When you graduate from college, your financial future is in your hands. And chances are, you don’t have a Student Loans 101 textbook sitting on your shelf.
That can make it difficult to figure out how to deal with student loans when a hardship arises, like unemployment or a medical emergency. Student loan deferment and forbearance are two ways you could postpone federal loan payments temporarily if necessary. Here’s what you need to know about these tools, including their downsides, and how they can be part of your overall strategy to manage student loan debt.
Student loan deferment
Student loan deferment is a federal repayment program that allows you to pause student loan payments for up to three years. Depending on the type of loan you have, you may not be responsible for interest charges that accrue on your loan.
If you defer your student loans, you can stop making payments without entering default or damaging your credit. That can free up money in your budget to pay for other expenses, such as medical bills or rent. Having that breathing room can allow you to focus on getting your finances back on track. If you have federal direct subsidized loans, you typically won’t be responsible for paying the interest that accrues during the deferment period.
If your loans are unsubsidized, you will have to cover the interest that accrues on your debt. That means your loan balance will grow while you’re in deferment, and you’ll have more debt to pay off when it’s over. If you choose deferment, pause loan payments for the shortest time you can manage to avoid facing overwhelming interest charges.
How to apply for student loan deferment
To be eligible for student loan deferment, you must meet one of the following criteria:
- You are unemployed or unable to find a full-time job.
- You are experiencing an economic hardship or are serving in the Peace Corps.
- You are on active-duty military service.
- You are undergoing cancer treatment or have completed treatment within the past six months.
- You are enrolled in an approved rehabilitation training program for the disabled.
- You are enrolled in an approved graduate fellowship program.
Deferments are not automatic. To request a deferment, you must complete the appropriate deferment request form, such as the Unemployment Deferment Request, In-School Deferment Request or Economic Hardship Deferment Request. You’ll send the appropriate form and documentation showing you meet the eligibility requirements to your loan servicer for review.
If you don’t qualify for deferment, you might still be able to pause monthly payments through student loan forbearance.
Student loan forbearance
Like student loan deferment, forbearance allows you to postpone monthly payments for specific periods. If you qualify for forbearance, you can stop making payments for up to 12 months at a time. You can request an additional forbearance if your circumstances have not changed after your initial 12 months are up. There are two types of forbearance: mandatory and discretionary.
Under mandatory forbearance, the government requires loan servicers to grant you a forbearance if you meet one of the following criteria:
- You are serving in a medical or dental internship or residency program.
- The monthly payment on your loans is 20% or more of your gross income.
- You are a teacher serving in an area that would qualify you for Teacher Loan Forgiveness.
- You are serving in an AmeriCorps position.
- You are a National Guard member but aren’t eligible for a military deferment.
- You qualify for the U.S. Department of Defense Student Loan Repayment Program.
Under discretionary forbearance, your loan servicer decides whether or not you qualify. You may be eligible if have financial difficulties, medical expenses or report another acceptable reason.
If you’re facing a short-term emergency, such as a job loss, forbearance can give you much-needed relief while you get back on track. By getting your payments reduced or eliminated for a short time, you can get your finances in order without falling behind on your loans.
Interest continues to accrue — or capitalize — on your loans when you’re in forbearance, regardless of your loan type. That will add to the cost of your loans and make it harder to become debt-free. It can also be tempting to regularly reapply for forbearance rather than looking into long-term affordability strategies, like signing up for income-driven repayment. But for short stretches of time, forbearance is still a smarter option than not making payments and risking student loan default.
How to apply for forbearance
If you’re applying for a discretionary forbearance, you must complete the General Forbearance Request and submit it to your student loan servicer.
For mandatory forbearance applications, complete the form that matches your situation, such as the Student Loan Debt Burden Forbearance Request, Medical/Dental Residency Forbearance Request or AmeriCorps Service Form. All forms are available on the Federal Student Aid website. Send the form to your loan servicer, along with documentation to back up your claim.
Before applying for deferment or forbearance
When you apply for deferment or forbearance, remember that you must keep making your regular monthly student loan payments until your loan servicer notifies you that they’ve accepted your request. Otherwise, you could become delinquent on your loans.
Even though deferment or forbearance can extend your repayment term and cause interest charges to build up, either option is preferable to avoiding loan payments altogether. These two programs can provide much-needed relief if you’re facing a financial emergency. If you don’t foresee a way to afford your loans long-term, however, look into lowering your payments for a longer period using income-driven repayment plans instead.
Jacqueline DeMarco contributed to this report.