Forbearance for Student Loans

Student loans can be critical for achieving higher education goals. What happens when your financial situation changes unexpectedly? Forbearance may serve as a temporary relief. It pauses your loan payments, offering a short-term solution during tough times.

What is Forbearance?

Forbearance is a temporary postponement of your student loan payments. It is a reprieve from lenders for borrowers facing financial difficulties that hinder scheduled loan repayments. Unlike loan forgiveness, forbearance delays your payments without eliminating your debt.

Types of Forbearance

There are two main types of forbearance: general (discretionary) and mandatory.

• General Forbearance is granted at the lender's discretion when you face financial hardship, illness, or other personal issues. It's not guaranteed, but lenders may assist borrowers who demonstrate a genuine need.

• Mandatory Forbearance requires lenders to grant relief if you meet specific criteria. Examples include serving in a medical or dental internship, completing qualifying teaching service for loan forgiveness, or if the amount owed on student loans exceeds 20% of your monthly gross income.

Eligibility for Forbearance

To be eligible for forbearance, you must have a student loan and be experiencing financial hardship due to reasons like unemployment, medical expenses, or income changes. Eligibility varies by loan servicer and loan type, so it's advisable to check directly with them.

Some borrowers may not need to document their hardship, while others may need to provide proof. Additionally, federal student loan holders might have access to deferment options before seeking forbearance.

How Does Forbearance Work?

During the forbearance period, you may not make payments or may make smaller payments. Unlike deferment, interest accumulates on all loan types during forbearance. When the forbearance period ends, the accumulated interest is added to the principal balance, a process called capitalization, which can increase your overall loan cost.

The Pros and Cons of Forbearance

Pros:

• Provides temporary financial relief.
• Helps avoid default, protecting your credit score and financial future.
• Often easier to qualify for compared to deferment, especially for private student loans.

Cons:

• Interest accrual can increase total debt over time.
• Capitalization may lead to higher monthly payments after forbearance ends.
• Does not contribute to loan forgiveness programs, potentially prolonging qualification time.

The Application Process

To apply for forbearance, contact your loan servicer. They will guide you through the necessary steps and provide required forms. Continue making payments until your request is approved, as missed payments can harm your credit score and lead to default. If financial difficulties are significant, reach out to your servicer early for alternative options, like income-driven repayment plans.

Smart Moves During Forbearance

If forbearance is your best option, consider making interest payments during this time if possible. This approach can prevent your loan balance from increasing significantly when capitalization occurs.

Additionally, use this period to review your finances, reduce unnecessary expenses, and explore additional income sources. This preparation can help you manage your loans more effectively when forbearance concludes.

Forbearance can provide temporary relief during financial challenges, but it has drawbacks. Consider the long-term effects on your loans and financial health. Consulting a financial advisor or your loan servicer can help clarify your options and responsibilities. Stay informed, assess your situation realistically, and take control of your financial journey.