What Is Student Loan Forbearance and When Should You Use It?
This option allows you to temporarily pause payments during hardship
Student loan forbearance allows you to temporarily pause your student loan payments. These programs can offer relief when you're struggling financially. Losing your job, for example, could make it difficult to keep up with your monthly loan payments. Not making your payments and defaulting on student loans could wreak havoc on your credit score, and potentially trigger other negative financial impacts. Learn the pros and cons of forbearance to decide if it is right for you.
What Is Student Loan Forbearance?
Student loan forbearance is the temporary suspension or reduction of student loan payments. During a forbearance period, you're not required to pay anything toward the principal on your student loans. Interest can continue to accrue on your loans and be capitalized or added on to your balance at the end of the forbearance period.
The CARES Act offers coronavirus student loan relief for all federally owned student loans, waiving both monthly payments and interest payments, as a form of automatic forbearance through Sept. 30, 2020.
Forbearance for federal student loans can be general or mandatory. General forbearance is up your loan servicer's discretion. Reasons why general forbearance may be granted can include:
- Financial hardship
- Incurring medical expenses
- Change of employment
You can use general forbearance if you have federal direct loans, Federal Family Education Loans (FFEL), or Perkins loans.
Mandatory forbearance is required under certain conditions. You can be approved for mandatory forbearance of student loan payments if you:
- Serve in an AmeriCorps position for which you received a national service award
- Serve in a medical or dental residency program
- Are a National Guard member who's been activated for duty
- Perform services that would make you eligible for teacher loan forgiveness
- Qualify for partial loan repayment under the U.S. Department of Defense Student Loan Repayment program
- Have a monthly payment that is more than 20% of your total monthly gross income
Both general forbearance and mandatory forbearance periods can be granted for federal loans for up to 12 months at a time.
If you're already in default on federal student loans, meaning you're 270 or more days behind on payments, you are not eligible for forbearance. You'll need to consolidate or rehabilitate your loans to reinstate forbearance eligibility.
Who Offers Student Loan Forbearance
The U.S. Department of Education offers student loan forbearance for eligible federal loans. But you may be wondering what your options are if you have private student loans.
Private student loan servicers and lenders are not required to offer student loan forbearance, but many of them do provide options to borrowers who can't pay. According to Mark Kantrowitz, publisher and vice president of research at SavingforCollege.com, some private lenders even offer a partial forbearance, where the borrower makes interest-only payments during the forbearance.
"This provides financial relief while preventing the loan balance from growing larger," Kantrowitz said. Among lenders that do offer some form of student loan forbearance, the terms are set by each individually, and don't necessarily follow the same guidelines for approval and interest accrual as federal loans.
Below you’ll find highlights of student loan forbearance policies from some of the top loan servicers. All terms for federal loans are dictated by the U.S. Department of Education.
|Servicer/Lender||Forbearance Available||Federal Loan
|American Education Services (AES||Yes, for eligible federal student loans and private student loans serviced by AES.||General and mandatory forbearance are offered for up to 12 months at a time for federal loans.||Varies by lender.|
|Great Lakes||Yes, for eligible federal student loans.||General and mandatory forbearance are offered for up to 12 months at a time for federal loans.||Not applicable.|
|Navient||Yes, for eligible federal student loans and private student loans.||General and mandatory forbearance offered for up to 12 months for federal loans.||Terms for private loans are determined case by case. Up to three months of forbearance is available for eligible private loan borrowers affected by COVID-19.|
|Nelnet||Yes, for eligible federal student loans.||General and mandatory forbearance are offered for up to 12 months at a time for federal loans.||Not applicable.|
|Sallie Mae||Yes, for eligible private loans.||Not applicable.||Forbearance for private loans from Sallie Mae is available in three-month increments, up to a total of 12 months. Forbearance options are also available for borrowers affected by COVID-19.|
|SoFi||Yes, for eligible private loans.||Not applicable.||Forbearance for private loans from SoFi is available in three-month increments, up to a total of 12 months, if you become unemployed. Up to 60 days of disaster forbearance, with the option to extend, is also available for borrowers affected by COVID-19.|
Forbearance vs. Deferment
Deferment is another option for pausing student loan payments temporarily. You can request a deferment for eligible federal students, including direct loans, FFEL loans, and Perkins loans. Deferments can last up to 36 months.
It's up to private student loan lenders to determine whether to offer this option. Generally, deferment periods for federal loans can be offered for these reasons:
- Enrollment in school
- Financial hardship
- Military deployment
- Cancer treatment
- Graduate fellowship
The biggest difference between deferment and forbearance is how the interest on federal loans is handled.
"During a deferment, the federal government pays the interest on subsidized federal student loans," Kantrowitz said. "The interest on unsubsidized loans remains the responsibility of the borrower and will be capitalized if unpaid."
With forbearance, you're responsible for paying all of the capitalized loan interest.
Pros and Cons of Student Loan Forbearance
Putting your payments on hold using student loan forbearance has both advantages and disadvantages.
Temporary relief from monthly payments when stretched financially
Minimizes risk of late or missed payments being reported to credit bureaus
Gives you time to consider other options like loan consolidation, refinancing, or income-driven repayment plans
Capitalized interest could leave you repaying a larger loan balance once forbearance ends
Not a permanent solution for saving money on student loans
May not be an option for some private student loans
"The main problem with a forbearance is that interest continues to accrue and will be added to the loan balance if it is not paid as it accrues," Kantrowitz said. "This digs the borrower into a deeper hole and leads to the charging of interest on interest."
For that reason, forbearance may only be something to consider after you've exhausted other options for managing student debt. According to Kantrowitz, if you're looking for a long-term solution, you may be better off with something like an income-driven repayment plan instead.
How to Get Student Loan Forbearance
If you're interested in applying for student loan forbearance, you'll need to get in touch with your lender or loan servicer.
Your lender may ask you to complete an application for forbearance and provide supporting documentation proving your reason for the request. For example, if you're requesting forbearance due to financial hardship because you've been laid off from work, you may need a letter from your former employer showing your separation date.
You still need to make regular payments on your loans until your forbearance period begins. Otherwise, you could end up with a late payment being reported to the credit bureaus.
The Bottom Line
If you're struggling to keep up with your student loan payments, the best thing you can do is get in touch with your lender or loan servicer. Explaining the details of your financial situation can help you avoid late or missed payments and subsequent credit-score damage, while exploring options to make your loans easier to manage and potentially more affordable over the long term.