What is Student Loan Forbearance and When Should You Use It?
Student Loan Forbearance allows you to temporarily suspend your student loan payments. These programs can help when you’re in financial trouble. For example, if you lose your job, it can become difficult to keep up with your monthly loan payments.
Not making your payments and defaulting on student loans can affect your credit score and potentially have other negative financial repercussions. Learn the pros and cons of forbearance to help you decide if it’s right for you.
What is Student Loan Forbearance?
Student loan deferral is the temporary suspension or reduction of student loan payments. During a deferral period, you do not have to pay anything on the principal amount of your student loan. Interest may continue to accrue on your loans and may be capitalized or added to your balance at the end of the forbearance period.
Forbearance on federal student loans can be general or mandatory. General forbearance is at the discretion of your credit servicer. Reasons for granting a general omission may be:
- Incidental medical expenses
- job change
You can qualify for general forbearance if you have federal direct loans, federal family education loans (FFEL), or Perkins loans.
Enforcement is required under certain conditions. You may be granted a deferral of student loan payments if at least one of the following applies to you:
- Serve in an AmeriCorps position for which you have received a national service award
- Serve in a medical or dental residency program
- Are a member of the National Guard activated for duty
- Provide services you would qualify for teacher loan forgiveness
- Qualify for a partial loan repayment under the US Department of Defense Student Loan Repayment Program
- Have a monthly payment that is more than 20% of your total monthly gross income
Who Offers Student Loan Forbearance?
You may be wondering what your options are if you have private student loans. Private service providers and student loan lenders are not required to offer student loan forbearance, but many do offer options to borrowers who cannot pay. According to Mark Kantrowitz, editor and vice president of research at SavingforCollege, some private lenders offer partial forbearance, in which the borrower only makes interest payments during the forbearance.
“This relieves the financial burden and at the same time prevents the loan balance from increasing,” said Kantrowitz. Among lenders that offer some form of student loan forbearance, the terms are set by each individually and do not necessarily follow the same approval and accrual guidelines as federal loans.
Below are highlights of student loan forbearance policies from some of the top loan servicers. The US Department of Education sets all of the terms and conditions for federal loans.
Forbearance vs Procrastination
Deferral is another way to temporarily suspend student loan payments. You can apply for a deferment for eligible federal students, including direct loans, FFEL loans, and Perkins loans. The deferral can last up to 36 months. , ,
It is up to private student loan lenders to decide whether to offer this option. Generally, federal loan deferral periods may be offered for the following reasons:
“During a deferral, the federal government pays the interest on the subsidized federal student loans,” said Kantrowitz. “Interest on unsubsidized loans remains the responsibility of the borrower and is capitalized in the event of non-payment.”
Pros and cons of student loan deferral
“The main problem with forbearance is that if it’s not paid when it accrues, interest will continue to accrue and be added to the loan balance,” Kantrowitz said. “That digs the borrower in a deeper hole and results in interest being charged on interest.”
For this reason, forbearance might only be something to consider after you’ve exhausted other student debt management options. If you’re looking for a long-term solution, Kantrowitz says you might be better off with something like an income-based repayment plan.
How to Get Student Loan Forbearance
If you are interested in applying for a student loan rebate, you will need to contact your lender or loan servicer.
Your lender may ask you to fill out an application for forbearance and provide supporting documents to support your reason for the request. For example, if you are asking for leniency due to financial distress because you were fired from work, you may need a letter from your former employer stating your date of separation.
The final result
If you’re having trouble keeping up with your student https://badcreditloanshelp.net/payday-loans-md/ loan payments, your best bet is to contact your lender or loan servicer. Explaining the details of your financial situation can help you avoid late or missed payments and the resulting damage to your credit score, while also exploring options to make your loans easier to manage and potentially more affordable in the long run.
