Most of us get overwhelmed when faced with financial challenges and debt management. In some cases, borrowers with student loans, mortgages, and other type of loans find it tempting to pursue their loan payment temporarily. However, we will discuss what happens if your loan is deferred, as well as the differences and similarities between loan deferment and a loan Forbearance.
What is Loan Deferment?
Loan deferment can be seen as a temporary pause on your loan payment, this is often offered to borrowers who are facing a tough time financially, as well as the means to return to school.
Furthermore, during the loan deferment period, payment, and loan payments are on a halt, this payment halt ranges from a few months to even years depending on the kind of loan as well as the lender’s policies.
What is the interest during deferment?
Interest does not accrue for subsidized federal student loans during the deferment period. Moreover, for unsubsidized loans or private loans in general, interest continues to accumulate which is then added to the total loan balance once the deferment period is elapsed.
How to be eligible for deferment
There are some criteria to meet before you become eligible for deferment, some of the criteria include:
- Borrowers should demonstrate qualifying circumstances such as enrolling in school at least half-time.
- In most cases, the borrower should be unemployed.
- The borrower must be facing financial hardship.
- In some cases, a borrower can be eligible for deferment when if he or she is active in military service.
Keynote: This requirement is not fixed, they depend on the lender, in other words, it is vital to check the terms of the loan agreement.
What is Loan Forbearance?
In a loan forbearance, the borrower can temporarily reduce or suspend their loan payments. Loan forbearance operates differently from deferment, in this kind of loan interest continues to accrue on all kinds of loans, irrespective of the lender. In simple terms, there will be a significant increment in the borrower’s balance due to accumulating interest.
Types of Forbearance
Forbearance is of two types, general or discretionary and mandatory forbearance.
General forbearance
general forbearance is most time granted at the lender’s discretion, most common reasons could include financial difficulty, medical expenses, or a change in employment.
Mandatory forbearance
Mandatory forbearance is required by the law, this includes conditions such as serving in a medical field or a dental internship, and it also involves participation in national service. incrementation is also met when a borrower’s monthly loan payment exceeds a certain percentage of their income.
Key Differences Between Deferment and Forbearance
Deferment and forbearance allow for a pause on loan payment and just relieve the borrower for a little while; however, there are some differences and similarities between deferment and forbearance.
| Deferment | Forbearance | |
| Purpose | Deferment allows for loan postponement and a pause on loan payments. | The forbearance loan also allows a temporary pause on loan payments. |
| Impact on Credit | Deferment loans have no impact on credit. | Just as deferment payment, the forbearance loan has no impact on credits. |
| Interest accrual | In deferment loans, there is no accrued interest on Perkins and subsidized federal loans | In forbearance loans, there is an increase in the loan balance due to an accused interest. |
| Approval process | To get a deferment approval you must submit the applicable federal deferment request or you must contact your loan lender. | For the approval process of a forbearance loan, you must also submit your forbearance request or you can contact your loan lender as well. |
| Eligibility | Eligibility requirements for deferment vary by the lender as well as the different types. These include in school, unemployed, or military duty. | Your eligibility for forbearance varies from lender and type which includes general or mandatory. |
| Loan length | Deferment has a maximum of one year for the federal government and it also varies based on the type of deferment and lender as well. | The forbearance also varies by lender and does not exceed a time frame of one month for a federal program. |
