While under some financial distress recently, I had to make some modifications to my monthly expense budget. Among the many expenses I must pay, student loans were an expense that I realized I could defer until such time as my income resumed to a normal rate. With a subsidized student loan, I had to figure out what options were best in term of my short term need for financial relief, but to also balance that with the long term potential for paying more interest.
If you have a subsidized student loan, here are some issues to consider when deciding between forbearance and a deferment:
Deciding to use a deferment or forbearance really comes down to the type of student loan that you have. If you have a government subsidized loan – as is the situation in my case – then using the deferment is the better option. Because the subsidized loan I acquired was done so based on my financial need, the same financial need can be used to justify the deferment. Of course, a financial advisor may be the best source of information if you are unsure about what type of student loan you have, and if the deferment is appropriate.
Forbearance – Easy to Utilize
forbearance is very easy to acquire but can only be used for 3 years. For this reason, it is important to always use a deferment when you can, and save the forbearance for a time when your financial need may not necessarily warrant a deferment. When I reach a point in my life where I am more financially stable, then I may need forbearance to, perhaps, cover expenses for a month. I will defer this until that time. For now, and because I’m on a subsidized student loan program, the deferment is the better option.
Deferment versus Forbearance
There is much confusion about the differences between deferment and forbearance among students. Basically, there are two principles that apply: Both are granted, in part, on financial need but the forbearance is far easily to acquire if you haven’t exhausted the 3 years of use. And, second, the forbearance requires that interest continue to be paid while deferment postpones interest until such time as your payments resume. These can be key factors when deciding which to use on a subsidized student loan.
Financial distress is a common issue among students after acquiring a student loan. If you have a subsidized student loan, do not feel bad about your financial need and always consider using the deferment or forbearance options as this will help to minimize negative credit issues in the long term.
Subsidized Versus Unsubsidized Student Loans
Difference Between Payment Delay Options
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