One of the scariest things about having student loan debt is the idea that you might not be able to make your payments at some point. What would you do if you lost your job or a medical condition put a strain on your budget? How would you be able to make loan payments and avoid going into student loan default?
When you face financial hardship, one of your options might be student loan forbearance. If you can work out a forbearance agreement for your federal student loans, you could get breathing room until you’re back on your feet.
But there are pros and cons to forbearance, and it’s not the best option in every circumstance. Read on to learn more about student loan forbearance and decide if it’s right for you.
What is forbearance?
Forbearance is a protection offered by Federal Student Aid for federal student loans, such as Direct Subsidized or Unsubsidized Loans. Some private lenders might offer short-term forbearance for private student loans, but this is up to the discretion of the lender.
When you put your federal student loans into forbearance, you postpone your monthly payments. Normally, if you stopped paying your loans, they would go into student loan default. Defaulting on federal student loans can drag down your credit score and lead to wage garnishment.
But if you get approved for forbearance, you can stop paying your federal student loans for up to 12 months without penalty. Interest will continue to accrue on your loans, meaning you’ll be facing an even larger debt when you resume repayment.
But that pause in monthly bills might give you the time you need to improve your financial situation. Of course, you first have to get approved for student loan forbearance, which is easier in some cases than in others.
Getting approved for student loan forbearance
If you’re struggling to keep up with student loan bills, you might be ready to pause your payments. You’ll need to get that approved by your student loan servicer by making a forbearance request. Your request might fall under one of two categories: general or mandatory forbearance.
You would request general, also called discretionary, forbearance if you’ve run into financial trouble, encountered unexpected medical expenses, lost your job, or are dealing with another similar challenge.
Your loan servicer will decide whether to approve your request. If it does, you could have your payments paused for up to 12 months at a time. If you’re not able to pay after this period is up, you could apply for forbearance again.
If you qualify for mandatory forbearance, however, your loan servicer is required to grant your request. You could be eligible if any of the following apply to you:
- You’re completing a dental or medical internship or residency and have an eligible loan.
- You’re serving in AmeriCorps and have an eligible loan.
- You’re activated as a member of the National Guard but don’t meet the requirements for military deferment.
- You’re teaching in a capacity that could qualify you for teacher loan forgiveness.
- Your monthly payments for all student loans have been at least 20 percent of your gross monthly income for up to three years.
Before you ask about student loan forbearance, it might make sense to see if you qualify for deferment instead. Deferment can be a better option than forbearance since it doesn’t require you to pay any interest that accrues on Direct Subsidized Loans or some other types of loans.
But you can only qualify if you meet certain criteria, such as going back to school or serving on active duty in the military. If you don’t meet the requirements for deferment, you could consider forbearance instead. But first make sure you’ve explored all your options since there could be other strategies for getting your student loans under control.
Is student loan forbearance the right choice for you?
Although pausing payments through forbearance could bring you the financial relief you need, it’s only a temporary solution. Eventually, you’ll need to resume payments, and your student loan debt will be even bigger than when you started the period of forbearance.
Instead of pausing payments, another potential option is to reduce your monthly payments by applying for one of the following student loan repayment plans:
- Income-driven repayment, which adjusts your monthly payments along with your income and extends your repayment terms to 20 or 25 years. Income-driven plans include Income-Based Repayment, Pay As You Earn, Revised Pay As You Earn, and Income-Contingent Repayment. If you still have a balance after your term is up, the rest will be forgiven.
- Extended Repayment Plan, which lengthens your term to up to 25 years and has you pay a fixed or graduated amount from month to month.
- Graduated Repayment Plan, which lowers your monthly payments now and gradually increases them over a 10-year term.
Adjusting your payments with one of these plans could make it easier for you to continue repayment and avoid default. Since they don’t involve pausing payments, you won’t have to deal with as much ballooning interest as you might with forbearance.
Whatever you decide to do with your student loans, make sure to weigh your options before you take action. That way, you can determine the approach that will benefit you the most in the long run.
Know your options when you can’t pay your debt
Understanding your options is crucial if you’re having difficulty paying off your student loan debt. If you know your problems will only last a few months, student loan forbearance can make sense. It gives you a chance to stabilize your situation and reduce your money-related stress.
But if it looks like it might take longer to resolve your financial issues, you might consider other solutions. And if you have private student loans, you’ll have to speak with your student loan servicer to find a solution. You might have the option to pause payments while you fix your finances, but you’ll have to contact your particular lender to find out.
No matter your situation, though, speak with your loan servicer to review your options and work out a student loan repayment plan that will give you the best chance of moving forward.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.18% – 6.07%5||Undergrad & Graduate|
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 15, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 6/15/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.19% effective June 10, 2020.