Deferment vs. forbearance of student loans: Which is right for you?

From March 2020 through most of 2023, borrowers were able to put their federal student loan obligations on the back burner. With the government's pause ending in October, however, those payments are set to resume.

If that creates a financial hardship or you work in certain service-based fields where your budget isn't designed to have much extra, you may have options for additional temporary relief. Deferment and forbearance both allow you to postpone your payments without damaging your credit. Whether to pursue deferment vs. forbearance on a student loan comes down to your eligibility and the type of federal student loan you have. (Both options may be available for private student loans, too, but those requirements will vary by lender.)

Let's explore the differences between federal student loan deferment and forbearance so you can feel confident you're on the right path to managing your debt.

Student loan deferment is a pause in your loan payments that may be granted by your loan servicer if you are eligible. One of the most common ways to qualify for a deferment is to go back to college or a vocational school at least half-time. But other situations can prompt your loan servicer to defer your payments:

• You're undergoing cancer treatment (or have been within the past six months).
• You're receiving welfare benefits or your income is below 150% of the poverty level.
• You're volunteering in the Peace Corps.
• You're serving in the military during a military operation or national emergency.

The length of time you're allowed to suspend your payments depends on the reason for your deferment. An in-school deferment will last as long as you are enrolled at an eligible institution at least half-time. If you're experiencing financial hardship, however, your deferment can last a maximum of three years.

During deferment, the government will pay the interest charges on most subsidized loans, which were based on your financial need and didn't accrue interest while you were enrolled in school. However, interest will continue to accrue on any unsubsidized portion of your federal loans. This interest will be added to your principal balance when the deferment ends, which will increase your future payments. So if you choose to defer your loan, you may want to continue paying the interest portion of your payment if possible to avoid a bump in your monthly amount due later.

Student loan forbearance also temporarily pauses your payments. Unlike a deferment, however, interest will continue to accumulate on your balance regardless of whether you have a subsidized or unsubsidized federal loan. That means you will end up paying more.

Qualifying for this type of relief is different from qualifying for deferment. Eligibility for forbearance typically falls into two categories: general or mandatory.

In general, or "discretionary," forbearance, the loan servicer has leeway when it comes to granting relief. Typically, these pauses are allowed in cases where you're unable to make your monthly payment as a result of financial difficulties, medical bills or the loss of a job.

A general forbearance may last up to 12 months. You can apply for extensions, but the longest it can continue in total is three years.

Other situations also can prompt a loan servicer to offer forbearance. The Department of Education will consider your eligibility for forbearance if:

• Your total federal student loan payments equal 20% or more of your monthly gross income.
• You're serving in AmeriCorps and received a national service award.
• You're eligible for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
• You're participating in a medical or dental internship or residency program.
• You've been activated as a member of the National Guard by a state governor.
• You're performing teaching services that qualify you for teacher loan forgiveness.

As with general forbearance, mandatory forbearance lasts up to 12 months. However, if you still meet the requirements for a forbearance after that window closes, you can apply for additional relief.

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Strategies to pay down debt

Paying down your debt doesn't have to be a battle. You have options for managing your student loan debt and other payments in a way that fits your overall financial plan. Consider these eight strategies.

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If you find yourself in a position where paying your monthly student loan bill becomes impractical, both deferment and forbearance can give you time to get back on your feet. Because interest does not accrue on subsidized loan balances, putting student loans in deferment is often a better choice if you meet the eligibility criteria.

However, unless you're going back to college or a vocational school—or meet one of the other specific qualifications—deferment may not be an option. If you're out of school and facing financial distress, forbearance may be the only way to receive a pause in payments without damaging your credit score. Remember, though, interest continues to accumulate when your loans are in forbearance.

If you don't qualify for deferment or are worried about paying back interest on a loan that's in forbearance, you can look at other alternatives.

First, consider taking a careful look at your budget to determine if it would be possible to cut back on nonessential spending and direct more money to loan repayment.

Another option is an income-driven repayment plan. Switching to one of these plans, offered by the federal government, can lower your monthly payment according to your income.

Refinancing your balance into a private loan also can offer relief. If you have a steady income and a strong credit score, you may end up with a lower rate than you currently have. However, you'll also forgo certain perks that are unique to federal loans, such as greater forbearance eligibility and loan forgiveness after 20 or 25 years with certain repayment plans.

A final route to consider is consolidating multiple student loans into one new federal loan. This won't save you money, but it could give you more time to pay.

If you have a federal student loan and could use a temporary hiatus from payments, reaching out to your loan servicer is a good first step. Based on your circumstances, a representative can help determine whether you're eligible for deferment or forbearance. The servicer may require documentation to verify that you meet the requirements to obtain relief, such as proof that you're enrolled in classes.

If you have a private loan and need financial relief, contact your lender and ask what programs they have available. Before applying, make sure you know the implications of a private student loan deferment or forbearance, which may include paying a fee or having interest accrue while the pause is in place.

Whether it's pausing payments or changing your repayment plan, lenders and loan servicers usually are willing to help you avoid defaulting on your loan. However, rather than simply looking for a short-term fix, it's important to have a long-term financial strategy that includes managing your debt. A Thrivent financial advisor can help create a comprehensive financial plan that fits your goals.