Last Ditch Student Loan Measures – How to Choose Deferment vs Forbearance
May 24, 2013

If you’re a recent graduate that hasn’t had any luck finding a job in your degree area…

If you’re an adult who’s still paying on student loans and have recently been laid off…

If you’ve got student loans but are jobless because of a temporarily disability or illness…

If you’re in any of these or similar circumstances where you can’t pay your student loans…

…then deferment or forbearance may be your best option. Either of these will allow you a hiatus from your student loan payments while you recover, look for a job or deal with whatever financial crisis you’re having. For instance if you’re having major surgery for plantar fasciitis that will put you out of work for several months, you may want to ask for a temporary deferment.

But there’s a big difference between deferment and forbearance and you shouldn’t take your lender’s advice on which is better for you. Instead, we offer you this information so you can make an informed decision for yourself.

What’s Student Loan Deferment?

The first thing you need to know about deferment is that you cannot be granted one if you allow your loan to go into default, so don’t let it get that far. As soon as you realize there’s a problem, you should contact your student loan lender ASAP and let them know what’s going on and request a deferment.

The second thing you need to know are the circumstances to qualify for deferment. These include:

  • » Enrolled half-time or more in post-secondary school or a graduate program
  • » In an approved disability rehabilitation program
  • » Unemployed
  • » Experiencing economic hardship
  • » On qualifying active duty with the Armed Forces or National Guard

What’s Student Loan Forbearance?

The first thing you need to know about forbearance is that if you let your loans go into default, you will not be eligible. As soon as you know you’re likely to have problems making your student loan payments, you should first apply for a deferment. Only apply for forbearance if you are denied deferment!

The second thing you need to know is there are two types of forbearance. One is mandatory and the other is discretionary. Discretionary forbearance means it’s up to the lender to decide to grant it or not. These are the two reasons for discretionary forbearance:

  • » Financial hardship
  • » Illness

For a mandatory forbearance, as long as you can prove that you meet the criteria your lender is required to grant the forbearance. These are the criteria:

  • » Serving in a medical or dental internship or residency
  • » The total of all your loan payments meets or exceeds 20% of your monthly gross income
  • » You’re serving in a national service program where you received a national service award
  • » You’re serving as a teacher in a position that qualifies you for teacher loan forgiveness
  • » You’re qualified for partial repayment of your loans under the Department of Defense Loan Repayment program
  • » You’re a National Guard member that’s been activated but you don’t qualify for military deferment

Why Is Deferment Preferable to Forbearance?

The difference comes down to interest. If you’re granted a deferment, the government will cover your interest on any subsidized loans that would normally accrue during this period. This means that your balance owed at the beginning of the deferment (on subsidized loans only) will be the same once your deferment ends and you pick up payments again. If any of your loans are unsubsidized, interest will accrue the same on deferment as on forbearance.

With forbearance, interest will accrue during the period you’re not making payments so that your loan balance will have risen significantly leaving you with higher payments due and much more owing than when you requested the relief. The same goes for unsubsidized loan balances, but if you have subsidized loans in the mix, deferment should be your first choice to save on interest.

To see status on all your student loans, check balances, payoff dates and contact your lenders if you need information or want to apply for a deferment, try Tuition.io’s free student loan management tool. Our award winning app is free, easy to use and will give you all the information you need to manage and optimize your loans.

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