Loan deferment vs. forbearance: What works for your student loan or mortgage?

When student loan or mortgage payments become overwhelming, you may be able to turn to loan deferment or loan forbearance for a temporary break on making payments.

The first thing to know is that deferment and forbearance have somewhat different meanings, and function differently, for student loans versus mortgages. 

And factors like how to qualify, interest accrual and what happens when you resume payments can depend on the type of loan you have and the particular lender. 

Here’s how it breaks down. 

Let’s look at how loan deferments versus forbearances typically work for student loans and for mortgages.

• Student loans: Deferment versus forbearance
• Mortgages: Deferment versus forbearance
• How deferment and forbearance affect credit
• Deferment or forbearance alternatives

Student loans: Deferment versus forbearance

Both deferment and forbearance can help you get temporary relief from your student loan payments. But there are differences between the two in how to qualify — and in costs.

How student loan deferment works

With federal student loans, the government determines deferment eligibility requirements and the loan servicer determines if you’ve met those requirements. If you meet the requirements, the loan servicer will allow you to temporarily stop payments on your student loan.

If you have a subsidized federal student loan, the primary benefit of deferment over forbearance is that interest stops accruing during the deferment period. When the deferment period is over, your standard student loan payments resume.

Unsubsidized federal student loans don’t qualify for the same break on interest during deferments.

With private student loans, not all lenders or loan servicers offer deferments. Among those that do, qualifying requirements and terms (including if you’ll accrue interest during the deferment period) vary. You can check with your lender or loan servicer directly to find out if it offers deferment, and whether you’ll accrue interest during the deferment period.

How do I qualify for student loan deferment?

For federal student loans, you’ll have to submit an application for deferment with your loan servicer. You’ll typically have to meet one of the following criteria to qualify for student loan deferment.

• Unemployment — People currently out of work or working less than full time
• Rehabilitation — People enrolled in approved rehabilitation training programs 
• Economic hardship — For example, if you are receiving welfare benefits or have earnings below the poverty line
• In-school or grace period deferment — Recent graduates or students attending at least half-time (applies to certain federal loans); the grace period for deferment is six months after a student has graduated or left a school program   
• Military active duty — If you are doing military service in connection with a war, military operation, or national emergency, for example 
• Cancer treatment — People currently diagnosed with cancer and receiving treatment

Check out Federal Student Aid’s complete list of qualifying criteria for federal student loan deferment. Keep in mind that deferment periods may vary depending on your circumstances. 

For private student loans, contact your servicer to see if deferment is an option, how to qualify and what the terms are. 

How student loan forbearance works

With federal student loans, forbearance means lowering your payments or suspending them altogether for a period of time. Forbearance terms may be in increments of up to 12 months at a time, for a total of up to three years. 

But generally, interest won’t stop accruing during the pause. And that will add to the total cost of the loan.

For example, say you start off with a loan balance of $60,000, and your interest rate is 6%. Excluding any potential fees or charges, if you put your loan in forbearance right away, for 12 months, $3,600 in interest would accrue on your loans. If that additional cost gets tacked onto your total owed, it could mean bigger monthly payments once your payments resume. 

Private student loans may or may not have a forbearance option — you’ll have to reach out to your loan servicer to find out if there is, and how it works.

How do I qualify for a student loan forbearance?

For private student loans, forbearance availability — and any terms and rules — will vary based on what your loan servicer offers.

For federal student loans, there are two types of forbearance options — general forbearance and mandatory forbearance — and eligibility depends on the type of federal loan you have.

General forbearance

A general forbearance is currently only available for federal Direct Loans, Federal Family Education Loan program and Perkins loans. 

With a general forbearance, a federal student loan servicer or lender will typically consider you if you’re experiencing financial hardship, such as dealing with medical expenses or unemployment, or any other reason the lender accepts — but there are no exclusive categories of hardship required. If approved, your loans may be in forbearance for up to 12 months. At the end of a forbearance, you may ask for an extension, but you can only extend general forbearance for up to three years. 

Mandatory forbearance

Mandatory forbearance applies only to certain types of federal student loans, and qualifying factors are stricter and more specific, compared to general forbearance. But if you qualify by meeting at least one of the following circumstances, your federal student loan servicer must approve your forbearance:

• You’re currently serving in an AmeriCorps position for which you received a national service award. Request forbearance.
• You’re employed by the U.S. Department of Defense and qualify for the military student loan repayment program. Request forbearance.
• You’re a medical or dental resident or intern and you meet further qualifications. Request forbearance.
• You’re on active duty with the U.S. National Guard. Request forbearance.
• Your monthly student loan bills are more than 20% of your monthly gross income. Request forbearance.
• You’re a teacher and qualify for the Teacher Loan Forgiveness Program. Request forbearance. 

Mandatory forbearances are available only for federal Direct Loans and FFEL Program loans, unless otherwise noted in the linked info listed above.

Both student loan deferment and forbearance might be able to help you better handle your finances during a difficult time, but you’ll want to make sure you understand all that’s involved — including whether you have other options. 

Mortgages: Deferment versus forbearance

When it comes to mortgages, the definitions of deferment and forbearance aren’t as clear cut or consistently used as they are with student loans. The way a deferment or forbearance works — including the terms and how to qualify — varies among mortgage lenders. 

