When it comes to forbearance vs deferment, both deferment and forbearance terms describe a pause or delay in payment obligations. However, deferment and forbearance are different. The difference between deferment vs. forbearance is that deferment typically means there is an approved delay where interest, penalties, and obligations are suspended for a defined period for specific loan types. In contrast, forbearance allows temporary relief from payments, but penalties and interest accrue. So, when comparing deferment vs forbearance, deferment refers to a true pause, while forbearance is for short-term hardships.
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What is the Main Difference Between Deferment and Forbearance?
The main difference between deferment and forbearance is that interest continues to accrue with forbearance. During deferment time, subsidized loans generally do not accrue interest, whereas in forbearance, interest accrues on the loan balance. This difference between deferment vs. forbearance significantly affects the total cost once borrowers resume repayment.
Deferment vs Forbearance: Credit Score Impact
How does deferment vs forbearance affect credit scores? Forbearance and deferment do not impact your credit score if approved and in good standing. However, missing a monthly payment or making late payments before deferment or forbearance approval can negatively impact credit scores.
Maintaining contact with loan servicers and being approved before stopping loan payments helps protect your credit score.
Interest Accrual and Loan Servicers
Interest accrual depends on the loan type and program. In deferment, federally subsidized loans may pause interest payments. However, interest accrues on federal unsubsidized loans.
During forbearance, all loans continue accruing interest. Loan servicers calculate and capitalize unpaid interest, potentially increasing the overall loan balance if not paid during the temporary relief period.
Forbearance vs Deferment: Student Loans
For federal student loans, borrowers can choose between deferment or forbearance options. Both temporarily stop or reduce monthly student loan payments, but there are important differences between deferment and forbearance options.
With student loan deferment, borrowers delay student loan payments under specific qualifying events. For example, students enrolled half-time, faced economic hardships, or served in the military. For specific student loan debt types, such as Direct Subsidized Loans, the federal government covers the interest rate that accrues during the student loan deferment period.
Student loan forbearance allows student loan payments to be temporarily reduced or postponed for broader reasons. For example, financial hardship, students undergoing cancer treatment, and temporary assistance for unemployment. However, interest accrues on all federal student loans during this period.
Understanding the distinction between student loan forbearance and student loan deferment can help borrowers choose the better option for them specifically.
Federal Student Loan Deferment and Federal Student Loan Forbearance
Borrowers can select between student loan deferment and student loan forbearance. For student loan deferment, borrowers must meet specific requirements and eligibility criteria. This can include being enrolled at least half-time, in a graduate fellowship program, or unemployed. For eligible federal student loans, the government pays what would otherwise be interest accruing on the student loan debt for the duration of the approved period.
Student loan forbearance can be requested for borrowers who don’t qualify for student loan deferment. For National Guard duty and medical or dental internships, there is generally a mandatory forbearance. During this mandatory forbearance, interest accrues and typically must be paid later, or it will capitalize into the student’s principal balance.
Medical Residency Forbearance and Residency Deferment
For medical or dental internships, special student loan payment options are available under federal student loan servicers. Many residents use the mandatory forbearance. This allows them to pause student loan payments during medical or dental internships or residencies without applying for forbearance on a case-by-case basis.
Residents and fellows may qualify for mandatory forbearance, which allows them to postpone student loan payments during training. However, interest continues to accrue on all federal student loan debt throughout this period. More interest accrues with years of residency. This substantially increases the total student loan debt. Medical professionals should carefully review their repayment and forbearance options with their federal student loan servicer, as pausing payments without addressing interest can reduce the benefits of programs like Public Service Loan Forgiveness (PSLF) and make long-term repayment more costly.
Subsidized vs Unsubsidized Student Loans: Deferment or Forbearance
Understanding how deferment and forbearance apply to subsidized and unsubsidized federal student loans is critical. With Direct Subsidized Loans (available to undergraduates with financial need), the government pays the interest rate while the student is in school at least half-time, during the first six months after graduation, and during certain student loan deferment periods.
