Federal Student Loan Deferments and Forbearances

By Mark Kantrowitz

Repayment of Federal Stafford and PLUS loans is deferred while the student or borrower is enrolled at least half-time and during a 6-month grace period after the borrower graduates or drops below half-time enrollment.

Deferments and forbearances are temporarily suspensions of the obligation to repay a debt. Interest continues to accrue and will be capitalized (added to the loan balance) if it is unpaid as it accrues. Capitalized interest can increase the loan balance by as much as 20%. During a deferment, the federal government pays the interest on subsidized loans but not unsubsidized loans. During a forbearance, the interest on subsidized and unsubsidized loans remains the responsibility of the borrower.

Deferments and forbearances are best for dealing with short-term financial difficulty, such as medical or maternity/paternity leave or unemployment. Deferments and forbearances should not be used for long-term financial difficulty because interest capitalization will cause the debt to grow larger, making it more difficult to repay.

In addition to the in-school and grace period deferments, there are also deferments for unemployment, economic hardship, disability rehabilitation training programs, military service, post-demobilization military service (180 days) and post-active duty (13 months). The economic hardship deferment is available to borrowers who receive federal or state public assistance (e.g., TANF, SNAP and SSI), volunteer in the Peace Corps or who work full-time but are earning less than the federal minimize wage or less than 150% of the poverty line for their family size. The economic hardship and unemployment deferments have a 3-year limit.

Technically, a forbearance can be any modification of the loan terms, such as reducing the monthly payment or an extension of the repayment time frame. However, the most common type of forbearance involves a temporary suspension of the obligation to repay the debt. A partial forbearance requires interest-only payments for a period of time. There are forbearances for medical/dental internships and residencies, financial hardship (e.g., monthly loan payments are at least 20% of monthly income), service in the Peace Corps or AmeriCorps and teaching in a national need area that qualifies for federal teacher loan forgiveness. The financial hardship forbearance has a 3-year limit.