What Is the Difference Between Student Loan Forbearance and Deferment?

As a newly barred lawyer embarking on your legal career, you are bound to confront various financial changes and, in some instances, challenges. For many recent law school graduates, the concern over how to pay off mounting student loan debt will be at the forefront of those challenges. Managing those challenges and making informed decisions about loan repayment can significantly impact your long-term financial planning, so it is important to understand and evaluate what options may be available to help you efficiently and effectively manage your competing financial priorities and achieve your financial goals.

When it comes to paying off student loan debt, two such options include loan forbearance and loan deferment.

Understanding Your Loans

It is important to understand your specific loans to determine the option that best suits your situation and needs. For example, you should know your applicable interest rate and understand whether your loans are private, federal, subsidized, or unsubsidized. In addition, confirm that you are not in default on any of your student loans, as being in default would disqualify you from eligibility for either loan forbearance or deferment.

Loan Forbearance

Loan forbearance is a temporary suspension of loan payments for up to 12 months. Loan forbearance is available to holders of federal or private loans (the applicable rules are the same) and must be requested through your loan servicer.

Although loan forbearance may allow you to avoid making loan payments while you attempt to navigate a difficult financial situation, interest on your loans will continue to accrue during the forbearance period—meaning that your total loan balance could be greater once your loan payments resume.

Loan Deferment

Loan deferment also is a temporary suspension of loan payments, but this option is available only in certain circumstances and where certain conditions are met. For example, you may qualify for loan deferment if you:

• are an active member of the military,
• are enrolled in an approved graduate fellowship program,
• are experiencing economic hardship, or
• are undergoing cancer treatment.

Qualified individuals may be eligible to defer loan payments for up to three years. Like loan forbearance, deferment must be requested through your loan provider.

Depending on your loan type, the rules regarding loan deferment will vary. On subsidized federal loans, you typically will not have to pay interest that accrues during deferment. In that case, you can expect your total loan balance to be the same once your payments resume. However, on private and unsubsidized federal loans, you will be responsible for paying the interest that accrues during the deferment period.

Which Option Is Best?

While these options may seem appealing at first glance (after all, who wouldn’t be interested in suspending a loan payment without penalty?!), they should be looked at as a last-case scenario to avoid defaulting on your loans, and they should be utilized for the least amount of time possible. These options may provide much-needed, temporary relief if you find yourself in a difficult financial situation. Still, long-term, they can cause a significant setback in your ability to chip away at your loan balance if interest continues to accrue during the forbearance or deferment period.

Other Options That May Be Available to You

Aside from loan forbearance or deferment, there may be other options available that can help you manage your student loans and plan for other financial goals, such as:

• Income-driven repayment plans on federal student loans
• Public student loan forgiveness for individuals who work for a qualifying government/charitable organization
• Consolidation or refinancing
• Federal student loan forgiveness (up to $10,000), as recently announced by the Biden Administration

Regardless of your financial position, take time to review your situation and goals, understand your income and expenses, research the options available to you, and outline a plan. No financial decision is made alone, so consult with a financial or student loan professional if you need help formulating a path forward to achieve your goals.