If you’re struggling to keep up with student loan payments, rest assured you are not alone.
There are many reasons why you may be having difficulty with your loans. Some students may struggle to find a job after graduation or some may not earn as much as they anticipated right out of the gate. For those with federal student loans, forbearance and deferment options exist for these very reasons. Here’s a closer look at the details, along with the changes to deferment and forbearance that will take effect for loans issued after July 1, 2027.
Table of Contents
- When Student Loan Payments Become Too Much
- What Is The Difference Between Deferment and Forbearance?
- Who Is Eligible for Deferment?
- Who Is Eligible for Forbearance?
- Forbearance vs. Deferment for Student Loans: Which Option to Choose?
- How Does an Income-Driven Repayment Plan Work?
- How Can Student Loan Refinancing Help?
When Student Loan Payments Become Too Much
When monthly student loan payments become insurmountable, the worst thing to do is nothing at all. When a borrower stops paying their student loans, they may go into default. This has the potential to devastate an individual’s credit score.
In default, borrowers could also face relentless collection agencies or could even have their wages garnished. Plus, in most cases, student loans can’t be discharged even if the borrower files for bankruptcy.
Borrowers with federal student loans may have other options for pausing or temporarily reducing their monthly payments if they’ve found themselves in a tough financial spot. Namely, borrowers can apply for either student loan deferment or forbearance from the federal government in order to avoid default.
It can be tough to figure out the difference between these two programs and which is best for your situation. Here’s a breakdown of the differences between student loan deferment and forbearance.
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What Is the Difference Between Deferment and Forbearance?
Let’s start with the similarities: Both deferment and forbearance allow a borrower to temporarily lower or stop making payments on their federal student loans for a defined period of time, if they qualify. In both cases, the borrower needs to contact their loan servicer, submit a request, and provide the documentation requested by the loan servicer.
The main difference between the two is that, while in deferment, borrowers are not required to pay the interest that accrues if they have a qualifying loan.
Specifically, interest is not owed on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or Federal Family Education Loan Program (FFEL) Consolidation Loans.
Interest payments are still required on Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans, FFEL Plus Loans, and unsubsidized portions of Direct Consolidation Loans and FFEL Consolidation Loans.
With federal student loan forbearance, borrowers are always responsible for paying the interest that accrues, regardless of what kinds of federal loans they have.
You can either pay the interest as it adds up during the forbearance period, or you can have it added to your balance at the end.
Who Is Eligible for Deferment?
Deferment is tailored to people who are facing financial difficulties. Loans can be deferred for up to three years.
To qualify, you need to be enrolled in school at least half-time, in the military, in another eligible post-graduate role, or unable to find a full-time job. You may also qualify for a deferment if you’re seeking cancer treatments, are enrolled in an approved rehabilitation program, or are serving in the Peace Corps.
If a borrower is enrolled in an approved graduate program, they may be able to defer their loans for an additional six months after school ends.
However, deferment options will be limited for future borrowers. Due to the recent U.S. domestic spending bill, deferment for economic hardship and unemployment will no longer be available for federal student loans issued after July 1, 2027.
Recommended: Examining How Student Loan Deferment Works
Who Is Eligible for Forbearance?
The two types of forbearance are mandatory and general. Mandatory forbearance must be granted if you qualify, while general forbearance is up to your loan servicer to approve you or not.
Mandatory Forbearance
Loan servicers are required to grant mandatory forbearance to qualifying borrowers. Depending on the type of federal student loan, borrowers may be eligible if they are in a medical or dental internship or residency, serving in AmeriCorps or the National Guard, or working as a teacher and performing a teaching service that qualifies for teacher loan forgiveness.
Borrowers may also qualify if their monthly student loan payment is at least 20% of their gross monthly income. Again, this will depend on the type of loan they have. Note: Mandatory forbearance is granted for up to a year at a time. If you’re still facing financial challenges when the forbearance period ends, you can request another, up to a cumulative total of three years.
