Keeping up with student loan payments is a struggle for millions of college graduates. Those with private student loans who are struggling to pay may have no choice but to tighten their belts or risk default. But federal student loan borrowers with loans that are not in default can pause their payments through deferment or forbearance until they can afford to pay again. 

While deferment and forbearance both do the same thing, their qualification requirements, duration, and effect on your loan balance vary. The biggest difference is that you will not have to pay interest on subsidized federal student loans in deferment.

A group of six young women in graduation caps and gowns talking animatedly.

Image source: Getty Images

About 3.4 million borrowers are currently in deferment and another 2.7 million are in forbearance, according to our research on student debt in America. If you are thinking about following suit, it isn't a decision you should enter into lightly. You might not have to deal with debt collectors or late fees while in deferment or forbearance, but that doesn't mean these solutions don't come at a cost. Here's everything you need to know before you make that call.

How deferment works

The government pays for the interest that accrues on subsidized federal student loans during deferment, but you're responsible for the interest that accrues on unsubsidized federal student loans. If you're not sure which kind you have, log into your online student loan account to check or reach out to your loan servicer and ask.

Federal student loan deferment typically has stricter qualification requirements than forbearance. You can qualify if you meet any of the following criteria: 

  • You are enrolled at least half-time in a qualifying college or career school or have graduated within the last six months.
  • You are a parent who has taken out a loan on behalf of a child who is enrolled at least half-time in a qualifying college or career school or has graduated within the last six months.
  • You are enrolled in an approved graduate fellowship program.
  • You are receiving cancer treatments or have finished cancer treatments within the last six months.
  • You are enrolled in a qualifying rehabilitation program for the disabled.
  • You are unemployed or unable to find full-time employment.
  • You are experiencing economic hardship or serving in the Peace Corps.
  • You are on active-duty military service or have been on active-duty military service within the last 13 months and not yet returned to college or career school at least half-time.

Deferment can last indefinitely or for a certain number of years, depending on which requirement you meet. You're limited to a maximum of three years over the lifetime of the loan if you defer your payments due to unemployment or economic hardship. But you could defer your payments for much longer if you meet some of the other requirements, like being enrolled in a qualifying college or career school half-time or currently undergoing cancer treatments.

You may have to periodically reapply, depending on the reason your loan is in deferment. You need only apply once for military deferment and you might not need to apply at all for in-school deferment because your loan servicer should grant you this automatically. It’ll last until six months after your school notifies your loan servicer that you’ve graduated or otherwise left. If you qualify for unemployment deferment, you must reapply every six months and if you qualify for economic hardship deferment, you must reapply annually.

How forbearance works

There are two types of forbearance for federal student loans: general and mandatory. General forbearance, also known as discretionary forbearance, is granted at the discretion of your student loan servicer. You don't have to meet any special requirements in order to claim it. You can just request it and explain your reasons and your loan servicer will decide whether or not to grant it.

Mandatory forbearance is similar to deferment in that it has specific requirements. If you meet any one of these, your federal loan servicer must grant you forbearance:

  • You are serving in a qualifying medical or dental internship or residency program.
  • The total amount you owe each month for all of your student loans is 20% or more of your total monthly gross income.
  • You are serving in an AmeriCorps position and have received a national service award.
  • You are a teacher that qualifies for teacher loan forgiveness.
  • You qualify for the U.S. Department of Defense Student Loan Repayment Program.
  • You are a member of the National Guard and have been activated by your state's governor, but you do not qualify for military deferment.

Forbearance lasts for 12 months at a time. If you still qualify for the forbearance after the 12 months are up, you can request that your loan servicer extend your forbearance. If you chose forbearance because your monthly student loan payments exceed 20% of your total monthly gross income, there's a three-year maximum. Otherwise, you can continue to receive forbearance for as long as you qualify.

One of the biggest downsides to forbearance is that the government won't pay any interest that your balance accrues during this time, even if your loan is subsidized. This means you'll have a larger balance when you begin paying back your loan again, unless you keep up with the interest charges during your forbearance.

To illustrate this, consider a $10,000 subsidized federal student loan with a 7% interest rate. You cannot afford to keep up with your payments so you decide to pause them. If you placed the loan in deferment, the government would pay the interest on this loan while it was in deferment so when the deferment period ends, you would still owe the same $10,000. 

