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Difference Between Forbearance and Deferment

Forbearance vs Deferment

Temporary Loan Relief – The Options of Forbearance and Deferment
Sometimes, the only way to get an education is to get a student loan. But even with a secure student loan, there will be trying times when the student cannot make payments in time due to many factors and reasons.
People who provide student loans often give the options of forbearance or deferment for students who cannot make the deadline.

Forbearance and deferment are two options of a student borrower regarding postponement of his/her student loan payments. The two options have slight differences from each other. In forbearance, the student borrower is allowed to temporarily stop making payments or pay in smaller amounts for the student loan. Forbearance also stretches the time to pay the loan and acquires interest over the period. In deferment, the payment on the loan is postponed, but the interest on the loan does not grow and accumulate for the duration that a deferment is enforced.

The usual reasons for forbearance are temporary setbacks like illness, financial hardship (small income or large unsettled debts), or serving in an internship or residency. After the setbacks have been resolved, the student borrower is expected to pay the loan in the normal circumstances with added interest on the principle and on the interest. The main thing about forbearance is that the borrower is willing to pay but realistically cannot pay.

Another reason why borrowers look for forbearance as an option is that they are not qualified for a deferment or used the maximum amount of time that a lender will allow for deferments. Forbearance can also be given under the circumstances of cancellation, change in repayment plan, or consolidation, involvement in a military mobilization, or a local or national emergency.

A downside feature of forbearance is its accumulation of interest. Putting the student loan into forbearance will cause the borrower to pay more money than the original intention in the long run. This happens because there is an interest placed on the loan’s principal amount and its corresponding interest. A way to manage the payments is to pay the interest during the period of forbearance. This eliminates the second interest in the long run but leaves only the principal and its interest.
Qualification for deferment, on the other hand, is much harder than being qualified for forbearance. The usual qualifications of the borrower include:

 Being enrolled and staying in school for at least half the time in an eligible post-secondary school. This also applies to borrowers who are studying full time in a graduate fellowship program or an approved disability rehabilitation program. This constitutes as the student borrower’s attendance record which is often the qualification for this option.

 Being unemployed, having minimum income, or serving in the army or in the community.
Both forbearance and deferment is decided by an evaluation by a student’s lending institution. Interested applicants must apply and meet the necessary qualifications for his/her desired option. Only after meeting the qualifications of the lending institution can the loan applicant/student borrower submit the paperwork and forms for the requests.
Summary:

1. Both forbearance and deferment are good options to consider when a student borrower has problems regarding loan payments.

2. Forbearance allows interest to grow and be applied to the principle and interest. By contrast, the interest in deferment does not grow and stops completely.

3. Deferment requires the student borrower to attend an accredited school and complete the coursework while forbearance allows the borrower to be absent in school while it is in effect.

4. Deferment has the automatic approval criteria while forbearance does not have it.

5. Forbearance is easier to qualify for than deferment.


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