qualifications for deferments: you must want to pay, but not be able to pay.
Some lenders, including Sallie Mae, may charge a fee for putting your loans into forbearance. Other lenders require you to make at least one “good faith” payment when putting your loans into forbearance. Forbearance generally lasts for a one year period of time, and you may then need to apply for forbearance again and either pay another fee or make another “good faith” payment.
Interest accrued during periods of forbearance becomes “capitalized” or added on to the principle, so putting your loans into forbearance means you will end up paying back more money in the long run. You have the option of paying interest during the period of forbearance to prevent this from happening.
Both Sallie Mae and the Department of Education, as well as many other lenders, put a limit on the number of years your loan can be in forbearance before you must begin making payments.