For loans issued after July 1, 2027, forbearance will be capped at nine months in any 24-month period.
General Forbearance
With general forbearance, it’s up to the loan servicer to decide whether to grant it, and only certain federal student loans are eligible (Direct Loans, FFEL, and Perkins Loans). Like mandatory forbearance, general forbearance can only be granted for 12 months at a time. There is a three-year cumulative limit on general forbearances. As mentioned above, loans issued after July 1, 2027 will have a different limit: no more than nine months of forbearance in a 24-month period.
Borrowers can apply for a general forbearance if they’re unable to make loan payments because of financial hardship, medical bills, or changes in their job (such as reduced pay or unemployment). If there are other reasons they’re unable to pay, it’s also possible to make that case to the loan servicer, but the decision will be theirs to make.
Forbearance vs. Deferment for Student Loans: Which Option to Choose?
If your federal student loan type and circumstances allow you to, it’s best to apply for deferment since it allows you to get a break on interest during the deferment period. However, if you’ve already exhausted the maximum time for a deferment or your situation doesn’t fit the narrow eligibility criteria, then it could make sense to apply for a forbearance.
If your ability to afford your loan payments is unlikely to change anytime soon, or if you have private loans and/or federal loans that don’t qualify for a deferment or forbearance program, you may want to consider other solutions, such as an income-driven repayment plan or student loan refinancing.
How Does an Income-Driven Repayment Plan Work?
Another way to potentially reduce your federal student loan payment is to apply for an income-driven repayment plan. The government offers three different income-driven plans, which cap the borrower’s monthly payments at a percentage of their discretionary income.
The plan a borrower qualifies for depends on the type of loan they have and when it was borrowed. Depending on the plan, your monthly payment will generally be reduced to 10-20% of your discretionary income. The repayment term is also extended up to 25 years.
If you still have a balance once the repayment period is up on the Income-Based Repayment plan (IBR), the remaining debt is forgiven. You may get credit for your payments on PAYE and ICR if you switch to IBR. However, you may have to pay taxes on the canceled debt.
Starting in the summer of 2026, borrowers will have a new income-driven option, the Repayment Assistance Plan (RAP). This will be the only income-driven plan available to those who take out loans after July 1, 2026. The PAYE and ICR programs will also be eliminated in the coming years.
How Can Student Loan Refinancing Help?
For some borrowers, refinancing student loans can be an option that helps them reduce their monthly payment or lower their interest rate. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.) Refinancing involves taking out a new loan from a private lender and using it to pay off existing federal or private loans, effectively combining multiple loans into one.
The new loan will have a new term and interest rate, which has the potential to help borrowers save on interest or the amount they pay over the life of the loan. Borrowers with a solid credit score and employment history (among other positive financial indicators) are especially likely to be able to qualify for favorable terms.
Keep in mind that if you refinance federal loans, you will no longer qualify for the federal benefits we discussed in this post, including deferment, forbearance, or income-driven repayment programs. Make sure to weigh the pros and cons of refinancing carefully before moving forward.
However, some private lenders do offer temporary relief if you experience financial hardship. Rather than stopgaps that can require you to reapply year after year, refinancing can help you gain a long-term plan for getting your payments under control.
With SoFi, it’s possible to refinance loans without paying any hidden fees or penalties at either a fixed or variable interest rate.
The Takeaway
Deferment and forbearance are both options that allow borrowers to temporarily pause payments on their federal student loans.
Deferment differs from forbearance in that some borrowers may not be required to pay interest that accrues during deferment, depending on the type of loan they have. With forbearance, borrowers are generally required to cover interest that accrues while the loan is in forbearance.
Borrowers who anticipate having trouble making monthly federal student loan payments in the long-term might consider applying for income-driven repayment, which ties monthly payments to the borrower’s income level.
If you’re comfortable sacrificing federal programs and repayment plans, refinancing your student loans with a private lender could also lead to savings. Refinancing with an extended term, though, could increase your long-term interest costs.
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