The main difference between deferment and forbearance is that with deferment, interest may not build up on certain types of loans, but with forbearance, interest keeps accruing even while you’re not making payments.
Knowing these differences can really help you make smarter choices about managing your federal student loans. Many people turn to deferment or forbearance to give themselves some breathing room when payments get tough. This guide will walk you through the key differences and help you figure out which option fits your situation best.
What is Deferment?
Deferment is a temporary pause on your loan payments, and depending on the situation, interest may not accumulate. Deferment can be a good option if you are facing an unexpected financial emergency and cannot make your loan payments.
It’s especially useful for federal student loans like Direct Loans, Perkins Loans, and subsidized loans. Typically, with subsidized loans and Perkins Loans, deferment will mean that interest will not accrue during deferment.
A few reasons why deferment can be granted include unemployment (called unemployment deferment), economic or financial hardship, military service, and enrolling back in school (at least half-time).
Deferment for Federal Student Loans
Federal student loans are any loans that you borrow from the federal government (The Department of Education, more specifically).
The William D. Ford Federal Direct Loan (Direct Loan) Program offers various loan options, including, subsidized, unsubsidized, PLUS, and direct consolidation loans.
Subsidized loans are for undergraduate students who are in financial need, while unsubsidized loans are not based on financial need and are options for both undergraduate, graduate students, and professional students. PLUS loans are for graduate, professional students, or for parents of undergraduate students.
Deferment for these student loans fall under the same categories from above (financial hardship, military service, unemployment, or re-enrollment into school)
What is Forbearance?
Forbearance allows borrowers to temporarily postpone or lower their loan payments, typically due to economic hardship.
Unlike deferment, interest continues to accrue with student loan forbearance, regardless of loan type. There are two kinds of forbearance, mandatory and general (also called discretionary). Mandatory forbearance includes situations like:
- Participation in a medical or dental internship or residency
- Serving in AmeriCorps
- National Guard duty not covered by a military deferment
- Monthly loan payments are 20% or more of your monthly gross income (for Direct Loans or FFEL borrowers)
While general forbearance can include situations like:
- Financial difficulties
- Medical expenses
- Job loss
- Change in income
It’s important to keep in mind that forbearance is not a long term solution for your loans, along with that it’s essential to keep in mind that interest continues to accrue even if your payments are paused.
Emergency and Short-Term Forbearance Options
Because deferment may not be an option for all student loan types or other loans in general, forbearance can be a good way to pause on loan payments while you get back on your feet. However, as we mentioned above interest will continue accruing even when your payments are on pause, even for subsidized loans and Perkin loans. In some cases, if interest is capitalized then it could mean a large increase in your total loan balance, hence best-used when done for short-term emergency situations.
What Are The Similarities Between Deferment and Forbearance?
The main similarity between student loan deferment and forbearance is that they allow for a pause on payments. Here are some others to be mindful of:
| Category | Forbearance | Deferment |
| Eligibility Requirements | Must meet specific hardship or qualifying conditions. Often overlaps with deferment for some borrowers. | Must meet criteria such as school enrollment, unemployment, etc. Can overlap with forbearance. |
| Impact on Credit Score | No direct impact if terms are followed; managing it well keeps credit safe. | No direct impact if terms are followed; managing it well keeps credit safe. |
| Loan Servicer | Managed by the U.S. Department of Education for federal loans. | Managed by the U.S. Department of Education for federal loans. |
| Application Needed | Application required. | Application required. |
| Federal Loan Types Covered | Applies to most federal loans (Direct, FFEL, Perkins). | Applies to most federal loans (Direct, FFEL, Perkins). |
Loan Deferment vs Loan Forbearance: What Are the Differences?
The main difference between deferment and forbearance is the way the interest works, deferment does not accrue while forbearance does. Here are some other differences you should know about when comparing these two:
| Category | Forbearance | Deferment |
| Interest Capitalization | Forbearance has a high chance of interest being capitalized. | There is a lower chance of this happening, and with subsided and Perkin loans there is no interest. |
| The Length | Forbearance is often limited to 12 months at a time. | A deferment period can be longer depending on the borrower’s needs. |
| Long Term vs. Short Term | Forbearance is best as a short term solution. | Deferment may work for the long-term. |
| Federal Loans vs General Loans | Forbearance may be available for different loan types (including private student loan options). | Loan deferment is limited to federal loans. |
Interest Implications and Impact on Credit Score
When it comes to interest and impact on credit score, deferment and forbearance can both accrue interest. They do not directly impact your credit score, but can do so indirectly by raising your debt to income ratio, and forbearance can show up on your credit reports.
