Deferment vs. Forbearance: What’s the Best Way to Pause Student Loan Payments?

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Deferment vs Forbearance
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In June 2010, my financial life was in turmoil. My husband had accepted a job in another state, and we were expecting our first child. I quit my job as a teacher. Because our son was due at the beginning of the following school year, I knew I wasn’t going to be teaching for at least a year. To make matters more complicated, it took us nearly a year to sell our old house, so we ended up paying two mortgages for quite some time.

It didn’t take us long to realize that we needed to hit the pause button on our monthly student loan payments. We compared deferment vs. forbearance as potential repayment options. Thankfully, we qualified for student loan forbearance, which gave us the breathing room we needed until our financial situation stabilized.

If you are facing similar economic turmoil, you might be wondering if you should pursue student loan forbearance or deferment. Or, maybe you’re wondering what the differences are between deferment vs. forbearance.

Here’s a comparative breakdown of deferment vs forbearance, including what kinds of loans qualify for each option and which one might be right for you.

Qualifying loans for forbearance vs. deferment
Characteristics of deferment vs. forbearance
How to apply for forbearance vs. deferment
Should you apply for deferment or forbearance?

Qualifying loans for forbearance vs deferment

The first thing to remember is that deferment and forbearance are both available for federal student loans. Federal student loans come in many forms, such as Stafford Loans and PLUS Loans. Although the Perkins Loan program ended in September 2017, older Perkins Loans are still eligible for forbearance and deferment.

To qualify for deferment or forbearance, you must not be in default on your federal student loans. If you have private student loans, you may not be eligible for either deferment or forbearance.

Characteristics of deferment vs forbearance

Deferment and forbearance are two different repayment processes. They are similar in that both options allow you to postpone your monthly federal student loan payments. But they are different in some very important ways, so bear in mind when comparing deferment vs. forbearance.

Deferment

When you defer payments, you postpone your monthly payments on subsidized federal loans without accruing interest. You also don’t have to pay interest on the subsidized portion of direct consolidation loans or FFEL Consolidation Loans during deferment.

If you have unsubsidized loans, a deferment allows you to postpone payments, but the interest will accrue on your loans during the deferment period. You may pay the interest during your deferment period in order to avoid having it capitalized, or added to your principal, but you are not required to do so.

Borrowers may be eligible for deferment under the following circumstances:

  • You are enrolled at least half-time in an eligible postsecondary school.
  • You are enrolled in an approved graduate program.
  • You are disabled and enrolled in an approved rehabilitation training program.
  • You are unemployed or unable to find full-time employment. This type of deferment is limited to three years.
  • You are experiencing economic hardship, as defined by federal regulations. This includes receiving federal public assistance benefits (such as food stamps), or if your monthly income does not exceed the larger of the federal minimum wage rate or 150% of the poverty line income for your family size and state. This type of deferment is also limited to three years. Peace Corps service is covered by this circumstance.
  • You are currently on active duty with the military, or you have been on active duty with the military within the last 13 months.

To receive a deferment, you must apply directly to your loan servicer. For information on how to contact your loan servicer, you can check the National Student Loan Data System. Deferments are typically granted in six-month increments.

If you believe you are eligible for deferment, use our Student Loan Deferment Calculator below to calculate how much interest you will accrue by deferring your student loans.

Forbearance

Forbearance may be an option for borrowers who don’t qualify for deferment. When your loans go on forbearance, you may pause student loan payments, usually for around 12 months. However, interest will accrue on your loans, whether they are subsidized or unsubsidized. That accrued interest will be capitalized, or added to your balance, unless you pay the interest during the forbearance period.

There are some situations where forbearance is mandatory, meaning your loan servicer is required to offer you forbearance.

Mandatory forbearance may be available in the following circumstances:

  • You are serving in a medical or dental internship or residency program.
  • Your total student loan payment each month is equal to 20% or more of your total monthly gross income.
  • You are serving in a national service position through Americorps.
  • You are eligible for teacher loan forgiveness.
  • You are eligible for the U.S. Department of Defense Student Loan Repayment Program.
  • You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.

If none of these circumstances apply to you, you may be eligible for a general, or discretionary, forbearance. Those are granted at your lender’s discretion, based upon reasons such as the borrower’s financial hardship, medical expenses or a change in work situation.

In our case, my husband and I qualified for a discretionary forbearance based upon financial hardship since I was unemployed by choice (and because of the timing of my son’s birth), rather than due to an inability to find full-time work.

How to apply for forbearance vs. deferment

When you are looking to pause your payments through either deferment or forbearance, even if the reason is a mandatory one, you still have to apply for either option through your student loan servicer. The process is never automatic.

You may also be required to submit documentation to support your request and demonstrate that you meet the eligibility requirements. When my husband and I requested forbearance, we needed to provide documents showing that we were paying two mortgages at one time in order to prove that we were experiencing financial hardship.

Once you have submitted your request for deferment or forbearance, you must continue to pay your monthly student loan payments until you hear that your request has been granted. If you fail to make payments and your deferment or forbearance request is denied, then you will be considered delinquent and will risk defaulting on your loan.

Should you apply for deferment or forbearance?

While applying for student loan deferment or forbearance can be a viable option for many people, it may not always be the right solution for your individual situation. Here are some questions to ask yourself before making this decision.

  • Is my current financial situation temporary? Something like a job loss or long-term illness can undoubtedly make your financial future unpredictable. But if you’re confident you’ll get things under control within a certain time frame, then deferment or forbearance could be a good option for you.
  • Do I qualify for deferment or forbearance? Before making the decision to pursue either repayment option, you’ll need to make sure you meet the specific criteria required to qualify. As previously mentioned, factors such as the type of loan, your specific financial hardship and other circumstances will be considered.
  • Is postponing my student loan payments an absolute must? If you can find a way to simply restructure your budget and/or adjust your current repayment schedule, it could be a much simpler way to get a handle on your student loan debt than applying for deferment or forbearance.

If you do decide to apply, understanding the differences between deferment vs. forbearance is an important part of being an informed borrower. Whether or not you are currently facing an economic hurdle, the ability to pause student loan payments is one of the biggest perks of federal student loans.

Make sure you know all your options so you can be ready if you ever need to take a break from making your student loan payments.

The information in this article is accurate as of the date of publishing.

This report was originally published Dec. 20, 2016. Emilia Benton contributed to this report.

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2.25% – 6.09%3Undergrad
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1.99% – 5.64%4Undergrad
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1.98% – 8.55%5Undergrad
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2.39% – 6.01%Undergrad
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1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


5 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.