Deferment, Forbearance & Default

Deferment

Deferment is a right under your promissory note and it permits you to postpone payments for certain defined periods. For example, if you return to school on an at least half-time basis, you qualify for a deferment for most Federal Education Loans. Here is a chart of the most common deferment options (for new borrowers after 7/1/1993):

Deferment TypeLength of Deferment
Full-time enrollment Unlimited
At least half-time enrollment Unlimited
Graduate fellowship Unlimited
Rehabilitation training Unlimited
Military deferment 3 years total
Unemployed but actively seeking work 3 years total
Economic hardship (Monthly loan payment
greater than or equal to 20% of monthly income)
3 years total

If you qualify for a deferment, the Federal Government will pay the accruing interest on the subsidized portion of any Federal Direct Loan you have borrowed and any Federal Perkins Loan. Interest on any unsubsidized portion of the Federal Direct Loan will accrue at a lower interest rate.

Forbearance

If you don’t meet the conditions for a deferment, but are having a difficult time making your payments due to temporary hardship, you may request a period of forbearance. A forbearance is an agreement between you and your loan provider that your next scheduled due date for the loan will be some time in the future, say three or six months or may include an agreed upon lower monthly payment amount. Your loan stays in good standing during a period of forbearance. Interest continues to accrue on loans in forbearance at the applicable repayment period rate.

Default

If you default it means you failed to make payments on your loans according to the terms of your promissory note, the legal document you signed with your lender. Here are some consequences of default:

  • National credit bureaus will be notified of your default, which will harm your credit rating
  • You would be ineligible for additional federal student aid
  • Your wages can be garnished
  • State and Federal income tax refunds will be withheld and applied to your defaulted loans
  • You will have to pay late fees and collection costs on top of what you already owe