Deferment vs Forbearance: When to Use Each Option

When you can't make student loan payments, two main options pause your obligation: deferment and forbearance. Here's how they differ and when to use each.

Quick Comparison

What Is Deferment?

Definition

A temporary pause on loan payments where the government may pay interest on subsidized loans.

Types of Deferment

#### 1. Unemployment Deferment

• Duration: Up to 3 years
• Eligibility: Unemployed or underemployed (working <30 hrs/week)
• Documentation: Proof of unemployment benefits
• Best for: Job loss or reduced hours

#### 2. Economic Hardship Deferment

• Duration: Up to 3 years
• Eligibility: Receiving public assistance OR
• Monthly income <150% of poverty guideline
• Peace Corps service
• Best for: Low income, public assistance recipients

#### 3. In-School Deferment

• Duration: While enrolled at least half-time
• Eligibility: Enrolled in college/graduate school
• Documentation: Enrollment verification
• Best for: Returning to school

#### 4. Graduate Fellowship Deferment

• Duration: During fellowship program
• Eligibility: Graduate fellowship program
• Best for: Graduate students

#### 5. Military Service Deferment

• Duration: During active duty + 13 months
• Eligibility: Active duty military
• Best for: Service members

#### 6. Cancer Treatment Deferment

• Duration: During treatment
• Eligibility: Undergoing cancer treatment
• Best for: Medical treatment

What Is Forbearance?

Definition

A temporary pause or reduction of payments where YOU pay all interest that accrues.

Types of Forbearance

#### 1. General Forbearance

• Duration: Up to 12 months at a time, 3 years total
• Eligibility: Financial hardship, medical expenses, other acceptable reasons
• Documentation: Proof of hardship (optional but recommended)
• Best for: Temporary financial difficulty

#### 2. Mandatory Forbearance

• Duration: Up to 12 months at a time
• Eligibility (servicer MUST grant if you qualify):
• Monthly payment >20% of monthly income
• Medical/dental expenses >20% of income
• Serving in AmeriCorps/Peace Corps
• Teaching in qualifying low-income school
• Department of Defense repayment
• Best for: High debt-to-income ratio

#### 3. Administrative Forbearance

• Duration: Varies
• Eligibility: Servicer discretion
• Best for: Processing delays, disasters

Interest Costs: The Critical Difference

Subsidized Loans (Deferment)

• Government pays interest during deferment
• No extra cost to you
• Best option if eligible

Unsubsidized Loans (Deferment or Forbearance)

• YOU pay all interest
• Interest capitalizes (added to principal)
• Balance grows even while paused

Interest Capitalization Example

• Starting balance: $30,000
• Interest rate: 6%
• Interest accrued during 1-year forbearance: $1,800
• New balance after forbearance: $31,800

Capitalization means you pay interest on interest going forward.

When to Choose Deferment

Choose Deferment If You:

• Have subsidized loans (government pays interest)
• Are unemployed or underemployed
• Are returning to school
• Have a specific qualifying reason (military, medical, etc.)
• Want longer protection (up to 3 years)

Deferment Application Process

1. Contact your loan servicer
2. Request specific deferment type
3. Submit documentation (employment, enrollment, etc.)
4. Wait for approval (typically 2-4 weeks)

When to Choose Forbearance

Choose Forbearance If You:

• Don't qualify for deferment
• Need quick approval (easier to get)
• Have short-term hardship (<12 months)
• Can't provide documentation
• Want payment reduction (not just pause)

Forbearance Application Process

1. Contact your loan servicer
2. Request forbearance (general or mandatory)
3. Explain hardship (briefly)
4. Get approval (often immediate)

Better Alternatives to Consider

1. Income-Driven Repayment (IDR)

• $0 payments if income is low enough
• Interest subsidies (SAVE plan)
• Forgiveness after 20-25 years
• Better than deferment/forbearance for most

2. Graduated Repayment

• Lower initial payments
• Increases over time
• No pause required

3. Extended Repayment

• 25-year term for loans >$30,000
• Lower monthly payments
• Fixed or graduated

Real-World Scenarios

Scenario 1: Laid Off, $25,000 Subsidized Loans

• Best option: Unemployment deferment
• Why: Government pays interest on subsidized loans
• Duration: Up to 3 years while job searching

Scenario 2: Medical Emergency, $50,000 Unsubsidized Loans

• Best option: IDR plan (if income low) OR general forbearance
• Why: IDR offers $0 payments + forgiveness path
• Duration: IDR until recovery

Scenario 3: Returning to Graduate School

• Best option: In-school deferment
• Why: Automatic while enrolled
• Duration: Throughout program

Scenario 4: Temporary Income Drop (3 Months)

• Best option: General forbearance
• Why: Quick approval, short-term solution
• Duration: 3 months (then resume payments)

How to Apply

Step 1: Contact Your Servicer

• Log in to your servicer website
• Call customer service
• Request deferment or forbearance

Step 2: Complete Application

• Online form (most servicers)
• Paper form (if preferred)
• Documentation (for deferment)

Step 3: Wait for Approval

• Deferment: 2-4 weeks
• Forbearance: Often immediate
• Confirmation: Email or letter

Step 4: Resume Payments

• End date specified in approval
• Contact servicer if still struggling
• Consider IDR if hardship continues

Common Mistakes to Avoid

❌ Using forbearance when you qualify for deferment

• Deferment is cheaper for subsidized loans

❌ Ignoring interest capitalization

• Your balance grows even while paused

❌ Not exploring IDR options

• IDR offers $0 payments + forgiveness

❌ Waiting until you miss payments

• Apply BEFORE due date to avoid delinquency

❌ Assuming automatic renewal

• Most deferments/forbearances require renewal

Bottom Line

Deferment is best if you have subsidized loans or qualify for specific reasons (unemployment, school, military).

Forbearance is easier to get but more expensive (you pay all interest).

IDR plans are usually better than either option for long-term hardship.

Apply for deferment/forbearance BEFORE missing payments. Once you're delinquent, options narrow.

Exploring your options? Use our IDR Calculator to see if income-driven repayment might be better than deferment or forbearance.