Getting higher education in the US can be expensive, and many students resort to student loans to fulfill their educational dreams. But economic circumstances are not always the same. If you are unable to pay your student loans, forbearance may be an option. In this article, we will understand what student loan forbearance is, how it works, and what are its advantages and disadvantages.
What is forbearance student loans?
Forbearance is a process in which your student loan service provider allows you to temporarily stop or reduce loan payments. This feature is for borrowers who are facing financial difficulties and cannot make payments on time. During forbearance, interest continues to accrue on your loan, which may increase the total outstanding amount.
Types of Forbearance
General Forbearance:
Eligibility: Economic hardship, medical expenses, employment change or other personal reasons.
Duration: For a maximum of 12 months at a time, may be extended for a total of up to 3 years.
Mandatory Forbearance:
Eligibility: If you are in certain circumstances, such as National Service, medical or dental internship/residency, or National Guard duty.
Duration: For 12 months at a time, may be renewed as needed.
Comparative Summary of Types of Forbearance
| Type of Forbearance | Eligibility Criteria | Maximum Duration | Renewal Option |
| General Forbearance | Economic hardship, medical expenses, employment change, etc. | 12 months (at a time) | Up to a total of 3 years |
| Mandatory Forbearance | National Service, medical/dental internship, National Guard duty | 12 months (at a time) | Renewable as needed |
How to apply for forbearance?
Contact your service provider: First, have a conversation with your student loan service provider and let them know about your current financial situation.
Submit the application: You will need to fill out an official application form for forbearance.
Provide documentation: As required, you may need to submit financial documents or other proof.
Benefits of forbearance
Temporary relief: It gives you time to become financially stable.
Avoid default: Not making payments on time can have a negative impact on your credit score. Forbearance allows you to avoid this risk.
Disadvantages of forbearance
Accumulation of interest: During forbearance, interest continues to accrue on your loan, which may increase the total outstanding amount.
Pay more in the long run: Due to the cumulative interest, you may have to pay more in the long run.
You may also like to read : Who Should You Contact If You Have Trouble Making Payments Once You Leave School?
Example: Effect of interest during forbearance
Let’s say you have a $10,000 student loan with a 5% annual interest rate. If you take forbearance for one year:
Interest accrued: $10,000 x 5% = $500
New total balance: $10,000 + $500 = $10,500
Thus, your total outstanding loan balance after one year of forbearance will be $10,500.
Alternative options
Deferment: In some cases, you can defer your loans, where interest does not accrue on some of the loan.
Income-Driven Repayment Plans: Monthly payments can be adjusted based on your income.
Loan Forgiveness Programs: If you work in public service or specific fields, part of your loan may be forgiven.
Things to keep in mind during forbearance
Consider paying interest: If possible, continue paying interest during forbearance to keep the total loan amount low.
Maintain regular contact: Stay in touch with your service provider regularly and keep informed of any changes.
Make a financial plan: Review your budget and reduce unnecessary expenses.
Conclusion
Forbearance can be an important tool for borrowers facing financial difficulties. However, it should be viewed as a temporary solution and not a permanent measure. Before selecting forbearance, evaluate all your options and make sure it is the best fit for you.
If you are struggling to manage your student loans, it may be beneficial to consult a financial advisor. They can guide you in the right direction and help you achieve financial stability in the long term.