Imagine: You’re knee-deep in student loan debt and struggling to make ends meet. After reviewing your finances, you come to an alarming realization that you won’t be able to make the next few payments on your loan. If that’s the case, student loan forbearance can offer you a way out.
But, what is student loan forbearance?
In simple terms, it is a temporary relief from student loan payments, provided by the lender.
Under forbearance, the borrower usually doesn’t have to make any student loan repayments. In some cases, they might instead be asked to make smaller payments.
If you’re going through a temporary financial hardship and wondering if forbearance is the right option, keep reading.
In this post, we will:
- Dive into the basics of student loan forbearance
- Cover how to get student loan forbearance in two simple steps
- Review alternative options
Here we go.
The Basics of Student Loan Forbearance
If you’re trying to figure out how to pay off student loans, but financial difficulties aren’t allowing you to, you should definitely consider forbearance.
Obviously, there are certain eligibility criteria that you must meet (the details of which we’ll discuss shortly). For now, here’s a quick overview:
- Having an eligible loan (includes both subsidized and unsubsidized loans)
- Proving a qualifying event that drove the borrower to opt for this option (medical expenses, unemployment, etc.)
- Fulfilling other formalities (documents, authorizations, etc.)
Furthermore, an important thing to remember about forbearance is that interest will accrue on your principal balance.
This means that, even though you won’t be making any repayments for some time, the accrued interest will be capitalized at the end of the period.
Considering that, those under forbearance have the option to make interest-only payments during the relief-period to help them avoid interest capitalization.
The Two Major Types of Forbearance
On the basis of certain circumstances, forbearance can be classified into the following two major categories:
- General Forbearance – as the name suggests, whether or not you get this type of forbearance depends on your lender (which is why, it’s also known as discretionary forbearance). A single general forbearance can last up to 12 months. A borrower can request general forbearance multiple times, however, the total period of time must not exceed 3 years.
- Mandatory Forbearance – on the other hand, the loan servicer must legally offer forbearance if you meet certain criteria. Like the general option, a single mandatory forbearance period goes up to 12 months. However, there is no cumulative limit.
Knowing which type of forbearance you qualify for can help you narrow down your focus and save time.
2 Steps to Get Student Loan Forbearance
Applying for student loan forbearance is quite simple.
Just evaluate your circumstances, fill out the right form, and you’re done (all that’s left is to wait for the processing).
Let’s dive into the specifics:
1. Determine the Type of Forbearance You’re Eligible for
As highlighted earlier, it’s important to know which type of student loan forbearance you qualify for as it can help you get relief much faster.
Let’s go through the eligibility criteria of both types of forbearance.
Eligibility for General Forbearance
Here are the details:
- Temporary Financial Hardship – first and foremost, you must prove that you’re suffering from temporary financial difficulties. These can be due to medical expenses, unemployment, or something else.
- Qualifying Loan Programs – Perkins loans, Federal Direct loans, and Federal Family Education loans (FFEL) are eligible.
Besides the federal loans mentioned above, you can also get forbearance for private student loans for college. However, unlike the federal student loans, there are no standard requirements and the criteria varies from lender to lender.
Eligibility for Mandatory Forbearance
Holders of direct and FFEL loans could be eligible for mandatory forbearance.
However, in addition to the above, they must meet certain employment and/or financial criteria. As a result, mandatory forbearance is further broken down into the following types:
- National Guard Duty – if you’re an active member of the National Guard, and don’t qualify for military deferment, you can apply for this forbearance.
- AmeriCorps – if you’ve been serving at AmeriCorps, and received an award for your service, you are eligible to receive relief.
- Medical or Dental Internship or Residency – if you’re currently enrolled at a medical or dental internship or a residency program, you may potentially qualify for a forbearance period.
- Teacher Loan Forgiveness – you can also qualify for forbearance if you qualify for student loan forgiveness for teachers.
- Department of Defense Student Loan Forgiveness – if you qualify for the DoD student loan forgiveness program, you can potentially qualify for relief. You’ll also need to provide a statement from another Department of Defense official, vouching for your eligibility.
- Student Loan Debt Burden – those with low gross incomes suffering from economic hardship can qualify for this forbearance. To be specific, to be eligible, your payments should exceed 20% of your gross monthly income.
You need to use the correct documents to apply for the appropriate forbearance, which brings us to:
2. Apply Through the Relevant Form
Once you’ve determined the type of forbearance you can potentially qualify for, the only thing left to do is to gather the relevant documents and apply using the correct forms.
For federal loans, you’ll need to apply through the U.S. Department of Education. On the other hand, for private loans, contact your student loan servicer.
Below, I have compiled a list of links from where you can download the form of your choice:
- General Forbearance Request form
- Student Loan Burden Forbearance Request form
- Teacher Loan Forgiveness Forbearance Request form
- Request form for other mandatory forbearances
To increase your odds of getting approved, make sure to carefully read the instructions and provide all the necessary supporting documents along with the form.
Additionally, double-check all of the information that you provide, as providing false information could get you in trouble.
If you have a private student loan, talk to your lender and ask them about their procedure.
Is Forbearance the Right Option for You?
Generally speaking, forbearance isn’t the most ideal option to deal with the inability to make repayments.
This is mostly due to the fact that during forbearance, the interest always accrues, regardless of the type of loan you have. Due to this reason, experts recommend making at least interest-only payments during the period.
In the end, if your financial hardship is only temporary and you can afford to make interest-only payments, you can consider opting for forbearance.
A Few Alternatives to Student Loan Forbearance
If you feel that forbearance is off the table, you should consider opting for any of the following:
1. Student Loan Deferment
You should consider student loan deferment before you even think about forbearance.
Like forbearance, deferment offers you a temporary relief from your monthly student loan payments.
However, unlike forbearance, your interest won’t accrue under deferment, provided that you either have a Perkins loan or a subsidized federal loan.
There are certain criteria that must be met, such as unemployment, studying at a school at least half-time, or enrolled in the Peace Corps or serving active duty, among others.
2. Income-Driven Repayment
Only available for holders of federal student loans, an income-driven repayment plan offers financial ease to borrowers with significantly low income.
The reduction in the monthly payments, and whether or not you can qualify for student loan forgiveness later, depends on your income, family size, and the loan you have.
There are 4 types of income-driven repayment plans:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment
- Income-Contingent Repayment
Here are some quick details of each:
FutureFuel.io has a tool called Reassess that helps you discover, select and enroll in an income-driven repayment plan. With Reassess, you can explore each income-driven plan and see if you qualify for loan forgiveness. The average borrower saves $326/mo when they switch to an income-driven plan.
3. Extended Repayment Plan
Last, but not least, you can also opt for the Extended Repayment Plan.
As you can tell, the plan extends the repayment period and is perfect for those who want to make lower monthly payments.
Of course, you’ll end up paying a higher amount.
To apply and learn more, click here.
Even the smallest financial decision can change the course of your life.
Considering that, it’s important to evaluate all of your options before you opt for any specific route – especially when it comes to student loan relief.
That being said, student loan forbearance isn’t necessarily a bad thing. As highlighted, if you have the right loans, can manage to pay the interest, are confident that your financial hardship won’t last forever, but don’t qualify for deferment, there’s no reason why you shouldn’t go for it.