What Is Forbearance for Student Loans, and How Can It Help You?
When facing financial hardship, you may have trouble paying bills, including your student loans. In this case, one of your options might be student loan forbearance. But what is forbearance? It’s an agreement between you and your lender that helps you get some breathing room on payments while you get your financial situation in order.
What is forbearance?
Forbearance is a protection offered by Federal Student Aid for federal student loans, such as direct subsidized or unsubsidized loans. Some private student lenders offer forbearance plans as well, but they won’t have the same guidelines as federal lenders must follow.
Normally, if you stopped paying your student loans, they would go into student loan default. When you put your federal student loans into forbearance, however, you can postpone your monthly payments without defaulting. Defaulting on federal student loans can drag down your credit score and even lead to wage garnishment, so it’s something you’d want to avoid at all costs.
You should understand that interest will typically continue to accrue on your loans while they are in forbearance, which means you could face an even larger debt when you resume repayment. But that pause in monthly bills might give you the time you need to improve your financial situation. You may also choose to make interest payments during the forbearance period.
How do you get approved for forbearance?
There are two main types of forbearance for federal loans — general and mandatory forbearance — while private student loans fall into a different category altogether. Let’s take a look at all three types:
You would request general, also called discretionary, forbearance if you are experiencing any of the following:
- You’ve run into financial trouble
- You’ve encountered unexpected medical expenses
- You’ve lost your job
- You’ve been dealing with another challenge that has caused financial hardship
Your loan servicer will decide whether to approve your request. If your request is approved, you could have your payments paused for up to 12 months at a time. If you’re not able to pay after this period is up, you could apply for forbearance again, with a cumulative limit of three years.
You can get general forbearance if you have a direct loan, Federal Family Education (FFEL) Program loan or a Perkins loan (you can no longer take out a new Perkins or FFEL loan, but many borrowers are still repaying these loans).
If you qualify for mandatory forbearance, your loan servicer is required to grant your request.
You could be eligible if any of the following apply to you:
- You’re completing a dental or medical internship or residency and have an eligible loan.
- You’re serving in AmeriCorps and have an eligible loan.
- You’re activated as a member of the National Guard, but don’t meet the requirements for military deferment.
- You’re teaching in a capacity that could qualify you for teacher loan forgiveness.
- Your monthly payments for all student loans have been at least 20 percent of your gross monthly income for up to three years.
Mandatory forbearances apply to direct loans and FFEL program loans, with Perkins loans also applicable to a Student Loan Debt Burden forbearance.
As is the case with general forbearance, a mandatory forbearance can be granted for 12 months at a time. You may request another forbearance if you are still experiencing financial difficulties at the end of the first 12 months.
In times of broad economic distress, such as during a serious recession or in the aftermath of a natural disaster, you may have your loans placed under automatic administrative forbearance.
Private student loan forbearance
Forbearance for private student loans is in a different category. There are no overarching guidelines for these loans as there are for federal loans, and each lender will have its own rules regarding forbearance and other programs offered if a borrower is experiencing financial hardship.
Some lenders are likely to be more flexible than others. If you are looking for private loan forbearance, contact your lender directly and see what can be worked out. You may be able to get a short-term forbearance for three to six months, or a longer-term forbearance.
While going through any kind of forbearance approval process, make sure you continue to make your payments until you are officially approved. Missing payments can have a negative impact on your credit, even if you have applied for forbearance.
What are the pros and cons of student loan forbearance?
Student loan forbearance is an option for borrowers who are struggling financially, but it isn’t a perfect solution. Below are some pros and cons of forbearance.
Pros of forbearance
- It allows borrowers to get some breathing room on payments when dealing with financial struggles.
- It’s a way to avoid default, which has a very negative impact on your credit score.
- Although the terms are only for 12 months at a time, you can extend your forbearance period if necessary.
Cons of forbearance
- Even though extensions are available, it isn’t a long-term solution for financial difficulties.
- Interest typically continues to accrue on the loans while you are in forbearance, which can make for a larger overall loan balance.
- Unless you’re applying for a mandatory forbearance, approval is not automatic. In addition, private lenders may not offer forbearance terms as favorable as those for federal loans.
Is student loan forbearance the right choice for you?
Although pausing payments through forbearance could bring you the financial relief you need, it’s only a temporary solution. Eventually, you’ll need to resume payments, and your student loan debt may become even bigger than when you started the period of forbearance.
Here are some alternatives to forbearance for you to consider.
- Deferment: Deferment can be a better option than forbearance: It also pauses payments, but you may not have to pay interest on direct subsidized or other types of loans. You can qualify for deferment if you meet certain criteria, such as being unable to find a job, going back to school or serving on active duty in the military.
- Income-driven repayment: This adjusts your monthly payments along with your income, and extends your repayment terms to 20 or 25 years. Income-driven plans include Income-Based Repayment, Pay As You Earn, Revised Pay As You Earn and Income-Contingent Repayment. If you still have a balance after your term is up, the rest will be forgiven.
- Extended Repayment Plan: This plan lengthens your term to up to 25 years and has you pay a fixed or graduated amount from month to month.
- Graduated Repayment Plan: This plan lowers your monthly payments now and gradually increases them over a 10-year term.
Whatever you decide to do with your student loans, make sure to weigh your options before you take action. That way, you can determine the approach that will benefit you the most in the long run.
No matter your situation, you should speak with your loan servicer to review your options and work out a student loan repayment plan that is best for you.