Many college students borrow money to receive a higher education. These students aspire to reach certain career goals after graduation. For some, these goals transform into reality and they pay off their student loans quickly. For others, finding employment after graduation represents a challenge. Some students start working initially, but later find their circumstances change making student-loan payments unbearable. Students who struggle to make loan payments may consider pursuing a deferment or forbearance. These students need to understand the difference between deferment and forbearance in order to make the best decision.
Deferments and forbearance both offer time off from making loan payments to borrowers. Each alternative impacts the borrower differently. A deferment allows the borrower to refrain from making student-loan payments without incurring any interest during that time frame. A forbearance also allows the borrower to refrain from making student loan payments. However, the loan for which the borrower receives a forbearance continues to accrue interest. The borrower has the option of making interest-only payments while the loan is in forbearance or allowing the lender to capitalize the interest at the end of the forbearance. Capitalizing the interest increases the total loan balance.
In order for a borrower to qualify for a deferment or forbearance, she must meet specific criteria. To qualify for a deferment, the borrower must be enrolled half time in school, participating in a rehab program for a disability, unemployed, serving in the military or suffering from financial hardship. To qualify for a forbearance, the borrower must be suffering from a financial hardship, participating in a medical or dental internship or enduring a severe illness.
Qualifying for a deferment offers several advantages to the borrower. The borrower receives an extended period of time before payments come due without incurring any additional charges or penalties. This allows the borrower to focus on his current situation without the stress of making payments or incurring additional expenses in the meantime. A deferment also creates the disadvantage of extending the term of the loan and keeping the borrower in debt longer.
Forbearance offers both advantages and disadvantages for the borrower. For the borrower struggling to make ends meet, a forbearance eases the demand placed on her budget by eliminating the payments for a period of time. However, the borrower remains obligated to pay the interest that accrues during the forbearance. The total cost of the loan increases due to these increasing interest charges.