We all go through times where we can’t make a payment or need a break from our payments. This is when deferment and forbearance come in handy. In this blog post, you will understand the difference between deferment and forbearance. You’ll also get a better understanding of which option is right for you.
Forbearance
Forbearance isn’t the first thing that comes to mind when you think of loan repayment plans. However, it can be a great way for borrowers struggling financially to catch up on their loans and avoid defaulting. Forbearance is often confused with deferment because they both allow students to pause payments on federal student loans.
Forbearance is a way to stop or reduce student loan payments temporarily without penalty. It’s for borrowers experiencing economic hardship and who want to postpone their monthly payment due date for up to 12 months, depending on the type of forbearance. The government offers two types of forbearance: Mandatory and Discretionary.
Deferment
A deferment is a postponement. It is when you delay paying back your student loans for a certain amount of time. This may be done by applying to the US Department of Education or agreeing with your loan provider. Deferments are most often granted in cases where the debtor has financial difficulty, such as unemployment, disability, low income, etc.
The benefits of having a deferment include:
Not accruing interest.
Avoiding delinquency and default.
Keeping credit scores high.
Keeping other borrowing options open.
A deferment is an option with most loans, including mortgage loans, car loans, student loans, credit cards, and home equity lines of credit (HELOCs).
Final Word
Deferment and forbearance are two different ways to manage your student loans. Forbearance allows you to stop making payments for up to 12 months, but interest will still accrue during the deferment period. With deferment, no payments need to be made while in school or unemployed; however, deferred interest is capitalized at the end of the term. Interest rates may also differ between these options, so borrowers must research before deciding which option best suits their needs.
