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.
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