One of the hardest parts of repaying student loans are the time periods when you can’t afford payments. However, the Department of Education planned for this occurrence with temporary breaks from payments called deferment and forbearance.
5 Key Takeaways About Federal Student Loan Forbearance and Deferment
- Forbearance and deferment are temporary breaks from repaying federal student loans.
- Deferment is preferred because the government pays the interest accrued on subsidized loans until repayment begins again.
- Deferment is first used while at least a half-time student.
- General forbearance is offered for a wide variety of reasons because the servicer decides.
- Changing repayment plans can be a better option for long-term repayment success
Here’s what you need to know about the two kinds of temporary breaks from federal student loan repayment:
What a student loan deferment is
Deferment is generally the preferred break from payments. It has more reasons for automatic approval AND interest is paid on subsidized student loans by the government until the deferment period ends. Students experience their first deferment when the are in college as at least a half-time student and until six months after student status ends. Parents can use a similar deferment for PLUS loans.
Other reasons for a deferment are working in an approved graduate fellowship program, during cancer treatment and for 6 months afterwards, during an approved rehabilitation training program for the disabled, up to 3 years of unemployment or inability to find a full time job, up to 3 years of economic hardship or Peace Corp service, and during active duty military service.
What a student loan forbearance is
Forbearance is a temporary break from payments that works similarly to deferment. However, unlike deferment there are two types: mandatory forbearance and general forbearance.
Mandatory forbearance has rules that clearly state whether a borrower qualifies. Each type can be approved for 12 months at a time and requested again.
Mandatory forbearances are generally granted for medical or dental interns or residents, Americorp service, if monthly income is too low compared to student loan payments, or you qualify for teacher loan forgiveness.
General forgiveness is up to the discretion of the loan servicer. Thus, if you are thinking about applying for general forbearance, make sure you have a good explanation of why you need it ready before you call. It can be awarded for a wide variety of reasons such as unexpected medical expenses, change in employment status, and other financial situations. Approval is generally for 12 months at a time.
You can always choose to start repaying your loans again before the forbearance period is over. Interest keeps accruing the entire time.
Changing repayment plans may be the best alternative
If you can’t afford your payments, the answer may be to change repayment plans to a less expensive one. The two major ways to reduce monthly payment amounts are consolidation and income-driven repayment plans.
Income-driven repayment plans are always the best choice for borrowers who plan on seeking public service loan forgiveness. This is because other plans for reducing payments don’t qualify for forgiveness after 10 years of on-time payments while working for a qualifying public service employer.
Income-driven payments are always lower than a 10-year standard repayment option and can be as low as $0 monthly based on income. Payment amounts can change annually based on income rises and falls.
Some subsidized interest may be forgiven as well, depending on your payment amount.
Consolidation extends payments to up to 30 years. The result is generally payments that can be half or less than a 10-year payment amount. However, interest paid over the life of the loan is much higher because of the length of repayment.
The solution to more interest accrued? Make extra student loan payments when you can. There is no penalty for paying off your student loans early. Don’t send in extra payments if you are on an income-driven plan if you have any chance of public service loan forgiveness.
Note: Private student loan lenders may offer a similar program. The time period and reasons for deferment or forbearance may be different.