What is the difference between a deferment and a forbearance? When it comes to managing student loans, understanding the nuances between these two options is crucial. Both deferment and forbearance allow borrowers to temporarily suspend their loan payments, but they differ in terms of eligibility, duration, and the impact on your credit score.
Firstly, let’s delve into deferment. A deferment is a period during which your loan payments are temporarily suspended, and interest may or may not accrue depending on the type of loan. Deferments are typically available for borrowers who meet certain criteria, such as being enrolled in an eligible educational program, serving in the military, or experiencing economic hardship. Common reasons for deferment include full-time enrollment in an eligible educational program, economic hardship, unemployment, and active duty military service.
On the other hand, forbearance is a temporary pause in loan payments that is granted when you are unable to meet your payment obligations due to financial difficulties. Unlike deferment, forbearance is not automatic and requires the lender’s approval. Interest will continue to accrue during forbearance, which means that the total amount you owe will increase over time. Borrowers who may qualify for forbearance include those who are experiencing financial hardship, medical bills, or other unforeseen circumstances that prevent them from making payments.
One key difference between deferment and forbearance is the duration. Deferments are usually limited to a specific period, such as the time you are enrolled in an educational program or serving in the military. Once the deferment period ends, you must resume making payments. Forbearance, on the other hand, can be extended for up to 12 months, with a possibility of renewal for an additional 12 months if necessary. However, it is important to note that the total duration of forbearance may not exceed three years, depending on the type of loan.
Another important distinction is the impact on your credit score. While both deferment and forbearance are considered positive actions by lenders, they can still affect your credit report. During a deferment, your loan is typically reported as “current,” which means it is in good standing. However, if you are in forbearance, your loan may be reported as “deferred,” which could potentially lower your credit score. It is essential to communicate with your lender and stay informed about the status of your loan to minimize any negative impact on your credit.
In conclusion, understanding the difference between a deferment and a forbearance is crucial for borrowers looking to manage their student loans effectively. While both options provide temporary relief from loan payments, they vary in terms of eligibility, duration, and impact on your credit score. By knowing which option is best suited for your situation, you can make informed decisions and take steps to maintain a healthy financial future.
