Forbearance on School Loans: What You Need to Know

Forbearance on school loans is a temporary relief measure that allows borrowers to pause or reduce their loan payments for a specific period due to financial difficulty. It is often used when a borrower faces a short-term financial challenge that prevents them from making their regular loan payments. Forbearance does not forgive the debt; instead, it provides a reprieve from payments, which can be crucial for managing financial stress.

What Is Forbearance?

Forbearance is an agreement between the borrower and the lender that temporarily suspends or reduces the borrower's loan payments. During this period, the borrower is not required to make payments, but the loan continues to accrue interest. The terms of forbearance vary based on the lender and the type of loan.

Types of Forbearance

1. General Forbearance: This type is granted at the lender's discretion and is typically available for borrowers who are experiencing financial hardship. It can apply to various federal student loans.
2. Mandatory Forbearance: This type is required by law under certain circumstances, such as if the borrower is serving in a medical or dental internship or residency. It may also apply if the borrower is on active duty in the military or if their monthly payments exceed a certain percentage of their income.

How Does Forbearance Affect Your Loan?

Interest Accumulation: One of the major implications of forbearance is that interest continues to accrue on the loan. This means that even though you are not making payments, the total amount owed increases over time.

Loan Term Extension: When you resume payments after a forbearance period, your loan term might be extended. This is because the months you did not make payments could be added to the end of your repayment term.

Impact on Repayment Plans: Forbearance can also affect repayment plans. If you are enrolled in an income-driven repayment plan, the time spent in forbearance might not count towards the time needed for forgiveness under certain programs.

How to Apply for Forbearance

1. Contact Your Loan Servicer: Reach out to your loan servicer to discuss your situation and explore your forbearance options.
2. Submit a Request: You will need to submit a formal request for forbearance. This may involve providing documentation of your financial hardship.
3. Review Terms: Carefully review the terms of the forbearance agreement, including how long it will last and how it will impact your loan balance.

Pros and Cons of Forbearance

Pros:

• Immediate Relief: Forbearance provides immediate relief from making payments, which can be crucial during financial hardship.
• Temporary Solution: It offers a temporary solution to help you manage short-term financial issues.

Cons:

• Increased Loan Balance: Since interest continues to accrue, your loan balance will increase.
• Extended Repayment Period: The time spent in forbearance may extend your loan term, potentially increasing the total interest paid over the life of the loan.

Alternatives to Forbearance

Before opting for forbearance, consider these alternatives:

1. Income-Driven Repayment Plans: These plans adjust your monthly payment based on your income and family size. They may offer a lower payment than your standard plan.
2. Deferment: Unlike forbearance, deferment may allow you to temporarily stop making payments without accruing interest on subsidized loans.
3. Loan Consolidation: Consolidating your loans can sometimes lower your monthly payments by extending your repayment term.

Key Takeaways

• Forbearance is a useful tool for temporary relief but comes with the downside of increased interest and a longer repayment term.
• Always consult with your loan servicer to fully understand the implications of forbearance on your loan.
• Explore other options like income-driven repayment plans or deferment before choosing forbearance.

Understanding forbearance and its effects on your student loans can help you make informed decisions and manage your financial situation more effectively.