Not making your payments and defaulting on student loans could wreak havoc on your credit score and potentially trigger other negative financial impacts. Learn the pros and cons of forbearance to decide whether it is right for you.
What Is Student Loan Forbearance?
Student loan forbearance is the temporary suspension or reduction of student loan payments. During a forbearance period, you’re not required to pay anything toward the principal on your student loans. Interest can continue to accrue on your loans and be capitalized or added to your balance at the end of the forbearance period. Forbearance for federal student loans can be general or mandatory. General forbearance is up to the discretion of your loan servicer. Reasons why general forbearance may be granted can include:
Financial hardshipIncurring medical expensesChange of employment
You can use general forbearance if you have federal direct loans, Federal Family Education Loans (FFEL), or Perkins loans. Mandatory forbearance is required under certain conditions. You can be approved for mandatory forbearance of student loan payments if at least one of the following conditions applies to you:
Serve in an AmeriCorps position for which you received a national service awardServe in a medical or dental residency programAre a National Guard member who’s been activated for dutyPerform services that would make you eligible for teacher loan forgivenessQualify for partial loan repayment under the U.S. Department of Defense Student Loan Repayment programHave a monthly payment that is more than 20% of your total monthly gross income
Both general forbearance and mandatory forbearance periods can be granted for federal loans for up to 12 months at a time.
Who Offers Student Loan Forbearance
The U.S. Department of Education offers student loan forbearance for eligible federal loans. You may be wondering what your options are if you have private student loans. Private student loan servicers and lenders are not required to offer student loan forbearance, but many of them do provide options to borrowers who can’t pay. According to Mark Kantrowitz, publisher and vice president of research at SavingforCollege.com, some private lenders offer a partial forbearance, where the borrower makes interest-only payments during the forbearance period. “This provides financial relief while preventing the loan balance from growing larger,” Kantrowitz said. Among lenders that offer some form of student loan forbearance, the terms are set by each separately and don’t necessarily follow the same guidelines for approval and interest accrual as federal loans. Below, you’ll find highlights of student loan forbearance policies from some of the top loan servicers. The U.S. Department of Education sets all terms for federal loans. It’s up to private student loan lenders to determine whether to offer this option. Generally, deferment periods for federal loans can be offered for these reasons:
Enrollment in schoolFinancial hardshipUnemploymentMilitary deploymentCancer treatmentRehabilitation enrollmentGraduate fellowship
“During a deferment, the federal government pays the interest on subsidized federal student loans,” Kantrowitz said. “The interest on unsubsidized loans remains the responsibility of the borrower and will be capitalized if unpaid.” With forbearance, you’re responsible for paying all of the capitalized loan interest.
Pros and Cons of Student Loan Forbearance
Putting your payments on hold using student loan forbearance has both advantages and disadvantages. “The main problem with a forbearance is that interest continues to accrue and will be added to the loan balance if it is not paid as it accrues,” Kantrowitz said. “This digs the borrower into a deeper hole and leads to the charging of interest on interest.” For that reason, forbearance may only be something to consider after you’ve exhausted other options for managing student debt. According to Kantrowitz, if you’re looking for a long-term solution, you may be better off with something like an income-driven repayment plan instead.
How to Get Student Loan Forbearance
If you’re interested in applying for student loan forbearance, you’ll need to get in touch with your lender or loan servicer. Your lender may ask you to complete an application for forbearance and provide supporting documentation proving your reason for the request. For example, if you’re requesting forbearance due to financial hardship because you’ve been laid off from work, you may need a letter from your former employer showing your separation date.
The Bottom Line
If you’re struggling to keep up with your student loan payments, the best thing you can do is to get in touch with your lender or loan servicer. Explaining the details of your financial situation can help you avoid late or missed payments and subsequent credit score damage while exploring options to make your loans easier to manage and potentially more affordable over the long term.
