Student loan forbearance is a temporary option to suspend or reduce your student loan monthly payment amount for up to 12 months, often because of financial difficulty. Unlike deferment, interest will continue to accrue on your student loan debt while in forbearance.
You must meet certain criteria to be approved for forbearance, including applying before your student loan goes into default (270 days without paying).
Forbearance isn’t a bad option, but there may be alternatives that prove better for your unique situation.
I’ll explain the types of forbearance, pros and cons, and alternatives to forbearance. I'll also update you on the COVID-related student loan payment pause and how it impacts forbearance.
- Federal student loan payments and most collections efforts are currently paused through August 31, 2022. Payments resume on September 1, 2022.
- Typically, student loan forbearance is available for most federal student loans for short-term relief (no more than 12 months) from student loan payments.
- During forbearance, your loans will continue to accrue interest, and your total loan balance will increase if you fail to make interest payments. If possible, make payments to offset the interest accrual, even when you aren't required to pay anything.
- Because forbearance doesn't help you avoid interest accrual, deferment is usually better. Alternatively, an income-driven repayment plan could reduce your monthly payment to $0 and qualify you for long-term loan forgiveness.
- There are two kinds of federal student loan forbearance: general (when you apply) and mandatory (when your loan is automatically eligible).
- Private student loans sometimes offer forbearance programs, but this differs by lender.
Disclaimer: Although I am a student loan lawyer with years of experience, this article contains generalized information and should not be taken as legal advice. If you want legal advice that pertains to your specific situation, you should schedule a free consultation with me.
What is student loan forbearance?
Student loan forbearance is a temporary pause or reduction in student loan payments due to financial hardship.
During forbearance, your loans do not stop accruing interest (unlike during deferment). However, during the coronavirus pandemic, most federal student loans have an interest rate of 0%.
Forbearance cannot be applied to defaulted student loans.
Forbearance may be a good fit for you if…
- …you’ve lost your job or are facing substantial financial hardship for another reason.
- …your financial hardship is temporary, and you’ll be earning money soon.
- …you’re not worried about paying more over time.
- …your student loan payments account for more than 20% of your monthly gross income.
- …you meet the requirements for mandatory forbearance (such as medical residency, serving in the Americorps, etc.), perhaps even without financial hardship.
Forbearance might not be the best option if…
- …your financial hardship will last longer than 12 months.
- …you’re still making money and could qualify for income-driven payment.
- …your loans are already in default.
Forbearance is a temporary option and only lasts for up to 12 months at a time. A federal student loan is eligible for up to 3 cumulative years of total forbearance over the life of the loan.
Many private lenders offer forbearance for up to 12 months but without the possibility of renewal after that period. Private loan forbearance options differ by lender.
Types of forbearance
There are 3 types of forbearance for federal student loans:
- General forbearance: for borrowers with temporary financial hardship who do not qualify for mandatory forbearance
- Mandatory forbearance: for certain programs and circumstances, such as joining the Americorps, medical/dental residency, or when your student loan payments are more than 20% of your monthly gross income
- Administrative forbearance: for borrowers who are applying to specific federal programs or benefits, such as income-driven repayment (IDR) or borrower defense claims
General forbearance for student loans
General forbearance (AKA “voluntary” or “discretionary” forbearance) is granted by your loan servicer based on your application and the information you provide.
Typically, general forbearance is used in cases where the borrower needs a short-term break from loan payments, often due to financial trouble.
You can request forbearance if you’ve experienced financial hardship, including:
- Financial difficulties
- Medical expenses
- Change in employment
General forbearance is available to qualified borrowers with Direct Loans, Federal Family Education (FFEL) Program loans, and Perkins Loans.
Mandatory forbearance for student loans
Certain criteria automatically qualify you for federal student loan forbearance if you request it, meaning student loan servicers are required to put your loans into a mandatory forbearance.
You qualify for mandatory forbearance if you…
- …are currently in a job that qualifies you for Teacher Loan Forgiveness.
- …are serving in AmeriCorps.
- …are enrolled in the Department of Defense Student Loan Repayment Program.
- …are currently in a medical or dental internship or residency.
- …are on current National Guard duty (you have been activated by a governor but aren't yet eligible for military deferment).
- …owe more than 20% of your monthly gross income on your student loans.
- …are subject to involuntary military mobilization (like if the draft was activated).
- …live in a designated disaster area.
- …are involved in a qualifying local or national emergency.
Only Direct Loans and FFEL loans are eligible for mandatory forbearance.
Administrative forbearance for student loans
Administrative forbearance for student loans occurs when your loans are placed in forbearance during a waiting period of some kind. Depending on the situation, you may request or approve administrative forbearance, or it may be automatically applied to your loans.
You may request to be placed or will be automatically placed on administrative forbearance when you are…
- …applying or recertifying an income-driven repayment plan.
- …applying for federal loan forgiveness programs.
- …awaiting the outcome of a borrower defense claim.
