Student Loan Forbearance and How to Use It

For struggling borrowers, a student loan forbearance is the easiest relief one can find when swamped with debt.

Forbearance can be granted by just making a simple phone call. Through it, you can postpone your payments or reduce your monthly payments for a certain amount of time. However, since this is only temporary, it can delay inevitable default and leave the borrower in a worse financial situation.

(Did You Know? There are two types of “breaks” borrowers can take from having to make student loan payments each month. One is forbearance and the other is a deferment. But which is the right choice for you? Download this free guide to find out if you should take a forbearance or a deferment. Click here to learn more.)

Here, we define student loan forbearance and how borrowers use it.

Understanding Student Loan Forbearance

1. What is a student loan forbearance?

PROS:

• The borrower has the option to either postpone payments, extend time to make payments, or reduce monthly payments for a certain period of time.
• The borrower gets more time to recover and gets back on his feet by having a new payment arrangement.
• If you have missed payments, forbearance also makes your loan current.

CONS:

• This is only temporary, so it can delay inevitable default and leave the borrower in a worse financial situation.
• It doesn’t wipe off previously reported past due payments to credit bureau.
• Forbearance does not release you from your student loans, so you still have to continue paying them.
• The borrower is liable in paying the accrued interest for all types of federal student loans for a limited number of months.
• If you do not pay the interest, your loan will capitalize until your payment is higher than it was initially.

Read this free guide to find out how much student loan debt you owe.

How Does Student Loan Deferment or Forbearance Affect Your Credit Score? https://t.co/M1VW7x0ozk #studentloans #creditscore pic.twitter.com/BX36LU4Pog

— MagnifyMoney (@magnify_money) April 23, 2017

2. Who avails a student loan forbearance?

A student loan forbearance is usually for individuals who do not qualify for a deferment. It is granted to individuals who are having financial problems, are unemployed, paying for medical expenses, and once unemployment deferment eligibility has been exhausted.

If you think you need one, request a forbearance by submitting a form called the General Forbearance Request. This is submitted to the loan servicer in your area, along with some documentation that will prove your eligibility.

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3. What are the types of student loan forbearance?

There are two kinds of student loan forbearance: General and Mandatory. Both are with a maximum of 12 months at a time only.

1. General. Also called a “discretionary forbearance.” In this type of forbearance, the loan servicer in your area will decide on whether your request for a forbearance will be granted.

A borrower is deemed eligible if he/she is having financial difficulties, a change in employment, paying for medical expenses, and once unemployment deferment eligibility has been exhausted. You can apply for another once your current has expired.

Here are the loans eligible for a general forbearance:

• Direct Loans
• FFEL Program Loans
• Perkins Loans (with a cumulative limit of three years)

2. Mandatory. In this type of forbearance, the loan servicer is required to grant your forbearance as long as you are eligible. However, even though you are eligible, there are still limitations to loans that can be granted a forbearance.

Listed below are the qualifications for a mandatory forbearance:

• If you are in the medical or dental industry, under an internship or residency program (for Direct Loans and FFEL Programs Loans only);
• Your monthly due from the loan is at least 20% of his monthly gross income, for a maximum of 3 years (for Direct Loans, FFEL Programs Loans and Perkins Loans);
• Being a part of the AmeriCorps with a national service award (for Direct Loans and FFEL Programs Loans only);
• You are performing teaching service and is qualified for a teacher loan forgiveness (for Direct Loans and FFEL Programs Loans only);
• If you are qualified for partial loan repayments under the U.S. Department of Defense Student Loan (for Direct Loans and FFEL Programs Loans only);
• You are a National Guard member, activated by a governor, but not qualified for a military deferment (for Direct Loans and FFEL Programs Loans only);

Find out how to pay off your student loans here.

Here’s a clip from Bank of America to further explain the difference between deferment and forbearance:

A student loan forbearance allows you to postpone or reduce your payments thus, helping you get back on your feet. However, it is still important to continue paying your loans so that the interest will not accumulate. Getting yourself out of debt may not be a walk in the park, but with the right mindset and enough knowledge, you will get there.

(Did You Know? There are two types of “breaks” borrowers can take from having to make student loan payments each month. One is forbearance and the other is a deferment. But which is the right choice for you? Download this free guide to find out if you should take a forbearance or a deferment. Click here to learn more.)

Here are ways on how to pay off your student loans. Do you know more uses of student loan forbearance? Let us know in the comments section!