Need a way to pause or reduce your student loan temporarily? Student loan forbearance may be the right fit for you.
It can be an ideal solution for those struggling financially due to job loss, health issues, or other economic hardships.
If you can't make your student loan payments, understand the benefits and drawbacks of student loan forbearance before applying.
What Is Student Loan Forbearance?
Loan forbearance is a way for borrowers to take a break from loan payments; therefore, it should only be used as a temporary solution.
Here's why.
Interest that accrues during the forbearance period will be added to the loan’s balance, which usually results in higher payments down the road.
Also, you won't be able to make any progress on loan forgiveness and repayment plan options during the forbearance period.
Another important thing to remember is you have to meet certain eligibility criteria and apply through your loan servicer.
You really need to ask yourself some hard questions to assess your true intentions for this type of program.
One size doesn't always fit when it comes to the type of forbearance you should apply for, so let's take a look at the most common loan forbearance options.
Types of Student Loan Forbearance Options.
There are two types of student loan forbearance:
General Forbearance- which gives borrowers the flexibility to temporarily reduce or suspend payments for up to 12 months at a time for any reason approved by their servicer.
Mandatory Forbearance- this still pauses loan payments, but it does so due to a government program, military service, or other qualifying circumstances.
Most people need to seek out a general forbearance. With both types of options, you will still have the interest accruing on the loan, which means the overall balance may be higher than it was before they entered forbearance.
If possible, try to pay at least some amount on the loan balance during periods of forbearance to avoid this trap.
How to Decide if Student Loan Forbearance Is Right for You.
When considering student loan forbearance, it's important to understand the pros and cons.
Pros
reducing or skipping payments can provide much-needed financial relief.
won't hurt your credit score
if you are in the position to do so; you can still make payments on your loan
Cons
affects any repayment plans or consolidation programs you’ve made with the loan provider.
To qualify for a student loan forbearance, you must demonstrate that you have a financial hardship.
Before selecting a forbearance option, consider other available student loans repayment options, such as changing your repayment plans, consolidating loans, or loan deferment.
If you decide forbearance is the best choice for you, make sure to contact your lender and ask questions about interest rates, late fees, or whether any payments can be skipped during this time.
Steps to Apply for Student Loan Forbearance
Applying for student loan forbearance is relatively simple.
Make sure you follow these steps carefully when applying:
First, contact your student loan servicer to explain your situation and ask them about available options.
Provide any financial records they may need to approve your application.
Fill out a forbearance agreement form with the terms of the agreement.
Submit it back to the loan servicer along with any other requested paperwork.
Finally, wait for approval from your lender before making any changes to your payments.
Once all the paperwork is processed, your lender will notify you if your application for forbearance has been approved.
During this time, it's essential to be attentive to any changes in payment requirements and due dates, as these can vary from one lender to another.
Keep in mind that any payments you make during forbearance won't count toward repayment until the end of the forbearance period.
Lastly, It's important to stay on top of any communication from your lender.
This will help you determine when payments are due as soon as the forbearance ends. Remember, any missed payments can affect your credit scores.
That's definitely a no, no!
Major Take Away
We all find ourselves in a bind at times. Your bind might be the student loan hanging over your head.
It's better to pause your debt than to dig a deeper hole by continuing to struggle to pay your student loan amid financial hardship.
A forbearance, when done responsibly, can give you relief until you get back on your feet without a drop in your credit score.
Most importantly, if you decide to take this route, establish a plan to pay off the loan after the period of forbearance ends to ensure you stay on top of your debt.