Student loan forbearance allows borrowers to pause or reduce their monthly payments temporarily. During federal student loan forbearance, interest continues to accrue on the loan, which means the total amount you owe may increase over time.
Forbearance is like hitting a pause button on your student loan payments. It’s a short-term fix for up to 12 months when you’re struggling financially. During forbearance, you might not have to pay anything or spend a reduced amount. But here’s the catch: interest keeps piling up on your loan during this time.
Student Loan Forbearance
While forbearance provides temporary relief, it does not contribute to progress toward loan forgiveness or reduce the overall loan balance. An alternative private loan forbearance option for federal student loans is income-driven repayment (IDR) plans. These plans base your monthly payment on your income and family size, making it more manageable for borrowers facing financial difficulties.
Under IDR plans, your monthly payments are generally capped at a percentage of your discretionary income. After making payments for a certain period (usually 20 or 25 years, depending on the specific IDR plan), any remaining balance on the loan is forgiven. However, please note that the discounted amount may be taxable.
Borrowers must explore and understand all available options, including forbearance and income-driven repayment plans, to choose the one that best fits their financial situation and long-term goals. Borrowers should contact their loan servicer to discuss their specific circumstances and explore the most suitable repayment and forbearance options for their needs.
Student Loan Forbearance: Pros and Cons Explained
Pros of the Forbearance
- Temporary Relief: Forbearance can give you breathing room if you’re in a financial jam. It’s better than missing payments and getting into serious money trouble.
- Better than Default: If you choose between forbearance and not paying at all (which leads to default), forbearance is the safer option.
- Credit Score: Forbearance itself doesn’t hurt your credit score as long as you keep up with reduced payments.
Cons of the Forbearance
- Not a Long-Term Solution: Forbearance is a short fix. It will only solve your student loan issue in the short run.
- Accruing Interest: Even though you’re not paying the total amount, interest still adds up. It’s like a debt that keeps growing.
- Costly in the Long Run: The accrued interest gets added to your loan balance, making you pay interest much more over the life of your loan.
- Potential Default: If you keep renewing forbearance repeatedly, you might default on your loan, which is a big problem.
- Late Payments Hurt: Your credit score could suffer if you miss payments.
Alternatives to Student Loan Forbearance
Deferment: This is another way to pause payments, typically for up to three years. For subsidized federal loans, the government pays the interest during deferment. However, the unpaid interest still adds up for unsubsidized federal and private loans.
Income-Driven Repayment (IDR) Plans: These plans adjust your payments based on income. Payments could be as low as $0 if you’re not earning much. However, these plans usually mean you’ll pay more interest in the long run, and any remaining balance after 20 to 25 years could be forgiven.
Types of Forbearance
- General Forbearance:
- Reasons: Financial difficulties, medical expenses, change in employment, or other acceptable reasons.
- Duration: Up to 12 months at a time, and you can request it again if needed, but there’s a limit of three years.
- Mandatory Forbearance:
- Automatic: You get it if you meet specific criteria, like serving in AmeriCorps, being part of the National Guard, or having a high student loan debt compared to your income.
- Duration: Up to 12 months; you can renew it if you qualify.
Mandatory forbearances can be granted for up to 12 months at a time. You can request another mandatory forbearance if you still meet the eligibility requirements when your current forbearance ends.
Remember, these are specific situations where, if you meet the criteria, your loan servicer must grant you forbearance. It’s a temporary pause on your loan payments to help you during these circumstances. Let us break down different scenarios and what they mean for mandatory forbearance:
– Eligibility: If you are working in an AmeriCorps position and received a national service award.
– How to Apply: Request AmeriCorps forbearance through the appropriate channels.
Department of Defense Student Loan Repayment Program
– Eligibility: If you qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
– How to Apply: Complete the Mandatory Forbearance Request form related to your situation.
Medical or Dental Internship or Residency Forbearance
– Eligibility: If you are in a medical or dental internship or residency program and meet specific requirements.
– How to Apply: Complete the Mandatory Forbearance Request form for Medical or Dental Internship/Residency.
National Guard Duty Forbearance
– Eligibility: If you are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
– How to Apply: Complete the Mandatory Forbearance Request form for National Guard Duty.
Student Loan Debt Burden Forbearance
– Eligibility: If the total amount you owe each month for all your federal student loans is 20 percent or more of your total monthly gross income for up to three years.
– How to Apply: Complete the Mandatory Forbearance Request form for Student Loan Debt Burden.
Teacher Loan Forgiveness Forbearance
– Eligibility: If you are performing teaching service that qualifies you for teacher loan forgiveness.
– How to Apply: Use the Teacher Loan Forgiveness Forbearance Request form.
– Keep Paying if You Can: If you can afford it, at least the interest alone, pay at least the accruing interest during forbearance. This prevents interest from snowballing and making your debt even more significant.
– Explore Options: Talk to your loan servicer. They can help you understand all your options, including forbearance, deferment, and IDR plans.
Bottom Line: Forbearance is like a band-aid for financial wounds. It’s helpful in emergencies but shouldn’t be your go-to solution. If you’re facing long-term problems, consider options like deferment or income-driven repayment plans. And always communicate with your loan servicer—they’re there to help you navigate these challenges.
What is a FFEL Program Loan?
The FFEL Program, or Federal Family Education Loan Program, was a government initiative where the U.S. Department of Education partnered with private lenders to provide student loans. The federal government guaranteed or backed these loans, making it easier for students to borrow money for education.