In contrast, direct loans that aren’t subsidized accrue interest from the moment they’re disbursed. Interest may be capitalized.
When you enter a student loan deferment or forbearance period, the benefits differ. Subsidized student loans avoid accruing interest during deferment, but during student loan forbearance, interest accrues on all student loan debt regardless.
Borrowers should check their student loan type before deciding on deferment or forbearance, and consider paying interest during the relief period if possible to manage long-term costs.
If you have any questions regarding subsidized vs unsubsidized student loan debt, call our attorneys.
Private Student Loan Payment Options in PA and NJ
New Jersey and Pennsylvania private student loan borrowers face different rules than federal loan holders. For private student loans, deferment and forbearance options depend entirely on the loan servicer’s terms and aren’t standardized by federal law.
Unlike federal loans, deferment and forbearance options for private loans depend entirely on the lender’s terms and are not standardized by law.
For example, the NJCLASS program offers both forbearance and deferment for loans within its relief options, but interest often continues to accrue. Any interest that’s not paid may be subject to capitalization. This increases the borrower’s balance.
Borrowers with private student loans in Pennsylvania or New Jersey should contact their lender if they anticipate loan repayment difficulty. They can evaluate various repayment options, such as refinancing or income-driven repayment plans.
For legal help with student loan debt and bankruptcy in Pennsylvania or New Jersey, call our law offices.
Mortgage Forbearance and Deferment Options in Pennsylvania and New Jersey
FHA Loan Deferment, FHA Forbearance, and Partial Claim Programs
Borrowers with Federal Housing Administration (FHA)-insured mortgages may qualify for temporary assistance. This includes the “Partial Claim” program. FHA’s Partial Claim option places the delinquent amount into an interest-free subordinate lien that is repaid only when the home is sold, refinanced, or the loan matures. FHA deferment is used interchangeably with specific pause options in the loss-mitigation waterfall. These are all discretionary and subject to servicer or agency approval.
VA Loan Forbearance and Repayment Programs for Military Service Members
Homeowners with Department of Veterans Affairs (VA)-guaranteed mortgages who experience financial hardship, especially Reserve or active duty military service members, can request forbearance or enter into repayment plans without facing immediate foreclosure.
For VA loan servicers, mandatory forbearance may apply under VA guidelines when eligibility criteria are confirmed. These programs are intended to assist active military duty service members, veterans, and eligible survivors in avoiding foreclosure and maintaining homeownership during periods of financial difficulty.
USDA Mortgage Forbearance and Deferment for Direct Rural Housing
Borrowers in the USDA Single-Family Housing Guaranteed or Direct loan programs located in rural areas may receive forbearance relief when facing financial difficulties. USDA borrowers can request forbearance up to 180 days, and an extension of a further 180 days, and the agency may be able to provide repayment options such as term extensions or a specific deferment type to the end of the loan.
The key mechanism is that the borrower’s missed payments may be added to when the deferment ends, with no lump sum payment required immediately.
Fannie Mae and Freddie Mac Options for Payment Pause or Reduction
Borrowers with Fannie Mae mortgages or Freddie Mac mortgages may apply for forbearance or deferment, or in some cases, repayment plans, depending on the financial situation. Their forbearance or deferment options can include moving missed payments to the end of the loan or structured repayment plans. These “enterprise”-backed options allow borrowers to gain temporary relief while preserving their standing with the loan servicer.
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Auto Loan Deferment and Forbearance Programs
Auto loan deferment or forbearance programs allow borrowers to temporarily pause or reduce their monthly car loan costs if they are experiencing financial hardship. This can include job loss, unforeseen medical expenses, or other reasons. Unlike federal student loan or mortgage programs, auto loan repayment options are offered at the lender’s discretion
Some lenders may grant deferment options for short-term hardships, typically 1-3 months. In other cases, forbearance may be offered.
Auto loan interest accrues during both deferment and forbearance. This increases the total loan balance. Skipped monthly payments can also extend the time or increase the total amount.
