Forbearance is an option that a loan holder may make available to borrowers who are having temporary difficulty making regular payments on their student loans. If approved, a forbearance can:
- Allow you to temporarily postpone student loan payments,
- Extend the time period for making payments, or
- Allow you to make reduced loan payments.
Forbearance may not be as helpful as deferment, because interest on loans continues to accrue during forbearance. If you don’t continue to pay the interest, it may be capitalized (added to your principal balance), increasing your total future interest payment.
Interest Accrues During the Forbearance Period
Although accrued interest is calculated on a simple daily basis, interest can accumulate over time and result in a much higher loan balance at the end of a forbearance period. Here’s an example.
|Current loan balance||$20,000|
|Length of forbearance||12 months|
|Total interest accrued||$1,360|
|New loan balance||$21,360|
|Monthly loan payment before 12-month forbearance||$230.16|
|New monthly loan payment after 12-month forbearance||$245.81|
While in this example the increase in monthly payment after the forbearance period appears to be minimal (only an additional $15.65 per month), it will add up over the life of the loan.
To find out how much interest you will accrue on your loan during a forbearance period, use Trellis’ Forbearance Cost Calculator.
A deferment or alternative repayment plan may be a better, less expensive option
You may be eligible for a deferment if you are in school, unemployed, experiencing economic hardship, or in the military, among other reasons.
Generally, a deferment is a better option than a forbearance. While interest accrues on all loans during periods of forbearance, the federal government pays the accruing interest on Direct Subsidized loans and subsidized Stafford loans during periods of deferment. Keep in mind that interest continues to accrue on Direct Unsubsidized loans, unsubsidized Stafford loans, PLUS loans, and those portions of Consolidation loans made up of Direct Unsubsidized loans, unsubsidized Stafford loans, and PLUS loans during periods of deferment.
Also ask your loan holder about available repayment options. If you’re not able to make full payments on your loan, ask your loan holder about an Income-Based Repayment plan, graduated repayment plan, income-sensitive plan, or extended repayment plan. Consult with your loan holder and find the plan that fits your financial situation best.
Borrowers must apply for forbearance, and approval is not automatic. You can request forbearance over the phone or in writing. If you request forbearance verbally, your loan holder will send you a notice confirming the terms of the forbearance agreement. Review this forbearance notice to make sure the terms are what you agreed to.
A loan holder may grant a general forbearance in instances in which you are experiencing a temporary financial hardship that keeps you from repaying your debt. Instances in which a loan holder may grant you a general forbearance include but are not limited to:
- Less-than-half-time school enrollment (half-time or greater enrollment would qualify you for a deferment)
- Poor health
- Unemployment (beyond the maximum deferment time limit)
- A reduction in work hours, or
- A life-changing circumstance
Also, a loan holder may grant a general forbearance in the form of reduced payments if you’re experiencing financial difficulty. This allows you to continue the pattern of making payments on your loan — and it’s always better to make smaller payments than no payments at all. Contact your loan holder to request a general forbearance.
Although a loan holder is not required to grant a general forbearance, a loan holder must grant a mandatory forbearance under certain circumstances. These circumstances include:
- Your participation in a medical or dental internship/residency program (beyond the maximum deferment time limit).
- Your participation in a national service position where you’ll receive an award under the National and Community Service Trust Act of 1993 (AmeriCorps).
- While you’re performing qualifying service under the Teacher Loan Forgiveness Program and your loan holder believes that the forgiveness amount will satisfy the anticipated loan balance at the time forgiveness will be granted.
- Service that qualifies for partial loan repayment under the student loan repayment programs administered by the US Department of Defense.
- While you serve on active military state duty as a member of the National Guard (including a member in retired status) during a time when the governor activates National Guard personnel for active state duty for a period of more than 30 consecutive days, and the Guard’s activities are paid with state or federal funds.
- You are experiencing a student loan debt burden because the total monthly payment on all of your eligible federal education loans is equal to or greater than 20 percent of your total monthly income.
You must provide documentation to support your eligibility for a forbearance in any of these circumstances.
In certain cases, your lender may apply an administrative forbearance, which doesn’t require your approval. Upon notifying you, your lender may grant forbearance for circumstances such as:
- A deferment was granted but your lender later learns that you didn’t qualify for the deferment.
- A period during which payments were overdue before your deferment began.
- If you enter repayment and the lender doesn’t find out until later, the period between the date you entered repayment until the date the first payment scheduled by the lender is due.
- A period of delinquency at the time a loan is determined to be delinquent, sold, or transferred, as long as the borrower or endorser is less than 60 days delinquent on the loan at the time of sale or transfer.
- A period necessary to determine your eligibility for bankruptcy discharge, closed school discharge, or similar discharge.
- A period of delinquency that may remain after deferment or mandatory forbearance and before the next due date is established.
- A disaster in a geographic area specifically designated by the Department of Education as a natural disaster area. In this case you must contact the lender to request forbearance, but you don’t need to make a written request or submit documentation.
Your lender must grant you an administrative forbearance if the following circumstances apply:
- You’re making reduced payments because the effect of a variable interest rate change requires the extension of the maximum repayment term under a standard or graduated repayment schedule. The lender may grant no more than three years.
- You’re making reduced payments because an income-sensitive repayment schedule requires the extension of the maximum repayment term. The lender may grant no more than five years.
- The Department of Education notifies the lender that exceptional circumstances exist, such as a local or national emergency or a military mobilization. If you’re part of a military mobilization you must provide supporting documentation as proof.
Here are some tips about your loan and about forbearance that may help you make the decision regarding whether to pursue this option.
- You may prepay your loan in full or in part at any time, without penalty.
- If you are granted a forbearance, don’t take more time than you need. A longer forbearance means you may have to pay more interest over the life of the loan.
- You’re responsible for interest that accrues during the forbearance period.
- Paying the accruing interest during your forbearance period may keep your loan balance and monthly payment from increasing — and that’s good.
- As soon as you get back on your feet, begin making payments on your loan.