Mortgage ‘deferment’

There’s no set definition for what some mortgage lenders may offer as a mortgage “deferral” or “deferment” — and the term is not common in the context of mortgages. 

In some cases, deferment may refer to a special repayment plan that you work out with the lender to give you a chance to regain your footing. In these arrangements, you may repay the missed amount over time, for example, or possibly add the total of any deferred payments to the end of the loan period. Typically, interest does not stop accruing. 

Mortgage forbearance

Forbearance is the much more common way that mortgage lenders refer to temporarily pausing or adjusting payments. You can typically request a financial hardship forbearance that will get your mortgage payments reduced or put on hold altogether for some period of time. 

How mortgage forbearance works

How mortgage forbearance works will depend on the type of loan you have and your lender. The first step is calling your loan servicer as soon as possible to discuss your situation and find out what your options are — including how long your forbearance may be. Terms may be anywhere from one to three, six or even 12 months.

You’ll also want to find out how your lender expects you to catch up on those reduced or paused payments once your forbearance is up.

It could mean making a lump sum repayment, making additional partial payments to catch up, making bigger monthly payments, or making other modifications to your loan.

It’s important to know that interest will likely still accrue during any pause or reduction in your mortgage payments, adding to the total cost of your loan. 

Bottom line: Asking for all details about how a deferment or forbearance program works is essential to understanding what you’re getting into, including what the costs will be and whether you can afford the terms of catching up.

How do I request a mortgage deferment or forbearance?

Typically, to request a deferment or forbearance on your mortgage, you’ll need to contact your mortgage lender as soon as possible. It helps to be prepared for the call. Explain the nature of your hardship and be prepared to talk about how much you can afford to pay each month.

How deferment and forbearance affect credit

When it comes to student loans, both deferment and forbearance should have a neutral effect on your credit. The keys are to be proactive — reach out to your lender as soon as you think you need help — and to make sure you understand and follow all terms.

But with mortgages, deferment or forbearance may be reported to the major consumer credit bureaus. In those cases, the deferment or forbearance will be visible on your credit reports, so lenders may take them into consideration when deciding whether to extend credit to you — even if you’ve abided by all the lender’s terms as agreed.

Is a mortgage deferment or forbearance on your credit reports worth it?

If a break in payments buys you time to get on your feet and avoid losing your home, you may decide the answer is yes. The alternative could be a foreclosure, which would mean losing your home and investment and a negative mark on your credit reports that remains for seven years.

Deferment or forbearance alternatives

You may have some options other than deferment or forbearance if you’re having trouble keeping up with loan payments. Here are a few to research.

For student loans: Income-driven repayment

Depending on how much you owe on your student loans compared to your income, an income-driven repayment program may be an option. This is typically only available for federally funded loans.

With income-driven repayment programs, you may be able to get your loan payments reduced according to changes in your income. In some cases, you may not have to make a monthly payment until your financial situation improves.

To learn more about the four income-driven repayment programs, check out the Education Department’s federal student aid website.

For student loans and mortgages: Refinancing

Whether it’s for your student loans or your mortgage, refinancing may be an avenue that’s more cost-effective than a deferment or forbearance — if you can secure a lower interest rate and/or a longer repayment term than you have with your current loan. The result could be lower monthly payments, which could relieve some pressure on your monthly budget. 

But remember, even if you have healthy credit and get a good refinancing offer, there’s usually a cost to pay in fees and interest. A longer repayment term, even with a lower interest rate, typically means you’ll pay more over the life of the loan.

For mortgages: Loan modification

Loan modification is another alternative that may work for you. Modifying your mortgage is different than refinancing in a key way: When you’re refinancing your mortgage, you replace your original home loan with a new one. If you qualify for a loan modification, you and your loan servicer agree on ways to change your existing loan so that it’s more manageable for you (but it is technically the same loan).

That could mean extending the term of the loan, a lower interest rate or changes to other terms. The goal is a workable solution that keeps you in your home and making on-time mortgage payments — a compromise that works for both you and your lender.

You can check out the Federal Trade Commission’s resource page for people struggling with their mortgage payments to learn more about different options.

Next steps

Now that you have an idea how deferment and forbearance work with student loans and mortgages, you can consider your options.

With qualifying student loans, deferment may offer the most benefit if you can get a break on payments and avoid piling up interest. But before you put your loans on hold, consider talking to your student loan servicer about whether you qualify for income-driven repayment options.

With mortgages, a deferment or forbearance is an option that may allow you to pause or adjust your payments, but the terms can vary from lender to lender. The most important step is to reach out to your lender as soon as possible to find out what your options may be.

Be sure to get all details about what happens with interest and how your lender expects you to catch up once the deferment or forbearance is up. And you may want to check with your mortgage lender about a loan modification, instead — even if you’ve been turned down before. 

In addition, you might want to consider student loan or mortgage refinancing. If your credit is solid and you can get a lower interest rate, it may be a good way to lower your payments and create a little more breathing room in your monthly budget. Just remember that refinancing can also mean additional fees and lengthening the term of your loan, which could cost you more over the longer term.