Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others, including the granting of interest-free deferment on federally-held loans. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
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When facing financial hardship, you may have trouble paying bills, including your student loans. In this case, one of your options might be student loan forbearance. But what is forbearance? It’s an agreement between you and your lender that helps you get some breathing room on payments while you get your financial situation in order.
Forbearance can be helpful for student loan borrowers, but it may not always be your best option. To learn more about student loan forbearance and decide if it’s right for you, let’s explore the following questions:
- What is forbearance?
- How do you get approved for forbearance?
- What are the pros and cons of student loan forbearance?
- Is student loan forbearance the right choice for you?
Forbearance is a protection offered by Federal Student Aid for federal student loans, such as direct subsidized or unsubsidized loans. Some private student lenders offer forbearance plans as well, but they won’t have the same guidelines as federal lenders must follow.
Normally, if you stopped paying your student loans, they would go into student loan default. When you put your federal student loans into forbearance, however, you can postpone your monthly payments without defaulting. Defaulting on federal student loans can drag down your credit score and even lead to wage garnishment, so it’s something you’d want to avoid at all costs.
You should understand that interest will typically continue to accrue on your loans while they are in forbearance, which means you could face 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. You may also choose to make interest payments during the forbearance period.
There are two main types of forbearance for federal loans — general and mandatory forbearance — while private student loans fall into a different category altogether. Let’s take a look at all three types:
You would request general, also called discretionary, forbearance if you are experiencing any of the following:
- You’ve run into financial trouble
- You’ve encountered unexpected medical expenses
- You’ve lost your job
- You’ve been dealing with another challenge that has caused financial hardship
Your loan servicer will decide whether to approve your request. If your request is approved, 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, with a cumulative limit of three years.
You can get general forbearance if you have a direct loan, Federal Family Education (FFEL) Program loan or a Perkins loan (you can no longer take out a new Perkins or FFEL loan, but many borrowers are still repaying these loans).
If you qualify for mandatory forbearance, 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.
Mandatory forbearances apply to direct loans and FFEL program loans, with Perkins loans also applicable to a Student Loan Debt Burden forbearance.
As is the case with general forbearance, a mandatory forbearance can be granted for 12 months at a time. You may request another forbearance if you are still experiencing financial difficulties at the end of the first 12 months.
In times of broad economic distress, such as during a serious recession or in the aftermath of a natural disaster, you may have your loans placed under automatic administrative forbearance.
Forbearance for private student loans is in a different category. There are no overarching guidelines for these loans as there are for federal loans, and each lender will have its own rules regarding forbearance and other programs offered if a borrower is experiencing financial hardship.
Some lenders are likely to be more flexible than others. If you are looking for private loan forbearance, contact your lender directly and see what can be worked out. You may be able to get a short-term forbearance for three to six months, or a longer-term forbearance.
While going through any kind of forbearance approval process, make sure you continue to make your payments until you are officially approved. Missing payments can have a negative impact on your credit, even if you have applied for forbearance.
Student loan forbearance is an option for borrowers who are struggling financially, but it isn’t a perfect solution. Below are some pros and cons of forbearance.
Pros of forbearance
- It allows borrowers to get some breathing room on payments when dealing with financial struggles.
- It’s a way to avoid default, which has a very negative impact on your credit score.
- Although the terms are only for 12 months at a time, you can extend your forbearance period if necessary.
Cons of forbearance
- Even though extensions are available, it isn’t a long-term solution for financial difficulties.
- Interest typically continues to accrue on the loans while you are in forbearance, which can make for a larger overall loan balance.
- Unless you’re applying for a mandatory forbearance, approval is not automatic. In addition, private lenders may not offer forbearance terms as favorable as those for federal loans.
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 may become even bigger than when you started the period of forbearance.
Here are some alternatives to forbearance for you to consider.
- Deferment: Deferment can be a better option than forbearance: It also pauses payments, but you may not have to pay interest on direct subsidized or other types of loans. You can qualify for deferment if you meet certain criteria, such as being unable to find a job, going back to school or serving on active duty in the military.
- Income-driven repayment: This 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: This plan lengthens your term to up to 25 years and has you pay a fixed or graduated amount from month to month.
- Graduated Repayment Plan: This plan lowers your monthly payments now and gradually increases them over a 10-year term.
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.
No matter your situation, you should speak with your loan servicer to review your options and work out a student loan repayment plan that is best for you.
Thinking about paying your student loans off early? Here are four factors to help you decide if this is the right plan for you.
Rebecca Stropoli contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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 Feburary 1, 2021.
2 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 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 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 10/26/2020. 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.
3 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
4 Important Disclosures for SoFi.
5 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 January 4, 2021. Information and rates are subject to change without notice.