Quick Lesson
4 min read
Student Loan Forbearance
-
-
Copied link to Clipboard!
Student loan forbearance is a period in which you aren’t required to make a payment on your student loans. You can temporarily make a smaller payment, but the principal amount of the loan will continue to accrue interest. Forbearance can help you reduce your monthly expenses in the short term, however, you won’t make any progress in terms of paying off the loan or loan forgiveness. Learn more about student loan forbearance and when to consider this option.
Lesson Notes:
- Student loan forbearance means you don’t have to make a payment on your student loans.
- The period generally lasts for no more than 12 months and the principal amount may continue to accrue interest.
- Consider signing up for an income-driven repayment plan if you’re having trouble repaying your loans due to circumstances or hardships.
LESSON CONTENTS
What is Student Loan Forbearance?
If you can’t afford your student loan payments, you have the option of applying for student loan forbearance. If your request gets approved, you don’t have to make a monthly payment on your student loans.
During the forbearance period, the principal amount of the loan will continue to accrue interest. You can choose to pay down the interest as it accrues every month. If you don’t, the interest may get capitalized or lumped into the principal amount at the end of the period, which means you will have to pay more over the life of the loan. The interest is only capitalized on Direct Loans and Federal Family Education Loan (FFEL) Program loans. It is never capitalized on Federal Perkins Loans.
How to Apply for Student Loan Forbearance
If you decide you need a period of forbearance, you will need to contact your lender or student loan servicer and request the proper form. You should be able to fill it out online or mail in a hard copy. On the application form, you may need to include information about your loan, including the original loan amount, how much you still owe and your current financial information to see if you qualify for forbearance.
Who is Eligible for Student Loan Forbearance?
Depending on your circumstances, you may qualify for either general forbearance or mandatory forbearance.
General forbearance is when the lender decides to grant forbearance at their own discretion. General forbearance can apply to Direct Loans, Federal Family Education (FFEL) Program loans, and Perkins Loans. It may be granted for no more than 12 months at a time. If you are still having trouble making the monthly payment, you can apply for another forbearance, but the current limit for general forbearance is capped at three years. Lenders often refer to established eligibility requirements when deciding whether to approve the application. You will need to show the lender why you’re unable to make your monthly payment. Acceptable reasons usually include:
- A change or sudden loss of employment.
- Medical expenses or debts.
- Financial hardship.
Mandatory forbearance is when the lender has no choice in terms of approving the application. They are required by law to grant forbearance. It only applies to Direct Loans and FFEL Program loans. Mandatory forbearance is only granted for 12 months at a time. However, you can apply for another period once your current period expires. You may be eligible for mandatory forbearance if you:
- Serve in the AmeriCorps and received a national service award.
- Qualify for a partial repayment plan under the U.S. Department of Defense Student Loan Repayment Program.
- Serve in a medical or dental internship or residency program and meet the requirements.
- Serve in the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
- Have student loan payments totaling 20% or more of your total monthly gross income for up to three years.
- You are a performing teaching service that would qualify you for teacher loan forgiveness.
Alternatives to Student Loan Forbearance
While student loan forbearance can give you a much needed respite if you are having a hard time making your student loan payments, it does come with some drawbacks. First, you will not be making progress towards paying off your student loans. Forbearance periods also don’t count toward any loan forgiveness programs. If you don’t pay off interest during the forbearance period, your loan balance will continue to grow as well.
Consider applying for an income-driven repayment (IDR) plan instead of forbearance. If you are approved, the lender will adjust the amount you owe every month based on your gross monthly income and the size of your family or household. In some cases, your monthly payment may be as low as $0 a month. There is no limit to the number of times you can apply for an IDR plan. You still have the option of paying more than the necessary amount, so you can pay down the principal more quickly if you have extra funds or increase your income.
Help is available if you can’t afford your monthly student loan payments. Contact your lender or talk with a student loan counselor to learn more about your payment options.
Related Resources
View All
Expanded Lesson
6 min read
Preparing for a Possible Recession
A recession represents a decline in economic activity and often leads to high unemployment. Recessions are a natural part of the business cycle, but they can also have a detrimental effect on your finances. Recessions come and go, but they are historically difficult to predict. Learn how to prepare for a possible recession by adjusting your personal finances accordingly.
