Forbearance, deferment, and forgiveness all have some element of not making payments on your student loan. If deciphering the difference seems a bit challenging, read on as we break it down!
What is Loan Forbearance?
Loan forbearance provides you the opportunity to suspend loan payments temporarily for no more than 12 months at a time. Typically, people choose to do so in times of severe financial stress.
While payments are postponed, you will not be responsible for paying the interest that is accruing. When the forbearance period ends, you will be responsible for that interest however.
Federal Student Loan Forbearance
With a federal loan servicer, you can request a general forbearance for up to 12 months for a Direct, FFEL, or Perkins loan. If your financial hardship continues after the 12 month period, you can request an additional forbearance of up to 12 months. Borrowers are allowed 12 months of forbearance at any given time, but can only request forbearance up to 3 years total.
Whether or not you are granted a forbearance is at the discretion of the loan servicer. Oftentimes, for situations such as unexpected major medical expenses, unemployment, or intense financial difficulty that prevents the borrower from making loan payments, forbearance will be granted.
You can request a general forbearance by calling the loan servicer or filling out a form online, however, the specific process may differ from lender to lender.
Private Loan Forbearance
Private lenders are generally less flexible when it comes to forbearance. This makes sense with what we know about private lenders (less favorable loan terms, higher interest rates, etc.) in comparison to federal loans.
Some private lenders will grant you forbearance for similar circumstances that prevent you from making loan payments. However, these forbearance periods typically come in 2 month increments and cannot exceed 12 months total (quite different from federal forbearance!). Additionally, private lenders may charge a fee for each month you are in forbearance.
What is Loan Deferment?
Similar to loan forbearance, loan deferment allows you to temporarily postpone loan payments.
The difference between loan forbearance and deferment is that in deferment, you may be responsible for still paying the interest that accrues during the deferment period.
For example, even if you aren’t paying your typical $125/month loan payment, you will still be required to keep paying the $25/month in interest. (random numbers just for example’s sake!)
Federal Student Loan Deferment
Some federal loans will require you to pay interest during the deferment period, and others will not. Here’s a full breakdown1:
Federal Loan Types That Will Not Require You to Pay Interest in Deferment:
- Direct Subsidized loans
- Subsidized Federal Stafford loans
- Federal Perkins loans
- Subsidized portion of Direct Consolidation loans
- Subsidized portion of FFEL Consolidation loans
Federal Loan Types That Will Require You to Pay Interest in Deferment:
- Direct Unsubsidized loans
- Unsubsidized Federal Stafford loans
- Direct PLUS loans
- Federal Family Education Loan (FFEL) PLUS loans
- Unsubsidized portion of Direct Consolidation loans
- Unsubsidized portion of FFEL Consolidation loans
With a federal loan deferment, there are various circumstances that would make a borrower eligible, such as:
- Cancer treatment deferment
- Economic hardship deferment
- Graduate fellowship deferment
- In-school deferment
- Military service and post-active duty student deferment
- Parent PLUS borrower deferment
- Rehabilitation training deferment
- Unemployment deferment
You can request a federal loan deferment by submitting a request form to your loan servicer.
Private Loan Deferment
Private student loan deferment is a bit more complicated. Many lenders do offer some form of deferment, although it doesn’t look quite like it does for federal loans.
Many private lenders will offer assistance programs first such as relief while in school. Even with that, the interest on the loan will continue to accrue and capitalize at the end of the deferment period. You can lessen this interest by paying interest-only payments while it accrues, however, this isn’t always accessible if deferring for financial reasons.
To defer a private student loan, you’ll need to contact your individual lender as the process varies. Typically, it will require the submission of a form to see if you are eligible.
What is Loan Forgiveness?
Loan forgiveness has become an especially hot topic ever since President Joe Biden announced his desire to forgive a portion of the federal student loan debt.
Loan forgiveness means that you are no longer required to repay some or all of your loans. (Yup, free of student debt.)
Loan forgiveness programs have existed well before Biden’s announcement of such and come in a variety of forms, typically via federal student loan programs such as:
- Public Service Loan Forgiveness
- Teacher Loan Forgiveness
- Closed School Discharge
- Perkins Loan Cancellation and Discharge
- Total and Permanent Disability Discharge
- Discharge Due to Death
- Discharge in Bankruptcy
- Borrower Defense to Repayment
- False Certification Discharge
- Unpaid Refund Discharge
We won’t do a deep dive into each one of these as some are fairly uncommon in comparison to the others. One of the most common forgiveness programs, however, is the Public Service Loan Forgiveness Program (PSLF).
Public Service Loan Forgiveness Program (PSLF)
The Public Service Loan Forgiveness Program offers loan forgiveness for borrowers with federal Direct Loans that pursue employment by a government or not-for-profit organization. Borrowers that are accepted will only be responsible for making 120 qualifying monthly payments on their loan while working full-time for their qualifying employer. After those payments, PSLF forgives the remaining loan balance.
It’s important to note that not everyone who applies will be granted loan forgiveness. Some resources state that only 2.41% of applicants are granted forgiveness through the PSLF program2.
Federal vs. Private Loan Forgiveness
When discussing loan forgiveness, people are often referring to federal loan forgiveness. At this time, there aren’t many, if any, systems in place for private loan forgiveness.
Summary
While we all certainly hope that moves are made in regards to forgiving our student debt, forbearance or deferment might be the most viable option if experiencing financial hardship that prevents you from making loan payments.
Neither deferment nor forbearance will impact your credit score as both are done with the approval of your lender. So, know that whatever decision you make, it will be okay. We’ve got your back.