Deferment and Forbearance Differences
Consumers commonly take out loans to pay for large transactions, such as a mortgage or college tuition. When it comes time to repay the loans, some consumers may find that paying back both the principal and the interest is more than they can handle. Borrowers may be able to find relief through a deferment or a forbearance.
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Deferment
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A deferment temporarily suspends a borrower's obligation to repay on a loan. While a loan is on deferment, the borrower does not have to pay on the principal or the interest. Further, the interest on the loan does not continue to accrue. A borrower must apply for a deferment by filling out appropriate forms and notifying the lender.
Types of Deferments
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Lenders may allow borrowers to choose between different types of deferments. According to the U.S. Department of Education, deferments may be possible for borrowers who are returning to school at least half-time, who are facing economic hardships and are unable to find a job and/or borrowers who are on active military duty.
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Forbearance
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A forbearance is another common form of payment relief. Unlike a deferment, however, interest continues to accrue while a loan is in forbearance. The borrower can still make interest payments, if desired. According to the U.S. Department of Education, borrowers generally receive a forbearance when they are no longer eligible for any deferments. Like a deferment, a borrower must apply for it.
Limitations
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Several limitations exist for both a deferment and forbearance. For example, while student loans are often deferred when the borrower returns to school for at least half-time, if one of the borrower's loans is in default, deferment may not be an option and the borrower may not qualify for other loans. Additionally, there are time limits on both forms of relief. For example, lenders can grant up to 12 months of forbearance, but only for a maximum of three years. The types and limitations of deferments and forbearance may vary and are subject to change; borrowers should consult with their lender as soon as possible when contemplating a deferment, forbearance or other repayment option.
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