When it comes to student loan debt, there are myriad ways to pay it down and pay it off. You can go about it the old-fashioned way, choosing the standard 10-year repayment plan. Conversely, you can extend or reconfigure your repayment so it stretches out much longer – even up to 25 years – to lower your monthly out-of-pocket expense.
Some people refinance their student loans to score a lower interest rate with better terms. And still others are eligible for certain government programs that either limit their monthly payments to a fixed percentage of their discretionary income, or forgive their federal loans altogether if they meet certain requirements.
Of course, there’s always student loan deferment and forbearance – two student loan strategies that let you put off paying off your student loans for a limited time. While either plan can be a huge help if you’re struggling to make those monthly payments, each has consequences that may be hard to understand when you’re in the thick of a student-loan crisis.
Here we’ll explore both deferment and forbearance, plus offer alternatives that might leave you better off.
Defining Student Loan Deferment and Forbearance
In layman’s terms, both deferment and forbearance allow students to stop making payments on their federal student loans for a limited time. The biggest difference between deferment and forbearance is what happens to the loans – and the interest charged – during this temporary break from monthly payments.
Student Loan Deferment Explained
During deferment, the principal and interest of your student loans are both delayed temporarily. In most cases, the federal government pays the interest on your loans during deferment, which stops your balance from growing.
However, the federal government is very specific about which type of loans can qualify for deferment, and which do not. Student loans that may qualify for deferment include:
Federal Perkins Loans
Direct Subsidized Loans
Subsidized Federal Stafford Loans
The government will not pay the interest on your unsubsidized or PLUS loans during deferment, however. If you have several types of loans, including loans that do not qualify, this is an important distinction.
In addition, not everyone will qualify for deferment in the first place. Criteria that can help you qualify can include any one of the following:
You’re enrolled at least half-time in college or career school.
You’re enrolled in an approved fellowship program or in an approved rehabilitation program for the disabled.
You’re unemployed and cannot find full-time employment.
You’re experiencing, and can prove, economic hardship.
You’re in the midst of qualifying for Perkins loans cancellation or discharge.
You’re in active duty military service during wartime, a military operation, or a national emergency.
You have served in the military in certain other capacities within 13 months after active military service.
Because the federal government will pay your student loan interest in certain circumstances, deferment can offer temporary relief from your loans without a lot of long-term consequences. If you plan to graduate and expect to earn more money soon, for example, or are simply stalled in your search for a full-time job, deferment can be a good option.
Then again, it’s important to note that deferment doesn’t make your student loans disappear. You may get a short break from payments and interest, but your loans will still be there when your deferment comes to an end.
Student Loan Forbearance Explained
Forbearance is another way to stall your student loan payments if you don’t qualify for deferment. With forbearance, however, you’ll only get a break from making minimum monthly payments – not from the interest accruing on your loans.
When you sign up for forbearance, you can stop making payments on your federal student loans for up to 12 months, but interest will continue to accrue on all of your unsubsidized and subsidized loans, including all PLUS loans.
According to the U.S. Department of Education, forbearance can be either mandatory or discretionary.
With discretionary forbearance, your lender is the one who decides whether to grant a reprieve from monthly payments or not. Generally speaking, you can request forbearance for financial hardship or illness.
If you qualify for mandatory forbearance, on the other hand, the federal government requires your lender to grant it. Criteria for mandatory forbearance can include the following:
You’re serving in a medical or dental internship or residency program and meet additional requirements.
The total amount of money you owe each month on student loans is more than 20% of your total monthly gross income.
You’re serving in a national service position, and you received a national service award.
You qualify for teacher loan forgiveness.
You qualify for the U.S. Department of Defense Student Loan Repayment Program.
You’re a member of the National Guard and have been called for duty but do not qualify for a military deferment.
Because interest will continue to accrue on your loans during forbearance, it should only be used as a last resort. The consequences of letting interest accrue during forbearance are laid out clearly on the U.S. Department of Education website:
“Interest will continue to be charged on all loan types, including subsidized loans,” it says. “You can pay the interest during forbearance or allow the interest to accrue. If you don’t pay the interest on your loan during forbearance, it may be capitalized (added to your principal balance), and the amount you pay in the future will be higher.”
In other words, forbearance can easily take your student loan debt problem from bad to worse. When you let interest accrue – and then interest continues to accrue on your new, higher balance – you’re going to owe even more than the amount you had trouble paying in the first place. As this calculator shows, a $30,000 student loan balance would incur an additional $2,039 in interest over the course of a 12-month forbearance period.
That said, if you’re struggling to make your student loan payments, it’s still better to choose forbearance and pay more interest in the long run than it is to miss a payment — or worse, default on your loan entirely – and damage your credit history.
Additional Options to Consider
If you don’t qualify for a deferment and forbearance doesn’t sound like your cup of tea, there are other ways to lower the amount of money you pay on your student loans each month. In fact, the federal government actually suggests altering your payment plan to secure a monthly payment you can actually afford.
While a 10-year repayment plan is the standard, you can alter certain types of loans into a graduated repayment plan that allows your loan payments to grow with your income. This strategy is often used by graduates who plan to earn considerably more in the next five to 10 years.
Conversely, you can choose an extended repayment plan that offers lower monthly payments for up to 25 years. While you’ll have to pay your loans down for a longer stretch of time, your monthly payments may be a lot more affordable.
If your income is low enough, you may also qualify for income-driven repayment plans on your federal loans, such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), or Income-Contingent Repayment (ICR). With income-driven repayment, you pay a small, set percentage of your discretionary income for 20-25 years and have any remaining loan balance forgiven at the end of that time.
Certain income guidelines and standards apply with each of these plans, so make sure to read the U.S. Department of Education’s guide on student loan repayment before you take the next step.
A Final Word
With both deferment and forbearance, it’s crucial to continue making monthly payments until you receive official notification that you’ve been approved for the program. If you stop making payments before a decision is reached, you may default on your loans, which can have serious financial and legal consequences.
If you’re struggling with student loan debt, you’ll likely find that none of your options sounds particularly attractive. Deferment offers some relief with little downside, except it’s only temporary; forbearance, meanwhile, can actually add to your student loan debt, and should only be considered as a last resort.
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Are your student loans in deferment or forbearance? Do you have a long-term plan to pay off your student loans?