Your Guide to Student Loan Deferment and Forbearance

Friday, March 7th, 2008

Congratulations, you just graduated from college! If money is tight after the best years of your life and that dream job seems to be a little too elusive, you may have to think about student loan deferment and forbearance.
Warning: you should only use deferment and forbearance as a last resort. With that in mind, here is your guide to student loan deferment and forbearance.

If you’ve exhausted your options and can’t get relief, you may be able to suspend your payments temporarily. A deferment is when the lender/servicer grants a temporary suspension of a borrower’s monthly payments. To defer your loan repayment, you must meet certain specific conditions.

If you lose or quit your job, or return to school, you should ask your lender or creditor to temporarily defer your loan payments. If you get a deferment for a subsidized Stafford loan, the federal government will actually pay the interest that accrues on your loans during the deferment period, but if your loans are unsubsidized you’ll have to pay the interest yourself. If you allow it to accumulate the interest will be capitalized, which means it will be added to the principal balance of your loan, when the deferment period ends. This means that you will pay interest on a higher balance when you start making payments again, causing your monthly payment amount to go up. Bummer.

If deferment isn’t an option, you can still hold off on payments for up to a year by using forbearance. Forbearance is a temporary suspension of monthly payments that is granted under certain circumstances by your lender/servicer. It’s always smarter to try to get a deferment first since you’ll still be responsible for paying the interest that’s accrued from a forbearance. The interest will continue to add up, but you will avoid defaulting on your loan and taking a bad hit on your credit history. Bigger bummer.

Just as deferments, forbearance policies vary from lender to lender. Your lender/creditor may ask you to provide evidence of your temporary financial situation. Also, if you have not yet made any payments to your account, or if you have already received a forbearance or deferment, your servicer may ask you to make one or more payments to your account as an expression of your commitment to repay.

If at all possible, deferment and forbearance should be avoided. Not making payments is bad enough but the added interest only makes these options feasible when other options for paying have been exhausted.

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