Both deferment and forbearance allow you to temporarily postpone or reduce your federal student loan payments. The difference has to do with interest accrual (accumulation). During a deferment, interest doesn't accrue on some types of Direct Loans. During a forbearance, interest accrues on all types of Direct Loans.
Deferment or an income-driven repayment (IDR) plan is preferable to forbearance. Forbearance for federal student loans takes two forms: general and mandatory. To avoid default, you must continue making required payments on your student loans until your forbearance application has been approved.
Key Takeaways
If you're having trouble repaying your loan as promised, requesting a loan deferment might help you temporarily pause or reduce payments. Plus, it can help you avoid late fees and damage to your credit.
Unless your loan servicer specifies otherwise, they will report your mortgage forbearance to the credit bureaus, which can lower your credit score because it shows a period when you weren't making mortgage payments.
Loan forbearance can impact your credit depending on how lenders report relief payments to credit bureaus. If payments are reported as delinquent, forbearance may harm your credit. However, many types of forbearance shouldn't hurt your credit.
Some servicers will extend forbearance for as long as 12 months, or in some cases, even longer. You'll need to speak to the servicer to get approval for a second or extended forbearance period.
One of the primary disadvantages of loan deferment is the accrual of interest on certain types of loans. For unsubsidized loans, interest continues to accrue during the deferment period.
You may be eligible for this deferment if you receive unemployment benefits or you are seeking and unable to find full-time employment. You can receive this deferment for up to three years.
Deferred payment plans can be highly beneficial for borrowers. However, they also bring on a level of risk. Borrowers may overestimate their ability to pay back a loan over time or unforeseen circumstances may bring about a tough time repaying a loan.
With forbearance, you won't have to make a payment, or you can temporarily make a smaller payment. However, you probably won't be making any progress toward forgiveness or paying back your loan. As an alternative, consider income-driven repayment. You have a limited amount of forbearance available.
Forbearance is a process that can help if you're struggling to pay your mortgage. Your servicer or lender arranges for you to temporarily pause mortgage payments or make smaller payments. You still owe the full amount, and you pay back the difference later. Forbearance can help you deal with a financial hardship.
Bottom line. Personal loan deferment lets you keep your account current while temporarily pausing your payments. It can be an effective personal loan management strategy if you need a short break from payments. That said, this is a short-term solution designed to help you during a time of financial need.
If you're in a short-term financial bind, you may qualify for a deferment or a forbearance. With either of these options, you can temporarily suspend your payments. But keep in mind that forbearance and deferment have pros and cons. Student loan payments have restarted, and regular interest rates have resumed.
Forbearance also means that you can avoid foreclosure for your inability to pay missed loan repayments so that you can prevent your personal assets from being seized by your lender during the period for payment relief. It also allows you to pay more critical expenses, such as rent, utilities, or medical fees.
Deferment allows qualified borrowers to pause student loans repayment — and, in some cases, suspend interest — for up to three years. Forbearance doesn't allow you to save on interest but has broader criteria and no limit to the number of times you can do this.
No, deferred payments generally won't directly hurt your credit. When a creditor defers your payments, it can report your account's new status to the credit bureaus—Experian, TransUnion and Equifax.
A deferment is a way to postpone paying back your student loans for a certain period of time. The economic hardship deferment is available only if you have a federal student loan. You are eligible only if you are not in default on your loans and if you obtained the loans on or after July 1, 1993.
If you qualify for deferment, you can request one for up to 12 payment periods under most circumstances. However, you cannot ask for these deferments consecutively. Once you apply for one, you should wait at least a year before you request another one.
Economic hardship deferment
You may also get a deferment if you are experiencing economic hardship due to low income (not to exceed a total of three years). You'll have to submit a deferment request every 12 months to confirm your continuing eligibility.
You might feel like you've been rejected if you receive a deferral, but all it means is that your application will be reviewed again in the Regular Decision round. There is nothing wrong with your application, but you may need to submit more information to the admissions committee.
Under the new law, forbearance shall be granted for up to 180 days at your request, and shall be extended for an additional 180 days at your request. 1 Remember to make the second 180-day request before the end of the first forbearance period.
Forbearance itself doesn't have a direct impact on your credit score, as long as you keep up with your payments as agreed (i.e., making reduced minimum payments or resuming regular payments once forbearance is over).
If your home is worth more than what you owe
Since home prices have appreciated in recent years, most homeowners in forbearance should have enough equity in their house to sell now if they wanted to, says Frank Nothaft, chief economist at CoreLogic, a housing data company based in Irvine, California.