Weekly Tip: Loan Forbearance vs. Deferment

This week’s tip is on student loan forbearance vs. deferment in case your VISTA members or candidates have questions. From the VISTA campus page here https://www.vistacampus.gov/members/benefits-of-service/reduction-of-education-costs, it states:

“If you have federal student loans (also called 'qualified' student loans), you may be able to put your loans into forbearance or deferment; the specific program will depend upon the end-of-service option you choose.

Federal student loans + education award = forbearance

Forbearance is a temporary postponement of principal loan payments. The reason for this forbearance is 'national service.' The Corporation's Trust pays interest during service. Since these payments are considered income, however, you will have to pay taxes on the amount of interest paid by the Trust. This is the program available if you select the education award as your end-of-service benefit.

Federal student loans + stipend = deferment

Deferment is a postponement of monthly loan payment(s). For subsidized loans, accrued interest will automatically be paid by the Department of Education if the loan is deferred. Your lender decides if you can defer your student loans during your year of service. The reason for this deferment is 'economic hardship.' You will need to obtain forms from your lender. You may also be eligible for cancellation of part of your Perkins Loan. Deferment is appropriate route to go if you choose the stipend as your end-of-service benefit.”