The main difference between deferment and forbearance is how interest is handled and the conditions for eligibility. Deferment is a temporary postponement of payments for which eligibility criteria must be met, and interest typically does not accrue on certain types of loans during this period. In contrast, forbearance allows for a temporary reduction or pause in payments but interest continues to accrue on all loans, increasing the total balance owed later.
Key Differences
- Interest Accrual :
- Deferment suspends interest on subsidized loans, so the loan balance does not grow during deferment.
- Forbearance interest always accrues, so the total debt can increase during the forbearance period.
- Eligibility :
- Deferment requires meeting specific eligibility criteria such as unemployment, in-school status, economic hardship, or military service.
- Forbearance is more flexible, often granted for short-term financial difficulties without the strict eligibility requirements.
- Duration :
- Deferment may last several years depending on the type.
- Forbearance is generally shorter, often limited to 12 months but can be renewed.
- Use Cases :
- Deferment is better if eligible and for longer-term relief.
- Forbearance is often used when deferment is not an option, providing temporary relief.
In summary, deferment can be seen as a preferred option if one qualifies because it can pause payments without accruing interest on certain loans, while forbearance is usually a fallback option with interest costs that should be managed carefully.