When it comes to deferment, subsidized loans and Perkins Loans do not accrue interest, which can be a huge perk. For loans that do accrue interest with deferment, there is less of a chance that the interest will capitalize. With forbearance interest continues to accrue, regardless of what kind of loan there is, and there is a higher chance of interest capitalization, which is critical to think about, as it can greatly increase your loan balance.
Will Deference or Forbearance Affect My Credit Score?
Deferment and forbearance can have an indirect effect on your credit score, but they do not cause direct harm if handled correctly. Many borrowers worry that pausing payments might damage their credit, but the truth is more nuanced. Below, we debunk some common myths surrounding credit scores, deferment, and forbearance:
- Myth: Using deferment or forbearance automatically lowers your credit score
Fact: As long as you’re approved and in good standing, your loan is not considered delinquent, and there’s no direct negative impact on your credit report. - Myth: Your paused payments show up as missed on your credit report
Fact: Approved deferment or forbearance pauses your required payments, so these months are not reported as late or missed. - Myth: Your credit score will drop just because your loan balance increases
Fact: While interest capitalization can raise your total balance, this doesn’t immediately lower your score. However, a higher balance may affect your debt-to-income ratio, which could impact future credit applications. - Myth: You don’t need to apply, just stop paying and request deferment later
Fact: Missing payments before approval will hurt your credit. Always apply first and wait for confirmation before stopping payments.
By staying proactive and informed, borrowers can use deferment or forbearance without damaging their credit score, especially during times of financial stress. Just be sure to communicate with your loan servicer and monitor your credit report regularly.
When to Choose Between Forbearance and Deferment?
Generally, deferment is your best choice when possible. However, if forbearance is your only option and you need a pause on your payments, then you can consider that. The first step is getting into contact with your loan servicer, many may have alternative options for their borrowers.
Here are some things to consider to help you decide between deferment and forbearance if you are having a hard time deciding:
- Deferment is usually the better choice when possible, but student loan payments usually are the only ones that qualify.
- Deferment works better for a long-term situation, while forbearance is best for a quick short term solution.
- Deferment should be used if you have subsidized or Perkins Loans.
- If you want to save on interest, deferment is a better option.
To break it down, here’s a good way to approach the situation: If you qualify for deferment, take it, especially if you have subsidized loans. If you don’t qualify for deferment but still need relief, apply for forbearance. If you’re unsure, speak to your loan servicer, they can confirm what you’re eligible for and explain the cost difference.
Pros And Cons
There are definitely some pros and cons to consider with forbearance and deferment, here are some to consider:
| Option | Pros | Cons |
| Deferment | – Interest does not accrue on Subsidized and Perkins Loans (big financial advantage) – Helps maintain a lower loan balance by avoiding capitalization on subsidized loans – Generally better for long-term financial relief – No negative credit impact when approved and managed properly | – Requires meeting strict eligibility criteria (e.g., school enrollment, unemployment) – Interest does accrue on – Unsubsidized Loans Can be harder to qualify for compared to forbearance |
| Forbearance | – Easier to qualify for with broader hardship allowances – Can be quickly approved, ideal for short-term financial trouble – Still allows you to avoid delinquency and protect your credit score if used correctly – May be available for private loans, unlike deferment | – Interest accrues on all loan types, including Subsidized Loans – Interest is often capitalized, increasing the total loan cost – Shorter duration (usually capped at 12 months at a time) – Less favorable than deferment in terms of long-term repayment flexibility |
FAQs
Will forbearance affect my credit score?
Mortgage forbearance doesn’t impact your credit score, but it can still show up on your credit report as a financial hardship. Future lenders may see this and factor it into decisions about your creditworthiness.
What does forbearance mean on a loan?
Forbearance refers to a temporary pause or reduction in payments, most commonly applied to mortgages or student loans
Does deferment or forbearance hurt your credit?
Yes, if a financial hardship plan, such as a loan in forbearance, is reported to the credit bureaus, it can affect your credit score.
If I’m on an income-driven repayment plan and experiencing financial hardship, is loan deferment something I should consider?
If you’re already on an income-driven repayment plan, your monthly payments may be low or even $0, depending on your income. However, if you’re dealing with temporary financial hardship, loan deferment could be a helpful option.
How does accrued interest impact my overall student loan costs after using deferment or forbearance?
Accrued interest can be added to your loan’s principal, increasing the total amount you owe and raising your overall interest costs.
