Pros and Cons of Student Loan Forbearance
General forbearance is at the discretion of the loan servicer and is typically granted due to unforeseen medical expenses, unemployment, or almost any financial difficulty that prevents you from making loan payments. You may request a general forbearance by filling out the online form or by calling your loan servicer and requesting a forbearance over the phone.
Mandatory Federal Student Loan Forbearance
Unlike a general forbearance, which is at the discretion of your loan servicer, you must be granted a mandatory forbearance if you qualify and request it. Most mandatory forbearance uses the same form, Mandatory Forbearance Request: SERV, however, there is a different form for Teacher Loan Forgiveness and the Americorps.
- Participation in a medical or dental internship or residency (Direct and FFEL loans only)
- Total student loan payments of 20% or more of your monthly gross income (Direct, FFEL, and Perkins loans)
- Service in AmeriCorps (Direct and FFEL loans only)
- Qualification for Teacher Loan Forgiveness (Direct and FFEL loans only)
- Qualification for partial repayment of your student loans under the U.S. Department of Defense Student Loan Repayment Program (Direct and FFEL loans only)
- Activated service in the National Guard when it doesn’t provide for a military deferment (Direct and FFEL loans only)
Private Student Loan Forbearance
Your forbearance options with private student loans will vary by lender, but they are generally less flexible than those available on federal loans.
Many private lenders extend a forbearance option while you are in school or taking part in an internship or medical residency. Some let you payday loans online Nashvilleh make interest-only payments while in school. In-school forbearance typically has a time limit, which could create problems if you take longer than four years to graduate. Most lenders also offer a six-month grace period after graduation.
Some private lenders grant forbearance if you are unemployed or are having difficulty making payments after you graduate. Typically, these are granted for two months at a time for no longer than 12 months in total. There may be an additional fee for each month you are in forbearance.
Other types of forbearance are often granted for active-duty military service or if you have been affected by a natural disaster. With all private loans, interest accrues during forbearance and is capitalized unless you pay it as it accrues.
As with many financial tools, student loan forbearance has both advantages and disadvantages. If your choice is between forbearance and wage garnishment or loss of an income tax refund, for example, forbearance is a better option, both financially and in terms of the impact on your credit.
It’s worth noting that accrued interest during deferment will likely be less costly than the interest rate you would pay when taking out a personal loan or, worse still, a payday loan. However, the fact that accrued interest is capitalized means you will pay more over the life of the loan than you would if you were able to avoid forbearance.
Forbearance provides temporary breathing room to allow you to pay essential expenses, such as housing and utilities, but it can be very costly if you try to use it as a long-term solution by constantly renewing your status. This could ultimately result in loan default or worse, along with the possibility of severe damage to your credit score.
While forbearance is noted on your credit reports, it does not result in a lower credit score unless you have late or missed payments. To avoid complications and unnecessary expenses during and following forbearance, keep making payments while your application is being processed, get out of forbearance as soon as you are financially able to, and, if possible, make interest payments as they accrue.