If you are having trouble repaying your federal or private loans, you may want to consider placing your student loan into forbearance. You can pause paying back student loans for a while if you apply for forbearance. In times of financial strain, you can temporarily stop making payments on your student loans or reduce them, usually for no more than a year. Since March 13, 2020, administrative forbearance has been in effect for federal borrowers who meet the criteria; during this time, no monthly payments are necessary, and no additional interest is accruing. Continue reading to discover everything you need to know about student loan forbearance.
Student Loan Forbearance
When and how long loans can be placed into forbearance are subject to strict regulations set forth by both the federal government and private student loan providers. For instance, if you had a federal loan during the COVID-19 pandemic, you were qualified for “administrative forbearance,” which pauses student loan payments and prevents interest from accruing. Traditional forbearance and deferment result in higher loan balances when you start making loan repayments because interest continues to accrue during these periods.
The interest on your loans is still being charged by your lender while you are in traditional forbearance; if you don’t make interest-only payments, the unpaid interest will be capitalized and added to the principal balance of your loan. You would have to pay interest on top of interest if you didn’t. The only exception would be if you were eligible for a federal student loan repayment moratorium, like the one put in place in 2020 as a result of the COVID-19 pandemic.
The total amount you owe on the debt may change based on the type of loan you have, the reason you enter forbearance, and the length of time your loan payments are suspended. Forbearance on loans from the government and private lenders, for instance, results in interest still accruing on the outstanding balance. This interest will be capitalized or added back to the loan balance, where it will be added to earlier interest payments and further accrue interest.
According to specific federal programs, qualified borrowers may not be charged any additional interest while their loans are suspended, saving them money. This is true of the current federal student loan forbearance, which was implemented in March 2020. It will end in the middle of 2023.
What Is a Student Loan Forbearance
Depending on whether you have federal or private student loans, your options for forbearance will vary. Forbearance is available to all borrowers of federal loans who can demonstrate financial hardship. Forbearance is a common option for federal student loans, and the same rules apply to all federal loans.
If, when, and how long forbearance is allowed are all decisions that are left up to each private student lender. Federal borrowers typically have a forbearance period of up to 12 months; however, this period may be extended for a maximum of three additional years in increments of 12 months.
Unlike private loans, your federal student loans may be subject to mandatory forbearance if your monthly payment consumes a disproportionate amount of your income. New borrowers should never take out private student loans before using their federal student loan options because it is simpler to put federal loans into forbearance.
Types of Federal Loan Forbearance
General and mandatory forbearance are the two categories of a federal loan forbearance
#1. General Forbearance
Your loan servicer has the right to accept or reject your request for general forbearance at their discretion. The loan servicer may grant general forbearance in certain circumstances, such as unexpected medical costs, unemployment, or virtually any other financial hardship that makes it impossible for you to make loan payments. You can call your loan servicer and ask for a general forbearance over the phone or submit an online form to request one. If you are having trouble making payments on your direct, FFEL, or Perkins loans and are not qualified for a deferment, you can ask your student loan servicer for a general forbearance of up to 12 months.
After a year, if you’re still having trouble making ends meet, you must reapply for forbearance with your lender. Throughout the loan, you are not permitted to put your debts into general forbearance for longer than three years.
If you meet the following criteria, you may be eligible for general forbearance on Perkins Loans, Direct Loans, and FFEL Program Loans:
- Suffer a financial setback
- Your employment situation changes significantly or you lose your job
- Have unforeseen or expensive medical costs
- Encounter specific qualifying circumstances
#2. Mandatory Forbearance
In contrast to a general forbearance, which is granted at the sole discretion of your loan servicer, if you are qualified and request one, you must be granted it. A different form is used for Teacher Loan Forgiveness and AmeriCorps, but the majority of mandatory forbearances use the same form, Mandatory Forbearance Request: SERV. Your loan servicer must accept your request for mandatory forbearance if you can meet the criteria. Although your lender cannot choose to reject you, you must still apply. Mandatory forbearance might be appropriate for you if
- You are enrolled in an internship or residency program that is acceptable in medicine, dentistry, or both.
- Your total monthly student loan payments for the next three years will be at least 20% of your gross income.
- You have a national service award from AmeriCorps and are currently working there.
- You’re working as a teacher, which makes you eligible for teacher loan forgiveness.
- Per the DOD Student Loan Repayment Program, you are eligible to have a portion of your loans repaid.
- You are a member of the National Guard and are not qualified for a military deferment because the governor activated your unit.
Depending on the loan type, different requirements for required forbearance apply. Additionally, mandatory forbearance is only available for a maximum of 12 months; if you still meet the requirements, you must reapply.
How Do I Apply for Forbearance on My Federal Student Loans?
These are the procedures to apply for and request a temporary repayment pause if you have federal student loans and believe forbearance is your best course of action.
#1. Identify the Loan Servicer
In many circumstances, you will need to get in touch with your loan servicer, so you should first identify them. Entering your StudentAid.gov login information will allow you to access the “My Loan Servicers” section of the website.
#2. Contact the Servicer
You might need to contact your loan servicer(s) first, depending on your circumstances and the reason behind your request for forbearance. By doing so, you’ll be able to discuss your circumstances and identify your options.
#3. Decide if You Require either General or Mandatory Forbearance
Does paying off your debt consume more than 20% of your disposable income? Have you been recalled to active duty as a member of the National Guard? You might be eligible for mandatory forbearance for the reasons listed above (among others), whereas other borrowers might have a stronger case for general forbearance.