Expanded Lesson
6 min read
Great Resignation: Money Tips When Transitioning Your Job
With a record number of job openings all over the country, it’s a great time to look for a new job. But transitioning careers can leave you without income for several months or more, depending on how long you are out of work. If you are thinking of changing jobs, learn how to manage your finances during this period of transition.
Expanded Lesson
5 min read
Interest Rates' Impact on The Housing Market
Most people need a mortgage to buy a home, and this means borrowing money from a lender. The lender will always charge interest on top of the principal amount used to buy the home. The interest rate depends on a number of factors, including those related to monetary policy and the health of the economy, as well as those related to your personal finances and credit history. Learn more about how these rates affect the housing market and your bottom line.
Expanded Lesson
6 min read
How to Vacation on a Budget
There’s nothing better than leaving town with your loved ones as you explore a new city or country. But going on vacation is more expensive than it used to be. The cost of travel, housing and meals out can put a major dent in your finances. You don’t want to get to your destination and suddenly realize you don’t have enough money to enjoy your trip. This is your time to relax. You shouldn’t have to worry about every dollar you spend. Learn how to budget for your upcoming trip, so you can make the most of your time away from work.
Expanded Lesson
6 min read
Have Home Equity? Cash-Out Refinances versus Home Equity Loans
If you’ve been in your home for several years or more, chances are you have what is known as home equity, which means you’ve paid off a substantial part of your mortgage loan. You can turn your home equity into cash with a cash-out refinance or a home equity loan. Refinancing your mortgage may also allow you to lock in a lower interest rate, helping you save money in the years to come.
Expanded Lesson
6 min read
How to Get the Best Mortgage Rates
For homeowners, a common financial goal is to pay off the mortgage as soon as possible and avoid paying extra interest. The lower the interest rates, the less you will owe down the line. That’s why it’s important to find a loan with the lowest possible interest rates, usually represented as annual percentage rate (APR), and other fees associated with the lending process. Use this guide to help you find the best mortgage rates to save money over time.
Expanded Lesson
5 min read
Buying a Fixer-Upper Home: Know the Pros and Cons
If you’re looking to save money when buying a home, you might consider buying a fixer-upper home. Some individuals choose to renovate an older home or one that needs repairs and flip it to make a profit, but are these homes really worth your money? Take a look at the pros and cons of buying a fixer-upper home
Expanded Lesson
7 min read
How Much Equity Do I Need for a Home Equity Loan?
One upside to owning a home is that you can start building equity. Once you pay off a certain percentage of your mortgage, you can use this equity to borrow money against your property by taking out what’s known as a home equity loan. This money is often used by homeowners to make repairs, pay down debt or invest in their education. If you are interested in borrowing against the equity you’ve built up in your home, learn more about how these loans work and how to qualify.
Quick Lesson
4 min read
Student Loan Forbearance
Student loan forbearance is a period in which you aren’t required to make a payment on your student loans. You can temporarily make a smaller payment, but the principal amount of the loan will continue to accrue interest. Forbearance can help you reduce your monthly expenses in the short term, however, you won’t make any progress in terms of paying off the loan or loan forgiveness. Learn more about student loan forbearance and when to consider this option.
Expanded Lesson
8 min read
Spring Cleaning with the Help of a Home Equity Line of Credit (HELOC)
Spring is right around the corner, and that means it’s time to get your home in shape. Spring cleaning is a time for cleaning, organizing and improving your living space. From adding a new deck to renovating your kitchen, there are so many projects to consider. However, spring cleaning home improvements can be costly. Depending on the size and scope of your project, you might need to borrow money. You can use a HELOC to help finance your spring cleaning plans. Learn more about how to use a HELOC to improve your home.
Expanded Lesson
7 min read
What are Home Equity Lines of Credit (HELOC) and Home Equity Loans?
If you are new to the world of Home Equity Loans and HELOCs, learn how these loans work and how you may be able to use them to your advantage.
Infographic: How to Apply for a Mortgage
The mortgage application process can be overwhelming. Use this guide to simplify the application process so you can finance with confidence.