The Consumer Financial Protection Bureau (CFPB) advises contacting your lender immediately at the first sign of financial difficulties. Being proactive can prevent default or repossession while protecting long-term credit health.
Eligibility Requirements for Deferment vs Forbearance
Eligibility varies depending on borrowers’ specific types of debt and circumstances, as only certain types qualify.
Generally, when payments are deferred, this requires meeting specific qualifying events set by the lenders or loan programs. It may also apply to installment or secured loans if the lender offers structured financial hardship relief and the borrower provides documentation showing such situations.
On the other hand, in general, forbearance is typically more flexible but accrues more interest. Borrowers can file for administrative forbearance when they don’t qualify for payment deferral. Lenders may approve this based on policy, credit history, and overall standing.
In short, deferment usually requires a qualifying life event and may stop interest on certain loans, while forbearance is granted more broadly for the short-term but is costlier. Both require lender approval, and borrowers should confirm eligibility, interest treatment, and reporting policies in writing before suspending payments.
Alternatives to Deferment and Forbearance
Federal Student Loan Income-Driven Repayment for Direct Loans, FFEL, and Perkins Loans
Income-driven repayment (IDR) plans allow borrowers with federal student loans, including Direct Loans, FFEL Program loans, and Perkins Loans (if consolidated into a Direct Loan), to limit monthly payments based on income and family size. This is often 10-20% of discretionary income, with unpaid balances eligible for forgiveness after 20-25 years. For instance, FFEL and Perkins Loans are only eligible for IDR, Public Service Loan Forgiveness (PSLF), and other types after being consolidated into a Direct Loan. Loan type eligibility and consolidation deadlines are, therefore, critical for borrowers seeking IDR benefits.
New Jersey and Pennsylvania Student Loan Forgiveness
New Jersey and Pennsylvania offer loan forgiveness or redemption programs for professionals in high-need fields such as healthcare, education, law enforcement, or STEM.
In New Jersey, the Primary Care Practitioner Loan Redemption Program provides up to $120,000 to primary care physicians working in underserved communities. New Jersey’s Higher Education Student Assistance Authority (HESAA) also lists multiple career-based loan redemption options.
In Pennsylvania, the Urban and Rural Teacher Loan Forgiveness Program delivers state-level relief for certified teachers working full-time in eligible urban or rural public school districts. To qualify, applicants must hold Pennsylvania certification, teach in a qualifying school, and have loans through the agency-administered federal student loans. Here, up to $2,500 in loan debt may be forgiven per year, with a lifetime cap of $10,000 for any recipient.
Chapter 7 Bankruptcy Discharge and Chapter 13 Repayment Plans
When loan forbearance or deferment is no longer sustainable, bankruptcy may offer stronger, court-supervised relief.
Chapter 7 bankruptcy results in a full discharge of most unsecured debts or personal loans, such as credit cards and medical expenses, within a few months for individuals who pass the monthly income-based means test.
To learn more about filing Chapter 7 bankruptcy in Pennsylvania or New Jersey, consult our attorneys.
In contrast, Chapter 13 bankruptcy allows debtors with steady monthly income to restructure payments over three to five years while keeping assets. Both options halt collection actions immediately under the automatic stay. Both work to prevent foreclosure, repossession, and wage garnishment.
To learn more about filing Chapter 13 bankruptcy in Pennsylvania or New Jersey, consult our law firm.
Get Legal Help For Bankruptcy, Deferment, and Forbearance in Pennsylvania and New Jersey
Navigating the variables in the two types of assistance is critical for borrowers evaluating both forbearance options and deferment options. We answer questions surrounding both and assist Pennsylvania and New Jersey borrowers in exploring other options, as well.
If you need legal defense or assistance with your finances, contact Sadek Bankruptcy Law Offices to schedule your free consultation. Pennsylvania clients can call 215-545-0008 and New Jersey clients can call 856-890-9003 to get started.