Breaking Down Student Loan Deferment and Forbearance

If you need a break from your student loan payments, you can request deferment or forbearance.

Your specific options depend on whether you have federal or private student loans and why you’re looking to pause your payments.

Here’s everything you need to know about deferment and forbearance: how they differ, how to qualify for each and how to apply.

Deferment vs. forbearance

Deferment and forbearance have significant similarities. They’re both ways to temporarily halt your student loan payments, and they prevent your loan from going into default — it remains “current” on your credit report.

When you request deferment or forbearance, there are certain circumstances under which your servicer must say yes. For deferment, those circumstances include being in school or on active military duty, among other things. For forbearance, participating in a medical residency is one way to qualify.

If you don’t meet one of the qualifications for deferment or mandatory forbearance but want to pause your loan payments temporarily — for example, if you get sick — you can request what’s called discretionary forbearance. Lenders don’t have to say yes to discretionary forbearance, but there’s a fair chance they will — nearly 60% of federal direct loans in forbearance in the first quarter of 2016 were in discretionary forbearance, according to Department of Education data.

Deferment and forbearance also approach interest differently, provided you have subsidized loans. Subsidized Direct loans, subsidized Stafford loans and Perkins loans don’t accrue interest during deferment, but they do during forbearance. (More on the differences between these types of federal loans here.) Unsubsidized loans always accrue interest, whether they’re in deferment or forbearance.

Accrued interest will be capitalized, or added to your balance, when your loans enter repayment again. In other words, you’ll have more debt to repay when your deferment or forbearance period ends.

Nerd tip

To avoid interest capitalization, which increases the total amount of interest you pay throughout the life of your loan, pay off any accrued interest before the end of your deferment or forbearance period. Contact your lender or loan servicer to find out how much interest you owe and to pay it off.

If you qualify, deferment is a better option for your federal student loans, especially if they’re subsidized. If your loans are unsubsidized or you have private loans, you should only put your loans in deferment or forbearance if you absolutely have to.

It’s a whole different ballgame for private student loans. Private lenders don’t have to grant you deferment or forbearance in any situation. Many will do so, but the terms differ by lender, and the loans always continue to accrue interest.

Deferment for federal student loans

You qualify for deferment on your federal student loans if you’re:

• In school at least part-time.
• Unemployed.
• Receiving state or federal assistance — for example, through the Supplemental Nutrition Assistance Program or Temporary Assistance for Needy Families.
• Earning a monthly income of less than 150% of your state’s poverty guideline.
• In the Peace Corps.
• On active military duty.
• In the process of qualifying for Perkins loan cancellation.

You can defer your loans for the entire time that you’re in school, on active military duty or qualifying for Perkins loan cancellation. If you’re deferring because you’re unemployed or facing another economic hardship, you can defer for up to three years.

If you have subsidized Direct loans, Stafford loans, or Perkins loans, interest won’t accrue during deferment. If you have federal unsubsidized loans, on the other hand, interest will accrue. It will be capitalized at the end of your deferment period.

There are different deferment applications depending on your reason for applying. Ask your loan servicer for the correct paperwork.

Forbearance for federal student loans

If you don’t qualify for deferment on your federal student loans, but you’re struggling to make your payments, you can ask your servicer for forbearance for up to 12 months. You might do this if you’re dealing with a medical issue or another financial hardship.

However, your lender or loan servicer doesn’t have to grant it unless you’re:

• In a medical or dental internship or residency.
• In the process of qualifying for Teacher Loan Forgiveness.
• Putting more than 20% of your monthly gross income toward your student loans.
• On active duty in the National Guard, but don’t qualify for military deferment.

Interest always accrues on federal loans during a forbearance. And, as with unsubsidized federal loans in deferment, the accrued interest will be capitalized at the end of your forbearance period if you don’t pay it off.

Deferment and forbearance for private student loans

Private student loan deferment and forbearance policies differ by lender. Many private lenders offer deferment if you go back to school or enter the military. They typically provide forbearance in three-month increments for up to 12 or 24 months.

If you think you need deferment or forbearance for your private loan, call your lender and explain your situation. Your lender may well be willing to work with you — even if its website doesn’t mention deferment or forbearance options. For example, College Ave Student Loans, a private lender, doesn’t have “black or white limits” regarding forbearance, says co-founder Joe DePaulo. The company works with borrowers individually to determine if deferment or forbearance is the right option, he says.

Private student loans always accrue interest during deferment or forbearance, so only use these programs “if you absolutely cannot make the payment,” says Jay Fleischman, a bankruptcy lawyer specializing in student loans.

“I’m a big fan of budgeting before deferment and forbearance,” Fleischman says.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.