5 Things You Need to Know About Student Loan Deferment and Forbearance

The plan when you went off to college was to earn your degree, find a great job after graduation, and start your amazing career. Well, things don't always go the way we plan and after less than a year at your dream job, you find yourself on the wrong side of job cuts. It can be difficult making ends meet while looking for a new job because you have obligations like a car payment and student loans.

The good news is that during this time, it's possible to temporarily pause your student loan payments until you get back on your feet. Applying for a student loan deferment or forbearance will not stop interest from accruing, but it will keep your loans in good standing.

What is Deferment?

A student loan deferment can be used to temporarily postpone your payments. You may qualify for an unemployment deferment request while you are looking for a new full-time job. If you have a subsidized loan, the government pays the interest on your loan during the deferment. If you have an unsubsidized or private loan, you are responsible for the interest that accrues.

Borrowers also can request a student loan deferment when they return to school to finish their degree or to attend graduate school. Active military service, Peace Corps, and disability may also qualify for deferments.

Check each of your loans carefully to know your options for deferment. Unpaid interest that accrues during the deferment period will be added to the principal balance. That may increase your scheduled monthly payments in the future.

What is Forbearance?

If you do not qualify for deferment, you may apply for a forbearance. If you qualify, your loan payments will be temporarily reduced or stopped. Forbearance is usually granted in three to six-month increments, possibly up to a year. During forbearance, interest will continue to accrue for subsidized, unsubsidized, and private loans. Like deferment, that could result in higher payments down the road.

However, a forbearance period can be just the breathing room you need to get back on your feet and resume making regular student loan payments. Always contact your loan servicer immediately if you are having trouble making your student loan payments.     

Is Forbearance or Deferment Right for Me?

If you are returning to school or lost your job, then requesting a deferment or forbearance can help you make ends meet on a short-term basis. But remember, there are limits to how much time a deferment or forbearance will last. If you aren't eligible for a deferment or forbearance or have been in them too long, remember that there are repayment options that you could consider, that may reduce payments as well.

Deferment and forbearance are short-term solutions. In both situations, you could end up with higher monthly payments because the accrued interest is added to your principal loan amount.

For borrowers who are right out of college, when money is tight, it may seem tempting to put a hold on your student loan payments. However, the first thing you should do is look at all your monthly expenses.  Figure out where you can adjust to meet your financial goals.

Do I Request a Deferment or Forbearance?

Depending on whether you have federal or private loans, the process to apply for a deferment or forbearance may be different for each loan. Deferment requests are usually made over the phone or in writing. Check with your lenders to understand their guidelines. You may have to submit additional documentation, depending on your reasons for requesting help with your student loan payments.

Will a Deferment or Forbearance Hurt My Credit Score?

Student loan deferment and forbearance will not hurt your overall credit score, but they will be noted on your credit reports. Your credit score will be affected if you fall behind on your payments before applying for a deferment or forbearance. Remember to keep making payments during the application process.

There is no denying the value of your college education. Studies show that people with college degrees earn more than non-college grads. So the benefits of your college degree will far outlast the time it may take to repay your student loans. However, help is available if you find yourself temporarily unable to make your student loan payments.

NC Assist Loans help students achieve their college dreams by bridging the gap between the cost of higher education and the amount received from other financial aid. NC Assist Loans are offered by College Foundation, Inc. (CFI), a North Carolina-based nonprofit lender. By borrowing from CFI, you are supporting career and college outreach programs that strengthen the economy of the state of North Carolina.