Deferments and forbearances allow federal student loan borrowers to temporarily stop making student loan payments or to temporarily reduce the amount of federal student loan payments. Deferments and forbearances may sometimes be advantageous and help the borrower avoid default.
The Difference Between Deferment and Forbearance
The only material difference between a deferment and a forbearance is that with some deferments, the borrower will not be responsible for paying any interest that accrues on certain types of loans during the deferment period. With a forbearance, interest always accrues regardless of the type of loan.
Under What Loans Will Interest Not Accrue During a Deferment Period?
- Direct Subsidized Loans
- Subsidized Federal Stafford Loans
- Federal Perkins Loans
- Subsidized portions of Direct Consolidation Loans
- Subsidized portions of FFEL Consolidation Loans
Under What Loans Will Interest Accrue During a Deferment Period?
- Direct Unsubsidized Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- Federal Family Education Loan (FFEL) PLUS Loans
- The unsubsidized portion of Direct Consolidation Loans
- The unsubsidized portion of FFEL Consolidation Loans
Accruing Interest During a Deferment or Forbearance Period
Accruing interest during a deferment or forbearance period can either be paid as it accrues or can be capitalized at the end of the deferment or forbearance period. If the borrower chooses not to pay the interest during deferment or forbearance period, it will be added to the loan and further interest will accrue (interest on interest = capitalized). Capitalized interest increases the overall cost of the loan, the total amount to be repaid will be higher than if the deferment or forbearance were not taken.
Unpaid interest is capitalized only on Direct Loans and FFEL Program loans. Unpaid interest is never capitalized on Perkins Loans.
Deferment Eligibility
There are a variety of circumstances in which a federal student loan borrower may be eligible for a deferment or forbearance, including:
- In school Deferment – while the borrower is enrolled at least half-time (6 credits) at an eligible college or career school);
- Parent PLUS Borrower Deferment – if the borrower is a parent who received a Direct PLUS Loan or a FFEL PLUS Loan, while the student is enrolled at least half-time at an eligible college or career school;
- Graduate Fellowship Deferment Request – while the borrower is enrolled in an approved graduate fellowship program;
- Cancer Treatment Deferment – while the borrower is receiving cancer treatment;
- Rehabilitation Training Program Deferment – while the borrower is enrolled in an approved rehabilitation training program for the disabled;
- Unemployment Deferment – while the borrower is unemployed or unable to find full-time employment, for up to three years;
- Economic Hardship Deferment – while the borrower is experiencing economic hardship for up to three years;
- Peace Corps Deferment – while the borrower is serving in the peace corps, for up to three years;
- Military Service Deferment – while the borrower is on active duty military service in connection with a war, military operation, or national emergency and the 13 month period following the conclusion of that service.
Forbearance Eligibility
There are two categories of forbearances – “General” and “Mandatory”. With General Forbearances, the loan servicer decides whether or not to grant a request for a general forbearance. General Forbearances may be granted where the borrower can demonstrate a temporary inability to make scheduled monthly loan payments due to, financial difficulties, medical expenses, change in employment or other acceptable reasons.
General forbearances are available for Direct Loans, FFEL Program loans, and Perkins Loans and may be granted for no more than 12 months at a time. If at the end of 12 months the borrower is still experiencing a hardship, the borrower may request another general forbearance.
For Perkins Loans, there is a three-year cumulative limit on general forbearance.
With Mandatory Forbearance, the loan servicer is required to grant the forbearance. Eligibility for a mandatory forbearance include:
- Medical or Dental Internship/Residency – The borrower is serving in a medical or dental internship or residency program. Available only for Direct Loans and FFEL Program loans;
- Student Loan Debt Burden – the total amount owed each month for all the student loans the borrower received is 20 percent or more of the borrower’s total monthly gross income, for up to three years. Available for Direct Loans, FFEL Program loans, and Perkins Loans;
- AmeriCorps forbearance – the borrower is serving in an AmeriCorps position for which he or she received a national service award. Available for Direct Loans and FFEL Program loans;
- Teacher Loan Forgiveness Forbearance – the borrower is performing teaching service that would qualify for teacher loan forgiveness. Available for Direct Loans and FFEL Program loans;
- Department of Defense Student Loan Repayment Program – the borrower qualifies for partial repayment of loans under the U.S. Department of Defense Student Loan Repayment Program. Available for Direct Loans and FFEL Program; or
- National Guard Duty – the borrower is a member of the National Guard and has been activated by a governor, but the borrower is otherwise not eligible for a military deferment. Available for Direct Loans and FFEL Program loans only.
Mandatory forbearances may be granted for no more than 12 months at a time. If the borrower continues to meet eligibility requirements for the forbearance when the current forbearance period expires, the borrower may request another mandatory forbearance.