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The idea of taking some time off from paying your student loans may sound like a fantasy, but if your loans are through the U.S. Department of Education, you might qualify for forbearance or deferment.
Deferment and forbearance are two repayment plans available to federal student loan borrowers that can help when you’re unable to make payments. It’s important to note that these different flexible repayment options aren’t available with all loans.
Private student loans don’t often have the same protections and flexible repayment programs as federal loans. If you have private loans you’ll have to contact the lender to determine if there are options for deferred payments or hardship programs.
You can use the Student Loan Deferment and Forbearance Calculator below to see how different scenarios could impact your interest rate and loan terms during repayment.
Student Loan Deferment and Forbearance Calculator Questions
Student loan deferment pushes back your loan payments for a certain amount of time. During a deferment, you don’t have to make any payments at all on your student loans. How long you can get a deferment for depends on the situation, but the limit is three years. There are several ways to qualify for a deferment:
- You are enrolled in a qualifying graduate program.
- You are disabled and enrolled in a job skills training program.
- You are unemployed and unable to find a full-time job.
- You have financial hardship, such as an unexpected medical issue.
- You are on active duty in the military.
All of the above situations will qualify you to get a deferment; in order to apply for one, simply contact your federal loan servicer. They can advise you as to the best options and ways to get approved to temporarily stop your repayment period.
If you have a subsidized loan, no interest will accrue on your balance while it’s deferred. You’ll still see an increase in your total loan amount due, however, and once you go back to making payments, that payment amount will be higher.
With an unsubsidized loan, the annual percentage rate charged will continue to accrue during your deferment and will be capitalized on to your balance, which means it will start earning interest on itself as well. The loan interest can exponentially increase your total balance and your monthly payment once you start making payments again.
Let’s look at an example. If you currently owe $35,000 in federal student loans at six percent interest and get a deferment for 12 months, your new student loan balance will be $37,100 after the deferment is over. Your new monthly payment would be $412, about $23 more than your payment prior to the deferment.
With some deferments, that amount would be far more. If you get a deferment to attend graduate school, for instance, you could see your loans deferred for two to three years. After that time, the same $35,000 balance would be $41,300, with a monthly payment of $459.
You can get a deferment for up to three years, but as you can see, doing so means adding a large amount to your balance—and taking on a much larger payment once you resume making them.
Student loan forbearance is similar to a deferment in that it allows you to push your loan payments for up to three years. Unlike a deferment, however, a forbearance will continue to accrue interest for its duration, regardless of the type of federal loan you have.
A forbearance is typically given for financial reasons; in most cases, it’s used when you cannot make your monthly payments on time. You can also qualify for other reasons, however, such as:
- Your monthly payment is 20 percent or more of your gross monthly income.
- You are serving in a national service program, like AmeriCorps or the Peace Corps.
- You are experiencing financial hardship or illness. Under these circumstances, it is up to the lender to decide if you qualify; you are not guaranteed acceptance.
Many graduates in a financial bind look at a forbearance first, since it’s designed for those who can’t make their payment and are in financial hardship. If you can qualify for a deferment, however, it’s the more ideal option for most people. While both deferment and forbearance will increase your loan balance and monthly payment, a forbearance will end up capitalizing the accrued interest onto your balance even if you have a subsidized loan—and that will increase your balance significantly more.
If, however, you don’t qualify for a deferment, you may find yourself needing to use a forbearance instead. Your loan servicer can help you find out which one you qualify for, and which option will cost you the least amount of money. Even if you are having short-term financial issues, you’ll want to make a decision that is best for your long-term financial health—not just your current situation.
Neither option is ideal; it’s far better to pay off your student loans as quickly as possible. Getting a deferment or forbearance will not make your financial obligations go away, and they won’t erase your student loans; they merely postpone the obligation for a set time. If you are having a hard time making your payments with the current payment amount, it may be that much harder later with the higher amount.
Regardless of which of the two options you qualify for, you’ll end up paying more over time. Postponing your payments might help in the short term, but you may find yourself unable to make the larger payment once the deferment or forbearance is over. You’ll need to have a plan for how to get your loans paid off as soon as your reprieve is over.
Before looking into deferment or forbearance, you may want to consider a private consolidation or refinance. In a student loan refinance, you’ll combine your multiple loans into one, and may get a lower monthly payment that could help you get through a rough patch. Anything you do to your loans, however, will render you ineligible for a forbearance or deferment, so you’ll want to be absolutely sure that’s the best option for you.
Getting a forbearance or deferment is not the greatest option; you’ll pay a lot more overall, and you’re not making your loans go away. For those who are in financial hardship, however, it’s a viable idea that can help.
As a final option, a deferment or forbearance can offer some breathing room for a determined amount of time, during which you could finish your advanced degree and get a better job, recover from an illness or injury that’s preventing you from working or finish your commitment to a national service organization.
Contact your servicer to find out more about your options.
Author: Dave Rathmanner