Deferments and Forbearances

What is a Deferment or a Forbearance?

Student Loan Deferments and Forbearances are a way for borrowers to avoid having a monthly payment. All Federal loans come with a standard 6 month deferment upon finishing school (whether or not you graduate).

Deferment is a period of time in which you make no payments on the principal or interest on your loan. If you have a subsidized loan, the government will pay the interest that accrues on your subsidized loans during a deferment. A large list of deferments put together by the Federal Government can be found here:

Forbearance is very similar to a deferment, except that it is granted at the discretion of the lender whereas a Deferment is a matter a right. You will be responsible for all interest that accrues regardless of the type of loan.

How to Get a Deferment or Forbearance:

Qualifying for a deferment or a forbearance often times will depend upon the lender you are working with and the type of deferment or forbearance that you seek. For example, an unemployment forbearance can be granted over the phone without having to submit any paperwork. However, many other types of forbearances and deferments will require additional documentation for the forbearance or deferment to be granted. Contact your loan servicer to determine the paperwork that needs to be completed for your individual situation.

Should I request a Deferment or Forbearance?

Just because you qualify for a deferment or a forbearance does not mean that it is the best idea for you. For example, you can qualify for a mandatory forbearance if your student loan payments are more than 20% of your gross income. Though this option make seem to make the most sense in the short term, applying for an Income Based Repayment (IBR) plan could end up saving you thousands of dollars in the future. More details on IBR and other repayment plans are available here, but for purposes of this example, its important to note that under an IBR plan you are only required to pay at most 15% of your discretionary income. Further, under IBR each payment you make gets you one step closer to the remainder of your loans being forgiven. Thus, even if you could qualify for a forbearance, by choosing to make the small IBR payments, you could save yourself thousands in the future.

-> Sherpa Tip: The loan servicers and lenders that you speak to over the phone are not financial advisers, it is not their job to save you money or to help you with your financial planning.  It is up to you to find the best plan for you.  If you qualify for a Deferment or Forbearance you will likely qualify for IBR or PAYE, these plans should be considered prior to making any sort of deferment decision.