How Student Loan Deferments and Forbearance Work

If your financial situation isn't making it easy to pay off your loans, you might qualify for a deferment or forbearance. See more college pictures.
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Picture this: It's college graduation day. You have your cap and gown, your diploma and congratulations from friends and family. You have hopes and plans for the future. And, if you're like 52 percent of full-time college students, you also have student loan debt. The average full-time student loan for the school year 2007-2008 was $7,100; by graduation, the total amount you owe could be in the tens of thousands [source: National Center for Educational Statistics].

You haven't even started your new job and you're already in debt. What do you do? Sinking into despair is not constructive; neither is defaulting on loans, which can result in poor credit ratings or garnishment of wages. Bankruptcy is not an effective strategy, either: Most likely the loan will not be discharged [source: Federal Student Aid: Loan].

You could start paying off your loans, but if that's not financially feasible, you may have two options. Depending upon the types of loans, amount you owe and immediate plans, you may receive a deferment or forbearance from your lender. Deferments allow you to postpone payment on your loan for several months or even years. With forbearance, you may postpone payments or lower your monthly payment by extending the length of your loan. You may seek deferment or forbearance anytime during the repayment period, but you may not be eligible if you are in default.

Several variables determine which type of debt relief you're permitted, beginning with the type of loan you received: federal or private (also known as alternative). Federal loans include the following:

  • Perkins: Loans for undergraduate and graduate students exhibiting the greatest financial need. This is a subsidized loan: the government pays the interest while you're in school and for 9 months after graduation.
  • Stafford: The most common undergraduate and graduate student loan. Subsidizing depends upon need.
  • PLUS: Unsubsidized loans given to graduate students or parents of undergraduate students.

[source: Federal Student Aid: Loans]

Private (alternative) loans are through banks and other lending institutions and function much the same as other consumer loans: the terms vary, often significantly, from lender to lender. Read more about private and federal loans in How Student Loans Work.

Sorting through student loan repayment may seem complicated, but it's actually easier than that organic chemistry class you passed in your junior year. We'll examine qualifications for attaining deferments or forbearance, the processes for application and reimbursement, and the pros and cons of participation. First up: How do you know whether you're eligible for a deferment or forbearance?