What is Loan Forbearance?

If you’re struggling to make your monthly loan payments, you may be considering loan forbearance as a way to temporarily reduce or suspend them. But what is loan forbearance? Keep reading to learn everything you need to know about this debt relief option.

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What is loan forbearance?

Loan forbearance is an agreement between you and your lender to postpone or reduce your monthly payments for a temporary period of time. This can be helpful if you’re experiencing a financial hardship and are unable to make your regular payments.

Forbearance is not a long-term solution, and you will still be responsible for repaying the full amount of your loan, plus any interest that accrues during the forbearance period.

If you’re considering loan forbearance, it’s important to understand all of the terms and conditions before entering into an agreement with your lender. You should also be aware that there may be negative consequences, such as damage to your credit score, so it’s important to weigh all of your options before deciding whether loan forbearance is right for you.

How does loan forbearance work?

When you forbear, your payments are postponed or reduced for a period of time. The total amount you owe does not go away, and interest continues to accumulate on your unpaid principal balance. You’ll have to repay the deferred payments, plus interest, when the forbearance period ends. You might be able to make interest-only payments during forbearance.

Who is eligible for loan forbearance?

There are two types of forbearance: mandatory and discretionary.

You’re typically eligible for mandatory forbearance if you meet one of the following:
-You’re a teacher working in a low-income school or educational service agency, or you’re performing qualifying National Service
-You’re experiencing financial hardship due to unemployment or underemployment, economic difficulties, or other unforeseen circumstances
-You’re serving in a medical or dental internship or residency program, and the monthly payments on your Direct Loans would exceed 20% of your monthly income
-You’re the parent of a dependent student and you’re unable to obtain a PLUS Loan because of adverse credit history

You may be eligible for discretionary forbearance if you don’t qualify for mandatory forbearance. Your loan servicer can approve discretionary forbearances for up to 12 months at a time for the following reasons:
-Financial hardship due to unforeseen circumstances
-Illness
-Temporary disablement
-Poor repayment history on your student loan

What are the benefits of loan forbearance?

Loan forbearance allows you to temporarily stop making payments on your loan, or to make smaller payments than you normally would. This can help you catch up on missed payments, or lower your monthly payment to an amount that is more manageable.

There are two types of forbearance: mandatory and discretionary. Mandatory forbearance is available for certain types of loans, and is typically used for reasons such as financial hardship or economic hardship. Discretionary forbearance is available for all types of loans, and can be used for any reason that the lender deems appropriate.

The benefits of loan forbearance include:
-Allowing you to catch up on missed payments
-Lowering your monthly payment to an amount that is more manageable
-Giving you time to resolve a financial hardship

What are the drawbacks of loan forbearance?

While forbearance can provide much-needed relief in the short term, it’s not without its drawbacks. One of the biggest potential drawbacks is that interest still accrues on your loans during the forbearance period. That means you could end up owing considerably more than you did before you entered forbearance once the payment break is over.

Another potential drawback is that some forbearance plans require you to make up the missed payments at the end of the forbearance period. That could mean having to make larger monthly payments for a period of time until you’ve caught up. Some plans also extend the length of your loan, which means you’ll be making payments for a longer period of time overall.

How do I apply for loan forbearance?

Contact your loan servicer to discuss your options for forbearance. You can find your loan servicer’s contact information on your monthly statement or by logging in to My Federal Student Aid.

If you have a Direct Loan or FEEL Program loan, you also may be able to request forbearance online through your account at StudentLoans.gov.

What are some alternative options to loan forbearance?

In order to offer forbearance, your lender must agree to it. You’ll need to provide documentation of your financial hardship, and you’ll need to continue making payments until your forbearance period has been approved.

If your lender does not offer forbearance as an option, or if you’re not eligible for forbearance, there are a few other alternative options to consider:

1. Negotiate with your lender: You may be able to negotiate a new payment plan or a reduced interest rate with your lender. This is often easier to do before you fall behind on payments.

2. Refinance your loan: If you have good credit, you may be able to refinance your loan and get a lower interest rate or extend the term of your loan, which would lower your monthly payments.

3. Get a personal loan: You may be able to get a personal loan from a family member or friend at a lower interest rate than what you’re currently paying on your student loans. Just be sure to draw up an agreement so that there are no hard feelings if you can’t make payments.

4. Consider bankruptcy: This should be a last resort, but if you’re truly struggling, you may be able to discharge your student loans through bankruptcy. However, this is difficult to do and will have a major impact on your credit score.