#4. Apply for Forbearance
You should submit your application as soon as you are aware of the type of forbearance you are eligible for. When a borrower’s payments place an excessive burden on others, for example, there may be a standard form that must be completed and submitted. In other cases, your servicer might have a unique form or demand that you call to make a forbearance request.
Types of Private Loan Forbearance
Although forbearance is among the biggest advantages available to federal loan borrowers, some private lenders also offer forbearance options. Private student loan forbearance options vary depending on the lender, but they are typically less accommodating than those offered by federal loans.
While you are attending classes, participating in an internship, or completing a residency in medicine, private lenders frequently offer forbearance options. Some businesses allow students to pay with interest only. In most cases, forbearance while attending school has a time limit, so if it takes you more than four years to complete your education, there might be issues. In addition, some creditors offer a grace period of six months after graduation.
If you graduate, lose your job, or experience financial difficulties, some private lenders may grant you a forbearance. The typical duration of these is up to 12 months, but never for longer than two months at a time. For every month that you forbear payments, there might be an extra charge.
It is very important to remember that not all lenders offer these options, and they are never guaranteed. Always try your best to use all available federal loan options before applying for a private loan. A private lender might be able to provide:
- Short-term indulgence because of financial difficulty
- Options for occasional or regular forbearance, like the yearly “skip a payment” option or alternatives
- Long-term forbearance available to qualified borrowers
- Absolutely no options for forbearance
How Do I Submit a Request for a Forbearance on My Private Student Loans?
It’s important to check with your lender to learn about the requirements as each private lender has a different application process for forbearance. The process often involves:
- Calculating how much you owe each month and how that fits into your budget or financial situation.
- Assessing your eligibility for the loan, which may include factors like loan terms and payment history just recently.
- Completing the loan application. If the lender has a website, this might be accessible online.
- Calling or emailing the lender to discuss the difficulty and submit your request for forbearance.
- Depending on your circumstances and what the lender wants, you may need to provide proof of the hardship.
Pros and Cons of Student Loan Forbearance
Forbearance of student loan payments has benefits and drawbacks, just like other financial instruments.
Pros
- Far superior to garnishment or default.
- Lower interest rates than payday loans or personal loans.
- Allows you to pay for essential expenses.
- Doesn’t affect your credit score.
- Budget flexibility and relief in the event of financial difficulty.
- Do not let your loan go into default as this could result in legal action.
Cons
- Not a long-term solution.
- Accrued interest must be capitalized, which is expensive.
- Loan default might happen if renewals happen frequently.
- Your credit score will suffer from missed or late payments.
- Make your loan last longer overall.
- Most of the time, interest keeps building up.
- You might end up paying interest on interest if the lender capitalizes interest on your loans while they are in forbearance and incorporates it into the principal balance.
- Not accessible for all loans.
When Do Student Loan Payments Resume
The federal student loan forbearance period began on March 13, 2020, and has been extended several times since then. The current deadline is June 30, 2023. Payments will resume 60 days after the conclusion of this most recent extension if it is not extended by that time.
Is Student Loan Forbearance Being Extended?
Before this modification, individuals should expect the forbearance period to end 60 days following June 30 or 60 days following a Supreme Court decision, whichever came first. Except in cases where the courts make a final judgment on debt forgiveness before that date, the pause will now end on June 30, 2023.
Will Student Loans Resume?
If the Supreme Court rules on President Joe Biden’s student debt forgiveness plan before that date, in which case payments will begin again 60 days later, federal student loan payments will once again begin 60 days after June 30.
What Is the Biggest Difference Between Deferment and Forbearance?
If you are unable to make your student loan payments, you may be able to do so through deferment or forbearance. The key distinction between the two is that deferment for some federal loan types may be interest-free while forbearance almost always increases the amount you owe.
Will Biden Extend Student Loan Freeze?
The federal student loan moratorium shall terminate no later than June 30, 2023, unless an earlier termination is required by a court decision on legislation relating to student loan forgiveness. Loan payments will start again 60 days after the end of the suspension period if there is no alternative solution by the middle of 2023.
The forbearance period might be extended once more by the Biden administration, but neither that outcome nor whether the current loan forgiveness law will be upheld or struck down are certain.
Will Student Loan Forgiveness Be Automatic?
You won’t automatically receive a refund to raise your loan forgiveness to $10,000 if you continued making payments on your federal student loans throughout the forbearance period and currently owe less than that sum. There will be a $10,000 or $20,000 cap on the amount of existing student loan debt that can be forgiven per borrower.
What Are the Negatives of Forbearance?
The biggest drawback of forbearance is that interest continues to accumulate. Your overall debt will therefore increase as a result. Depending on your loan provider, they might require you to pay a fee upfront to request forbearance. You’ll ultimately owe more money as a result of this and interest that keeps accruing.
Conclusion
When you try to use forbearance as a long-term solution by repeatedly renewing your status, it can be very expensive. It does, however, give you a short window of time to cover costs for things like housing and utility bills. The result could be loan default or worse, along with the potential for serious harm to your credit score. Keep up with your payments while your application is being reviewed, exit forbearance as soon as you are financially able to, and, if at all possible, pay interest as it accumulates to avoid complications and needless costs both during and after forbearance.
Forbearance of student loan payments is typically a last resort rather than a first choice. Use it if you only require short-term relief and are not eligible for deferment. Consider an IDR plan as an alternative for persistent issues. If at all possible, pay the interest when it is due to avoid paying interest on interest when you start repayment again. Finally, when you first start having financial issues, speak with your loan servicer to go over all of your options for making payments.
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