Short answer: If you qualify, deferment is a better option, but neither is a good long-term solution.

You might find yourself in a situation where you cannot make a payment on a student loan or a mortgage. You have options, but its important to understand how each option can affect your finances long term. First, lets understand what each term means:

Deferment: Generally speaking, with student loans, deferment means you are postponing any payments for a later date. In most instances of student loans, interest rates are 0% during the deferment period. Deferment on a credit card can mean that, while interest is not owed during the deferment, it can still accrue and might be owed at the time the deferment is over.

Forbearance: A forbearance option is usually the last chance before a default or foreclosure. The literal meaning is “holding back.” In the case of student loans or mortgages, you may have the option to pay a lower amount. This is sometimes the only option if you do not qualify for deferment.

While neither is recommended, if you are in a difficult financial situation, these are two options that can provide some relief.

Finn’s Fact:
Most student loans start accruing interest once the loan is disbursed, with the exception of federal subsidy loans (where the government pays the interest at first.) You can start to make an impact on your loans while in school by paying the interest on any loans you take out. It’s a small way to impact your long-term outstanding balance.