Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
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.
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.
There is a temporary exception, however. The Biden administration instituted an “on-ramp” period to protect financially vulnerable borrowers from the consequences of missing payments following the pandemic-era federal payment pause that ended in October. From Oct. 1, 2023 to Sept. 30, 2024, borrowers who miss their student loan payments will not have those missed payments reported to the credit bureaus or referred to collections agencies. Their loans will also not be considered delinquent or in default.
Once the on-ramp period is over, however, the usual repercussions for missing payments will be back in place. Even so, 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.
💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
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 interest 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 enrollment ends.
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.
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.
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 four different income-driven plans—including the newest plan, Saving on a Valuable Education (SAVE)—which cap the borrower’s monthly payments at a small 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 (or as low as 5% starting in July 2024 for certain SAVE plan participants). The repayment term is also extended up to 25 years. If you still have a balance once the repayment period is up, the remaining debt is forgiven. However, you may have to pay taxes on the canceled debt.
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 plans, which ties monthly payments to the borrower’s income level.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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