What Is Student Loan Forbearance and Should You Consider It? (2024)

Student loan forbearance is a special program that lets you delay making payments on your student loans for a period of time. If you find yourself in a situation where you can’t pay your student loans, your loan servicer might suggest forbearance. What does that mean? Is it really the best option?

Forbearance is an option to delay your payments. That means you don’t have to make payments while your loans are in forbearance. That sounds pretty great, right?

Unfortunately, it’s not as simple as that, and it may not be the best option for you, even if it’s the only one your servicer told you about.

Editor's Note:The Covid-19 forbearance ends in August 2023. There is a 12-month grace period to resume payments, but borrowers should look at their options and begin making payments as soon as possible.

Forbearance is an option to delay student loan payments in case you are temporarily unable to make your monthly payment. While in forbearance, your loans continue to accrue interest. That interest capitalizes, or gets added to your balance, when your loans switch out of forbearance and back into your payment plan.

That means, unless you make payments that cover the interest while in forbearance, your balance will be higher when your loans re-enter repayment. Essentially, you’ll be expected to pay interest on the interest that accrued.

Because forbearance does not pause the loan completely and the interest keeps accruing, it should only be used if you are having a temporary problem making payments and need a short-term solution.

Federal vs. Private Student Loan Forbearance

Federal student loans generally offer more generous forbearance terms than private companies. You can use up to 12 months of forbearance at a time and 3 years of total forbearance. This article focuses mostly on federal forbearance.

Private student loan companies are not held to the same terms regarding forbearance, so each company will have a different policy and offerings. Some companies will offer forbearance in 3-month stints, while others may be more generous. Occasionally, a private company may not offer forbearance at all, but they could still work with you if you lose your job or need short-term assistance.

Don't Confuse Forbearance With Deferment

The other way to delay federal student loans is through deferment. Unlike forbearance, with federal student loan deferment you are not responsible for paying the interest of subsidized or Perkins loans while your loans are deferred. However, if you have unsubsidized loans, you are still responsible for the interest whether you're in forbearance or deferment.

If a private student loan company talks about deferment, they are really talking about forbearance. We know, it’s confusing, but keep track of who you’re talking to and make sure to ask about interest if you are considering delaying your private student loan payments.

Types Of Student Loan Forbearance

Not all forbearances are the same. For federal student loans, there are two types:

• General. Also known as discretionary forbearance, general forbearance is available to you if you can’t make your payments due to medical expenses, financial difficulties, employment change, or other reasons that the federal student aid office may accept. You have to apply for this type of forbearance, and your servicer has the authority to deny your application at their discretion.

• Mandatory. This type of forbearance is used in several situations, such as when you’re in a medical internship or residency program, you’re a National Guard member who was activated, or your payment is more than 20% of your monthly gross income (for a complete list, see the FSA website). If you qualify for this type of forbearance, your servicer cannot deny your request.

In special cases, your servicer can place your loans in forbearance without requiring you to fill out a form. Instead, a verbal agreement — or even no direction at all — is all that’s needed. For example, natural disasters often result in borrowers unable to make payments. The department often offers forbearance for victims of federally declared natural disasters so those borrowers don’t have to worry as they get their life back in order.

Additionally, your servicer may place your account in forbearance for a variety of reasons. For example, while servicers are processing applications for repayment plans, they may put your account in forbearance so you don’t have to make payments you may not be able to afford.

Is Forbearance The Right Choice?

It might be tempting to jump at the chance to not make any payments for any amount of time. But we suggest taking a close look at your situation before you leap. Consider the following questions:

• Why do you want to delay payments?
• Are you looking for a short-term or long-term solution?
• Can you use deferment instead?
• Is there anything else in your budget you can cut first?
• Would you benefit more from one of the federal repayment plans?

Depending on your answers, you may decide to pursue forbearance. If you’re starting to think it’s not right for you, don’t despair — there are other options, most notably for federal loans.

Advice While In Forbearance

If you decide that forbearance is the best option, we have some advice. If you are able, we suggest making interest-only payments during that time.

Even making small payments that only chip away at the interest will benefit you in the long run. The less interest you let accrue while your loans are in forbearance, the less your principal will go up when the forbearance is over — and the less you’ll pay overall.

Also, if you are ever placed in forbearance when you can still make payments, we suggest canceling the forbearance so you continue to work on lowering your principal instead of letting it grow until it’s too much to handle.

When To be Wary Of Forbearance

If you’re enrolled in Public Service Loan Forgiveness, you need to make 120 qualifying payments while in an income-driven repayment plan. When applying for the annual certification to stay in that plan, your servicer may automatically place you in forbearance. Depending on the timing, it may rob you of a qualifying payment. Even if you make a normal payment, if your account is in forbearance, that payment won’t count.

To make sure you don’t miss out on any qualifying payments, you can choose to cancel that forbearance to return to your normal payment plan and make the monthly payment during that time.

But be careful: If your servicer takes its time to process your IDR application and your IDR year ends, you’ll be put back in the Standard plan, in which you’ll be expected to make a higher payment.

It's also important to note that many student loan scams involve forbearance.

Alternate Options

If you need a longer-term solution, you might need to look into other repayment plans. The following are some of the options available to you for federal loans:

• Income-driven repayment plans calculate your payment based on your income, so you never have to pay more than 5-15% of your discretionary income. Your payment term is extended to 20–25 years, but at the end of that term if there is any balance left, it will be forgiven.

• The extended repayment plan simply extends the loan term to up to 25 years, lowering your payments but increasing the amount of interest you pay overall.

• The graduated repayment plan retains the standard 10-year term, but makes the first payments low, increasing them every two years so you fully pay off the loan within 10 years. We only suggest this plan if you predict steady pay increases to keep up with the loan payment increases.

If you have private loans and need a longer-term solution, your servicer may be able to work with you — for example, some will reduce interest if you sign up for auto-payments — but the best option might be to refinance.

When you look into student loan refinancing, pay special attention to interest rates. The goal is to get a lower interest rate than you currently have, and lower payments will come naturally. Remember, the longer the term of the loan, the more you pay in interest overall.

Even if you can afford your payments, if your interest is high it’s a good idea to look into refinancing. With a lower interest rate, you can either make payments equal to your current payments for a shorter period of time, or you can make lower payments and focus on your other financial goals, like retirement or saving up for a house.

Closing Thoughts

When confronted with the forbearance option, it’s a good idea to take a step back and look at all your options. While forbearance might be the right choice for some situations, often borrowers need a longer-term solution.

If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommendThe Student Loan Plannerto help you put together a solid financial plan for your student loan debt. Check outThe Student Loan Plannerhere.

Have you ever considered forbearance before? Why or why not?