But if you’d chosen forbearance instead, the balance would have continued to grow. For every month the loan sat in forbearance, it would accrue about $57 in interest. This is calculated by dividing the 7% APR by 365 days in a year to get the daily rate of 0.019%. You multiply this by the $10,000 balance to get a daily interest accrued of $1.90. Multiply this by the number of days since your last payment -- 30 in this example -- and you get $57 per month. Over a year, that adds up to an extra $684 on your loan balance. Worse, at the end of your forbearance period, this unpaid interest is capitalized -- that is, it becomes part of your principal loan balance -- so you’ll start owing interest on the unpaid interest accrued in forbearance.

Deferment and forbearance on private student loans

All the information above has been for federal student loans. Private student loans are loans from private financial institutions who set their own rules. Most won’t offer deferment, but they may offer some type of forbearance. It’s up to each lender to determine what circumstances qualify for forbearance and how long the forbearance can last. Your private student loan balance will accrue interest while in forbearance unless you choose to make interest-only payments during that time. 

Some private student loan companies don’t offer any type of forbearance, but they may have other solutions, like a different repayment plan, to help borrowers who are struggling to keep up with their payments. Contact your lender to see what kind of assistance it can offer you.

Pros and cons of deferment and forbearance

The advantage of choosing deferment or forbearance is obvious: You won't have to make any payments during that time if you can't afford to, which frees up your cash for other things. It also helps some graduates avoid default, which can damage their credit and make it difficult to secure other loans and credit cards in the future. 

If you cannot keep up with your payments any other way (see below for more options), deferment or forbearance make sense. But you need a long-term plan because eventually, you will have to start making payments again -- these are designed as temporary emergency measures, not permanent ones.

As we've seen, the biggest drawback to pausing your student loan payments is that, unless you have a subsidized federal student loan in deferment, your loan balance will continue to grow while your payments are paused. If you don't pay at least the interest during that time, you'll have a larger balance to pay off when your deferment or forbearance ends. This could mean larger monthly payments, depending on your repayment plan, and it most likely means you'll end up carrying that student debt for longer. This can inhibit your ability to save for your future goals, like buying a home or retiring.

Another thing to keep in mind is that deferment and forbearance for economic hardship and unemployment are limited-time offers. You can only use them for a maximum of three years each over the lifetime of the loan. Once those three years are up, whether they’re consecutive or not, you can never claim this type of deferment or forbearance again. You don't want to use them frivolously because there may come a time when you need them more and won't be eligible because you already used up your options.

Alternatives to deferment and forbearance

Deferment and forbearance are meant to be treated as a last resort. If you need to rely on them to avoid default, that's one thing. But many borrowers may be able to continue making payments if they switch to an income-driven repayment plan or refinance or consolidate their existing student loans. 

Talk to your loan servicer about these options before you choose deferment or forbearance:

  • Income-driven repayment plans: These tie your monthly payments to your income, so you pay less while your earnings are low and more as your income grows. 
  • Consolidating your loans: This may also help by giving you a single monthly payment to keep track of rather than several that are all growing at different rates. But if you choose this route, you should know that all the interest you've accrued on each of your loans becomes part of the principal on the new loan, so you'll have a larger balance to pay off.
  • Refinancing: If you have good credit, this option is worth considering. Bear in mind that you'll have to turn to a private student lender to do this because the federal government charges everyone the same rates (and these rates are usually pretty good). You might be able to get a more affordable payment this way, but remember that most private student loan companies don't offer deferment or forbearance and they may not offer you multiple repayment plans. This can affect how easy it is to keep up with the payments, so weigh these factors as well. 

You could also try cutting back your monthly expenses to free up more cash for your student loan payments. This might include canceling subscriptions you no longer use or cutting back on how often you dine out. It's not the most fun way to keep up with your student loan payments, but it could save you money over the long run compared to placing your student loans in deferment or forbearance.

Requesting deferment or forbearance

Deferment and forbearance are useful ways to avoid default when you're in a tight situation, but you should explore all of your other options first. 

If you decide to proceed with deferment or forbearance anyway, make sure you understand all of the consequences of your decision. Then, submit the appropriate paperwork to your loan servicer. Don't stop making payments until your loan servicer approves your request or else you could get hit with late payment fees. 

If you're able to, aim to pay at least the interest on your loans while they're in deferment or forbearance unless the government is taking care of that for you. This will prevent your balance from growing any further, so when your deferment or forbearance ends, you can hopefully make your payments again without issue.