There are around 45 million individuals in the U.S. that have student loans—amounting to $1.6 trillion in debt. Unfortunately, the economic downturn brought about by COVID-19 has left many of those borrowers struggling financially. If you fall into that category, there are two main options available to avoid defaulting on the accounts: deferment and forbearance. Here's a look at the differences between the two routes.

Deferment

What Is It?

Deferment allows a borrower to stop making payments on their loans for a specific amount of time. It's often the most sought-after choice because there aren’t any interest charges on most federal loans during that period. Exceptions include unsubsidized loans—both direct and Stafford. The length of deferment is based on the reason you're seeking approval, but most circumstances allow for up to three years of nonpayments.

Who Qualifies?

The qualifications for student loan deferment are fairly strict. You need to fit into one of the following categories for approval:

• Loss of job or unemployment
• Economic hardship
• Enrolled in at least six credit hours
• Active military duty
• Entering a graduate fellowship
• Rehabilitation training or treatment

To receive a deferment for one of these qualifying hardships, you need to submit a request with the appropriate servicer.

Forbearance

What Is It?

The two main differences between forbearance and deferment are the length of time you're allowed to stop making payments and the accrual of interest. Typically, the maximum amount of time to push off loan payments under this option is 12 months. During the time of nonpayment, interest still accrues. However, interest rates on federal student loans have all been temporarily reduced to 0% until Sept. 30, 2020.

Who Qualifies?

During normal circumstances, forbearance is the easiest option to obtain and a top choice for individuals facing temporary financial issues. Most servicers are lenient with approvals, which can be obtained by filling out a form or talking over the phone. However, the recent approval of the Coronavirus Aid, Relief, and Economic Security (CARES) Act automatically places all federal loans into administrative forbearance until the end of September. In combination with the reduced interest rate, forbearance results in the same impact as deferment in the short-term.

If the pandemic has left you overwhelmed by debt, contact the team at Padgett & Robertson, Attorneys at Law, in Mobile County, AL. For over 35 years, residents across southern Alabama have relied on the local law office for guidance in the debt relief process. From student loans to credit card debts, the bankruptcy lawyers offer a personalized review of each individual’s options. Request a free consultation online, or call (251) 342-0264.

No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers. We are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code.