The FFEL Program loans all ended on July 1, 2010. However, you might still have a FFEL Program loan if you attended school before that date.
Types of Loans in the FFEL Program:
- Subsidized Federal Stafford Loans: These were loans where the government paid the interest while you were in school and during specific other periods.
- Unsubsidized Federal Stafford Loans: These loans accrued interest from the time they were disbursed, even while you were in school.
- Federal PLUS Loans (FFEL PLUS Loans): These were loans available to parents of dependent undergraduate students and graduate or professional students.
- Federal Consolidation Loans (FFEL Consolidation Loans): These loans allowed borrowers to combine multiple federal student loans into one loan, making it easier to manage payments.
How to Check if You Have a FFEL Program Loan
You can log in to your StudentAid.gov account. In the “Loan Breakdown” section, click on “View Loans.” If a loan has “FFEL” at the beginning of its listing, it means it’s a FFEL Program loan.
How do I apply for forbearance on my private student loans?
Check with Your Loan Servicer
– Contact the company that manages your student loans, the loan servicer.
– Discuss your financial situation and explain if you have trouble making payments.
– Some private lenders have options similar to federal deferment or forbearance programs.
Submit an Application
– Your lender might have an online application process to pause your payments.
– Apply through their website or the method they specify.
– It’s important to note that you must keep making payments until your application is approved.
– Private loan deferment might have higher costs and fees than federal options.
Be Aware of Interest
– Like federal loans, interest might still accrue on your private student loans while paused.
– Limit the time you pause your payments to the minimum necessary to get your finances back on track.
– Resuming payments as soon as possible will prevent your loan balance from growing too much due to accumulating interest.
How do I apply for forbearance on my federal student loan payments?
Understanding the differences between federal and private student loans is crucial, especially regarding your rights and benefits. Here’s a breakdown of why federal student loans often provide more security and flexibility compared to personal student loans:
Temporary Loan Payment Relief: Federal student loans offer approved periods of deferment or forbearance if you face financial hardship, continue your education, or enter military service. You don’t have to make payments during these periods, providing temporary relief.
Interest Accumulation on Subsidized Loans: Subsidized federal student loans do not accrue interest during deferment periods, providing borrowers with a financial break.
Income-Driven Repayment and Loan Forgiveness: Federal loans offer income-driven repayment plans, where your monthly payment is based on your income and family size. Any remaining balance is forgiven after 20 or 25 years of consistent payments (depending on the income-driven repayment plan). Public Service Loan Forgiveness (PSLF) offers forgiveness after ten years of qualifying payments for public service workers.
Loan Forgiveness and Discharge Programs: Federal loans offer various forgiveness and discharge programs, including Public Service Loan Forgiveness, teacher loan forgiveness, total and permanent disability discharge, and borrower defense to repayment discharge in cases of school misconduct.
Federal Student Loans Forbearance
You might not have to repay your student loans if you work in specific public service jobs, like teaching in low-income schools, or if your school closes before you finish your studies. There are extra conditions you need to meet for these benefits to apply.
If you have several federal student loans, you can merge them into one Direct Consolidation Loan. This makes repayment easier because you only need to make a single monthly payment. It also extends your repayment period, reducing your monthly payment. However, there are pros and cons, so it’s essential to understand them before deciding to consolidate.
Qualifying for Loan Forgiveness, Cancellation, or Discharge
- Teacher Loan Forgiveness
You are eligible if you teach full-time for five consecutive years in a low-income school and have a Direct Loan or Federal Family Education Loan (FFEL) Program loan. You are eligible for up to $17,500 forgiveness.
- Total and Permanent Disability Discharge
You are eligible if you are totally and permanently disabled and have a Direct Loan, FFEL Program loan, or Perkins Loan. You can also qualify to discharge federal student loans and the Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation.
- Income-Driven Repayment (IDR) Plan Forgiveness
You are eligible if you enroll in the IDR plan based on income and family size. Your remaining balance is forgiven after 20 or 25 years of payments. Past repayment periods, deferment and forbearance might count toward IDR forgiveness (one-time adjustment in 2024).
- Public Service Loan Forgiveness (PSLF)
You are eligible if you work full-time for federal, state, local, tribal government, military, AmeriCorps, or qualifying not-for-profit organization and have a Direct Loan. After 120 qualifying monthly payments, the remaining balance is forgiven under the PSLF Program.
Loan Discharge Options Related to Your School
Closed School Discharge
You are eligible if your school closes while you’re enrolled or shortly after withdrawal, and you have a Direct Loan, Federal Family Education Loan (FFEL) Program loan, or Federal Perkins Loan.
Borrower Defense Loan Discharge
You are also eligible if you took out a loan to attend a school that misled you or engaged in misconduct violating specific laws.
Federal Perkins Loan Discharge Eligibility
You may qualify to have your Federal Perkins Loan canceled or discharged if:
Eligible Employment or Volunteer Service: You’ve completed suitable employment or volunteer service, such as in education, firefighting, the military, or the Peace Corps.
Special Circumstances: You’ve experienced specific circumstances such as school closure, disability, or being misled by your school.
Federal Student Loan Discharge in Bankruptcy
In certain situations, you can discharge your federal student loan if you’ve declared bankruptcy and have a Direct Loan, Federal Family Education Loan (FFEL) Program loan, or Federal Perkins Loan. Make sure you talk to a bankruptcy attorney about this option.
Ensure you meet specific criteria and consult official resources for accurate and updated information.