Understanding the difference between forbearance and deferment is crucial for individuals dealing with student loans, as both options offer temporary relief from loan payments. While they may seem similar, each has distinct characteristics and implications for borrowers. In this article, we will explore the key differences between forbearance and deferment, helping you make informed decisions about managing your student loan debt.
Difference between forbearance and deferment:
1. Definition and Purpose:
Forbearance is a temporary pause in loan payments, allowing borrowers to take a break from their monthly installments. It is typically used when borrowers face financial hardship, such as unemployment, medical expenses, or other unforeseen circumstances. On the other hand, deferment is an official suspension of loan payments, granted under specific conditions, such as being enrolled in an educational program, serving in the military, or experiencing economic hardship.
2. Eligibility:
Eligibility for forbearance is more flexible than for deferment. Borrowers can request forbearance for various reasons, and lenders have the discretion to approve or deny the request. In contrast, deferment is often subject to strict eligibility criteria, which vary depending on the type of loan and the borrower’s situation.
3. Interest Accrual:
During forbearance, interest may continue to accrue on most federal student loans, which means that the total amount owed will increase over time. However, some federal loans may be subject to a cap on interest accrual during forbearance. In deferment, interest is typically paused, allowing borrowers to avoid the accumulation of additional debt.
4. Impact on Credit Score:
Forbearance can have a negative impact on a borrower’s credit score, as missed or late payments may be reported to credit bureaus. While deferment does not have a direct impact on credit scores, it is still important to make sure that the deferment is reported to the credit bureaus to avoid any confusion. Both options can be reported as “deferred” or “in forbearance,” which may affect creditworthiness in the long run.
5. Loan Forgiveness:
Forbearance does not qualify borrowers for loan forgiveness programs, as it is not an official suspension of loan payments. However, deferment may be eligible for certain loan forgiveness programs, depending on the borrower’s circumstances and the type of loan.
In conclusion, the difference between forbearance and deferment lies in their definitions, eligibility criteria, interest accrual, impact on credit scores, and loan forgiveness eligibility. Understanding these differences can help borrowers make informed decisions about managing their student loan debt and choosing the best option for their specific needs.
