If you’re struggling to keep up with student loan payments, rest assured you are not alone. In fact, more than 30% of borrowers have trouble making student loan payments just six years after graduation.
There are many reasons why you may be having difficulty with your loans. Perhaps you haven’t been able to find a job after graduation. Even if you have, your salary may be lower than you hoped thanks to stagnating wages across many industries.
Maybe you’ve decided to go to graduate school, enlist in the military, or take a fellowship, and aren’t making much as a result. Perhaps you’ve encountered unexpected medical bills or another financial emergency.
If your monthly loan payments become insurmoundtable, the worst thing you can do is nothing at all. If you stop paying your student loans, they will go into default.
This can devastate your credit score, and collection agencies could start hounding you, and you could even have your wages garnished. Plus in most cases, student loans can’t be discharged even if you file for bankruptcy.
But take heart: If you have federal loans, you may have options for pausing or temporarily reducing your monthly payments if you find yourself in a tough spot. Namely, you 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 deferment and forbearance:
What Is The Difference Between Deferment and Forbearance?
Let’s start with the similarities: Both deferment and forbearance allow you to temporarily lower or stop making payments on your federal loans for a defined period of time, if you qualify. In both cases, you need to contact your loan servicer, submit a request, and provide the documentation they request.
The main difference between the two is that, while in deferment, you don’t have to pay the interest that accrues if you have certain types of loans . Specifically, you don’t have to pay interest on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized portions of Direct Consolidation Loans or FFEL Consolidation Loans.
You do still have to pay interest if you have 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 student loan forbearance, you always have to pay the interest that accrues, regardless of what kinds of federal loans you have. You can either pay the interest as it adds up, during the forbearance period, or you can have it capitalized (added to the principal) at the end, which could increase the total amount you repay.
Who Is Eligible for Deferment?
Overall, deferment is tailored to people who are having economic difficulties because, for example, they’re in school at least half-time, in the military, in another eligible post-graduate role, or can’t find a full-time job.
Here are more details: You may qualify for deferment if you are enrolled at least half-time at an eligible college or vocational school, and if you’re in an approved graduate program, for six months after your enrollment ends.
You may also be eligible if you’re in an approved graduate fellowship, in an approved rehabilitation training program for disabled people, on active duty with the military (and for 13 months afterward), or are serving in the Peace Corps.
Finally, you can apply if you’re unemployed, or haven’t been able to find a full-time job. In the case of unemployment and the Peace Corps, you may be granted deferment for a maximum of three years. You can review all the possible eligibility scenarios at the Department of Education’s webpage about deferment here .
Who Is Eligible for Forbearance?
There are two kinds of forbearance : mandatory and general. If you qualify for mandatory forbearance, your loan servicer is required to grant it to you. Depending on the type of loan you have, you may be eligible if you’re 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.
You may also qualify if your monthly student loan payment is at least 20% of your gross monthly income, for up to three years, again depending on the type of loan you have. Note: You can be granted mandatory forbearance for up to a year at a time. After that, you can request it again.
With general forbearance, it’s up to the loan servicer to decide whether to grant it, only certain loans are eligible (Direct Loans, FFEL, and Perkins Loans), and like mandatory forbearance, general forbearance can only be granted for 12 months at a time.
There is no cumulative limit on general forbearance except on Perkins Loans, which have a fixed cumulative limit of three years. (Your loan service may still set a limit on the maximum amount of time they are willing to grant general forbearance.)
You can apply if you can’t make loan payments because of financial hardship, medical bills, or changes in your job (such as reduced pay or unemployment). If there are other reasons you’re unable to pay, you can also make that case to the loan servicer, but the decision will be theirs to make. You can check out all the possible eligibility scenarios at the Department of Education’s webpage about forbearance here .
Forbearance vs Deferment for Student Loans: Which One Should You Choose?
If your loan type and circumstances allow you to, getting a deferment can be a no-brainer since it’ll allow you to get a break on interest during the deferment period. 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 or federal loans that don’t qualify for a deferment or forbearance program, you may want to consider other solutions, such as an income-based repayment plan or student loan refinancing.
How Does an Income-Based Repayment Plan Work?
Another way to potentially reduce your federal student loan payment is to apply for an income-based repayment plan. The government offers four different plans that tie your monthly payment to your income and other factors, such as family size.
The plan you qualify for depends on the type of loan you have and when you borrowed. Depending on the plan , your monthly payment will generally be reduced to between 10% and 20% of your discretionary income. If you make the required qualifying payments every month, your balance can be forgiven in 20 or 25 years.
There are lots of specific qualifying factors and important details to consider for this repayment option. For more information, The Department of Education offers great resources for borrowers to review.
How Can Student Loan Refinancing Help?
For some borrowers, refinancing your student loans can be a good way to reduce your monthly payment or interest rate. Refinancing involves taking out a new loan from a private lender and using it to pay off your 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 you save on interest or the amount you 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.
With SoFi, you can refinance your loans without paying any fees or penalties at either a fixed or variable interest rate. 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.
However, some private lenders do offer temporary relief if you experience financial hardship. Rather than stopgaps that can require you to re-apply year after year, refinancing can help you gain a long-term plan for getting your payments under control.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.