Student Loans: What is the difference between Deferment and Forbearance?

Let’s start off with the similarities between deferment and forbearance. With both of these options, you’re not paying your student loans for a specific time period. The biggest difference between them is that forbearance typically accrues interest and deferment typically does NOT accrue interest.

Deferment

Deferment means that for a period of time you’re not paying the loan, principal, or the interest back on your loans. The reason why someone would choose to go this route is that they might still be in school, active duty military, are dealing with financial hardship. In deferment, interest generally does not accrue.

FAFSA defines it as: A deferment is a temporary postponement of payment on a loan that is allowed under certain conditions and during which interest generally does not accrue on Direct Subsidized Loans, the subsidized portion of Direct Consolidation Loans, Subsidized Federal Stafford Loans, the subsidized portion of FFEL Consolidation Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest.

Forbearance

People typically go the forbearance route when deferment is not an option. The reason why people might go the forbearance route is that they might be going through financial hardship. With forbearance, you will still be expected to pay the interest that is being accrued on the student loans while they are on pause.

FAFSA defines it as: A forbearance allows you to temporarily stop making your monthly student loan payments or temporarily make smaller payments. Some forbearances are required to be granted by your federal loan servicer; others are offered only at the discretion of your federal loan servicer. Interest is charged on all loan types during a forbearance. You usually will not be making progress toward forgiveness or paying back your loan. If you don’t pay interest during forbearance, it may be capitalized (added to your principal balance), and the amount you pay in the future will be higher.

We recommend that you contact your loan service provider to get further information. You can also sign up for a free personalized student loan repayment plan on Snowball Wealth.

Source: Federal Student Aid