- …awaiting the outcome of your application for student loan deferment.
Generally, these forbearance periods also last no more than 12 months. But in rare cases (such as borrower defense claims that can take multiple years), the U.S. Department of Education may extend an administrative forbearance period.
The pros and cons of student loan forbearance
While forbearance is an excellent tool for student loan borrowers who need help, it may not always be the best option for everyone.
Comparing the benefits with the downsides should help you determine if forbearance is the best option.
What are the benefits of forbearance with student loans?
- It helps you avoid delinquency, default, and collections.
- It doesn’t impact your credit score or show on your credit report.
- It frees up your monthly budget to pay expenses.
- It allows you time to consider other options like consolidation, income-driven repayment, or refinancing.
What are the downsides of student loan forbearance?
- It can be expensive. When forbearance ends, your balance will be higher, and you will have a higher monthly payment.
- You may not qualify or meet your lender’s eligibility requirements — particularly if you’re hoping for private student loan forbearance.
- It’s not a long-term solution. You’ll need to start making payments once forbearance ends, regardless of whether or not your situation has improved.
- Forbearance periods don't count towards Public Service Loan Forgiveness.
- Forbearance delays default status, which is usually a good thing. But, if you aim to negotiate a student loan settlement, you need to be in default — which will tank your credit score but can lead to long-term benefits.
Learn More: Strategic Default For Student Loan Debt
COVID-19 emergency forbearance
In 2020, Congress passed the $2.2 trillion CARES Act to provide emergency relief in response to the COVID-19 pandemic. That bill suspended monthly payments and set 0% interest rates for most federal student loans. During this time, forbearance is automatically applied to your federal loans without having to apply or show proof of financial hardship.
All loans that entered federal student loan repayment before the payment suspension period are eligible, even defaulted student loans.
President Joe Biden’s administration has extended the automatic forbearance through August 31, 2022. Some Democrats have asked the federal government to offer loan cancellation through executive action instead of kicking the can down the road.
While interest normally accrues during a forbearance, during the COVID-19 pandemic, the interest rate on federal student loans has been reduced to 0%. This means no interest will accrue and capitalize on your loan balance.
Check studentaid.gov for COVID updates. Don’t fall for scams claiming they can get you special COVID-related relief that you can’t get somewhere else.
What happens to interest after forbearance?
Unlike deferment (during which no interest accrues), the interest on your student loans will not stop during forbearance. That unpaid interest continues to accrue throughout your forbearance period.
Typically, federal student loans don’t provide interest-only repayment plans. However, you can elect to make interest-only payments during forbearance to prevent your loan balance from increasing.
The unpaid loan interest is capitalized when your forbearance ends, meaning it’s added to your principal loan balance. This applies to Direct Loans and Federal Family Education Loans (FFEL Program loans). Interest capitalization never occurs on Federal Perkins Loans.
Alternatives to student loan forbearance
Other loan programs or repayment options may be a better fit for your unique situation, such as:
- Deferment: If you can qualify, deferment of your student loans not only suspends your monthly payments but also stops interest from accruing. The requirements for deferment are stricter than those for forbearance.
- Income-driven repayment: IDR plans are based on your income and family size and allow you to extend your payments over 20-25 years instead of the traditional 10 years. After making payments for 20 or 25 years under your IDR plan, you'll also be eligible for student loan forgiveness of those debts. (Since March 27, 2020, this loan forgiveness is not taxable and will not be until at least 2025.) Keep in mind that IDR does mean you'll pay more interest over the life of your loan.
- Refinancing: Recommended primarily for private student loans, you may be able to refinance your loans to reduce your monthly payments at a better interest rate.
Learn More: How to Refinance Your Student Loans
Forbearance and public service loan forgiveness
If you’re on track to receive Public Service Loan Forgiveness (PSLF), forbearance will hinder your chances of achieving it as soon as possible. Time spent in forbearance doesn’t count towards your progress needed to qualify for PSLF (except during the coronavirus pandemic).
However, you won’t lose any past progress you’ve already made. Instead, you’ll pick up right where you left off when you resume making monthly payments.
Like everything else with the coronavirus pandemic, this too has changed. Automatic forbearance during COVID does count towards qualifying PSLF payments, including those made under the limited opportunity waiver.
In the case of COVID, you must have a Direct Loan and work full-time for a qualifying employer during the automatic suspension for it to count towards PSLF. You must submit a PSLF form that certifies you were employed for the same period of time as the automatic suspension.
Learn More: Get my premium guide to Applying for the PSLF Waiver
Ready to change your student loan situation?
Listen, if you’re considering student loan forbearance, something probably isn’t right with your finances.
Luckily, I’ve seen it all. I want to work with you and help find a path for you to move forward. Maybe forbearance is the right answer; maybe there’s something better we can do.
If you feel caught in an impossible situation, let’s talk. Schedule a free 10-minute call with me today. We can go over your options and determine what I can do to help you sort out your entire student loan situation.
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