Postponing Loan Payments

Dear Betsy,

I’ve been reading about ways to postpone my payments on my student loan website. I seem to be eligible for a hardship deferment and also forbearance. What’s the difference? Forbearance seems easier, but I am afraid it’s a too-good-to-be-true kind of thing.

Thanks,
Iani

Dear Iani,

Not so much too-good-to-be-true, but one is not as good as the other. While both a deferment and forbearance will postpone your payments, interest will not accrue while you are in deferment if your loans are subsidized. If your loans are not subsidized or if you are in forbearance, the interest will continue to accrue. If not paid, the interest will be added to your principal balance in a transaction called capitalization. At that point, interest will continue to accrue on your new principal balance essentially causing you to accrue interest on your interest.

If you have to take forbearance due to not qualifying for any deferments, you should try to pay as much of the accruing interest as you can along the way.

Regards,
Betsy