- Forbearance is when you are given a break in having to make payments on your student loans.
- You can get forbearance for both federal and private student loans, though the terms are different.
- Forbearance does not mean loan forgiveness and it does not save you money; in fact it can end up costing you more in the long run.
- Currently, all federal student loan borrowers have been awarded a special forbearance during the COVID-19 pandemic, with payments suspended through Aug. 31, 2022.
Student loan debt has developed into a full-blown crisis in the U.S., impacting millions of borrowers and at alarmingly high numbers.
Case in point: According to the U.S. Department of Education, 43.4 million Americans have outstanding federal student loan debt, with $1.61 trillion in total college federal loan debt. Private student loans were at about $130 billion in 2020, bringing the total to $1.75 trillion according to the Student Borrower Protection Center, a college financing advocacy group.
Separate data from D.S. Davidson & Co., a financial services firm, showed that 81% of student loan borrowers believe student loan debt is a big problem, with 55% “in favor of a wide-scale student loan forgiveness program.”
That’s where student loan forbearance can help.
With forbearance, if you’re financially challenged, you can earn a reprieve from onerous student loan debt—with some strings attached.
Here’s a closer look at forbearance, and how it may help you if you’re down on your financial luck, and potentially set you up for better days ahead.
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What is student loan forbearance?
Student loan forbearance enables federal student loan borrowers to suspend monthly payments, or lower the payment amounts, for up to a year at a time, although maximum term timetables can go up to three years. Private loans offer forbearances in two- to three-month increments for up to a maximum of a year in total duration.
“There are several different types of student loan forbearance, but in general, it means that a borrower gets a reprieve from making loan payments for a set period of time,” says Randy Lupi, regional vice president at Equitable Advisors, a financial services firm in Chesterland, Ohio.
Interest still accrues while loans are in forbearance, which leads to a higher balance later on.
“If a borrower has a significant financial hardship, they can ask their loan servicer for a hardship forbearance,” Lupi says. “This isn’t guaranteed, but is often granted in cases where there is an unexpected change in a borrower’s ability to pay.”
Keep in mind that student loan deferment is different from student loan forbearance. While both student loan programs enable borrowers to temporarily postpone or reduce federal student loan payments, deferment borrowers with subsidized government loans will see no interest accrue in their loan account.
In contrast, borrowers who opt for student loan forbearance will see interest accrue in their loan accounts during the forbearance period. (For both deferment and forbearance, interest does accrue for unsubsidized government loans and private lender loans.)
Even if you’re in forbearance, you have options. You can pay the student loan interest as it accrues, or you can let the interest grow and be capitalized (i.e., the interest is tacked on to the loan principal balance) at the termination of the forbearance period.
You can also elect to not pay the interest on the student loan and allow it to be capitalized. In that scenario, the total amount you pay over the life of the student loan can be larger. By law, a student loan’s unpaid interest is capitalized only on Direct Loans and Federal Family Education Loan (FFEL) Program loans, but is never capitalized on Federal Perkins Loans.
How student loan forbearance works
For federal student loans
Forbearance typically offers two loan suspension models: general forbearance and mandatory forbearance.
With general forbearance, an allowable loan payment suspension is available for federal Direct Loans, Federal Family Education (FFEL) Program loans, and Federal Perkins Loans.
General forbearance is good for 12 months—after that, normal repayment obligations are back in play. If you continue to have personal issues that negate or minimize your ability to repay your loans after the 12-month loan suspension period, you can apply for a new general forbearance.
That cycle is allowed for three years, with three different forbearance periods, at which time general forbearance options end.
In certain situations, a mandatory forbearance is allowed if you meet federal student loan requirements.
For example, if you serve in AmeriCorps, and have received a national service award, you clear the hurdle for mandatory forbearance on your federal loans. Similar service in the U.S. military and national guard, as a school teacher, or as a medical or dental professional in residency allows for mandatory forbearance on federal student loans.
Additionally, there are some gray areas between what constitutes general forbearance and hardship forbearance, and you can speak to your federal or private student loan servicer to discuss your specific situation.
“There are general and mandatory forbearances available,” says Andrew Pentis, a student loan specialist at Student Loan Hero, an online college financing platform. “If a borrower reaches the criteria for a mandatory forbearance, then the servicer is required by the U.S. Department of Education to grant a forbearance.”
Lenders also have a say in who does or does not get forbearance.
“If a federal borrower applies for a general forbearance, perhaps because of a job loss or other financial challenges, it’s up to the loan servicer’s discretion as to whether to award it,” Pentis says. “Private student loan forbearance is similarly at the discretion of the bank, credit union or other financial institution that disbursed the loan. They might have general criteria to qualify for a forbearance, but they’re still awarded on a case-by-case basis.”
For private student loans
In general, it’s much more difficult to suspend student loan payments with private loans.
That doesn’t mean that it’s impossible. Private lenders may or may not offer loan forbearance programs. If they do, the option will be included, along with all relevant program fees and charges, in your student loan contract.
Your best bet is to review your private student loan contract for any loan relief language, especially on deferments and forbearances. If there’s any doubt in the contract, contact your private loan lender and ask about any student loan relief programs.
Applying for student loan forbearance
To apply for student loan forbearance, borrowers can usually log in to their loan servicer’s website and request general forbearance.
“If they have a financial or other emergency or unforeseen change in their ability to make their loan payments—such as a job loss, new disability or illness that prevents them from working, or unexpected medical bills, for example—and they’ve already used their general forbearance, individuals can call their servicer and ask for hardship forbearance,” Lupi says.
In significant situations, borrowers should call rather than making a forbearance request online.
“This way they can find out if their request is approved in real time,” Lupi notes. “In some cases, a servicer may want to see documentation of the borrower’s situation before granting the hardship forbearance.”
Pros and cons of student loan forbearance
Student loan forbearances offer upsides and downsides for borrowers.
The obvious “pro” on student loan forbearance is you get a break from payments. “Forbearance keeps you current on your debt, avoiding delinquency and default, without calling for your normal monthly payments,” Pentis says.
On the “con” side, forbearance can lead to heftier loan totals—and higher payments. “People can go into general forbearance for any reason, and it can certainly help in a hardship,” Lupi says. “That said, borrowers need to know that while loans are in forbearance, payments don’t need to be made, but interest on the remaining balance still accrues and can cost more in total in the future. “
That added interest matters. For example, after one year in forbearance, a $100,000 loan balance with a 6% interest would accumulate $6,000 in interest, making the balance $106,000 when forbearance ends.
In the long run, forbearance can be a Band-Aid solution that won’t solve any long-term debt problems. “Interest will also continue to accrue, so your loan balance will grow while your loan term will stretch, making it harder to resume repayment when you’re financially ready,” Pentis notes.
That’s why forbearance should be a short-term solution if you really need it. You may have other options outside of forbearance to help if you are in a bind, such as repayment plans, refinancing and consolidation.
For example, with income-based student loan repayment plans, borrowers can modify and lower their monthly payments, based on their annual incomes. The less the borrower earns in annual income, the lower the monthly payments. Plus, payments on income-based repayments plans may be capped after 20 years for federal student loans.
Student loan borrowers can also refinance and consolidate student loans for both federal and private loans. Refinancing a student loan can result in lower interest payments over the life of the loan, which translates into lower loan payments on a monthly basis and over the loan term.
Consolidating a student loan can also lead to a loan with lower interest rates. Plus, consolidating multiple student loans into a single loan can make student loans easier to manage.
“In general, if it’s at all possible for someone to make their student loan payments, we recommend that they do so. That way, they can save forbearance for when they really need it,” Lupi says.