What Are Deferment and Forbearance?
Student loan borrowers often find themselves in situations where they cannot make their monthly payments due to unforeseen circumstances such as job loss, medical emergencies, or other financial hardships. Understanding the concepts of deferment and forbearance is crucial in navigating these challenging times. Both options can provide temporary relief, but they come with different implications that borrowers should be aware of.
Deferment: A Temporary Solution with Potential Benefits
Deferment allows borrowers to temporarily pause their loan payments without accruing interest on certain types of loans, such as subsidized federal loans. This can be a lifesaver for those facing financial difficulties. However, not all loans qualify for deferment, and there are specific eligibility criteria that must be met.
- Types of Deferment: Common reasons for deferment include enrollment in school, unemployment, or economic hardship.
- Interest Accrual: It’s important to note that while subsidized loans do not accrue interest during deferment, unsubsidized loans will continue to accrue interest.
- Application Process: To apply for deferment, borrowers must contact their loan servicer and provide necessary documentation to prove eligibility.
Forbearance: A Flexible Alternative for Immediate Relief
Forbearance is another option available to borrowers who are struggling to make payments. Unlike deferment, forbearance allows borrowers to temporarily halt their payments, but interest will continue to accrue on all types of loans. This can be beneficial for those who need immediate relief but may lead to a larger overall debt if not managed carefully.
- Types of Forbearance: Forbearance can be granted for various reasons, including financial difficulties, medical expenses, or other personal hardships.
- Mandatory vs. Discretionary: Borrowers should understand that some forbearances are mandatory (required by the lender) while others are discretionary (based on the lender’s approval).
- Duration and Limits: Forbearance is generally granted for a limited time, typically up to 12 months, and may be renewed depending on circumstances.
Disclaimer
This article has been created or edited with the support of artificial intelligence and is for informational purposes only. The information provided should not be considered investment advice. Please seek the support of a professional advisor before making any investment decisions.
