Know about Student Loan Forbearance

Student loan forbearance is an agreement where the lender allows to either temporarily pause or reduce the amount of monthly payments. By using this, you are buying yourself time to repay your loan, if your circumstances or financial situation makes it difficult to pay.

How it works – The Forbearance programs postpone regular payments up to 12 months. After that period ends, you can choose to reapply for the forbearance. It is also available for private loans though it does not follow the same federal guidelines.

Pros of forbearance

● Offers temporary financial relief
● Helps you avoid delinquency or default
● Protects your credit score

Cons of forbearance

● Not allowed for loans in bad standing
● Not a long-term solution
● Servicer can reject your request
● No credit for loan forgiveness

Types of forbearance

There are two types of forbearance options – general forbearance and mandatory forbearance. Direct Loan and Federal Family Education Loan (FFEL) program borrowers have access to both options, however, Perkins Loan borrowers can apply for general forbearance and might be eligible for mandatory forbearance under certain circumstances.

Mandatory forbearance

It requires federal loan server to put forbearance if your are eligible,
if you have Direct Loans or FFEL loans, you can access to mandatory
forbearance if:

● You receive a national service award while serving in the Army.
● You qualify for the Department of Defense Student Loan
Repayment Program.
● You’re in a medical or dental internship or residency.
● You’re a governor-activated member of the National Guard and
can’t receive military deferment.
● You’re a teacher who qualifies for the teacher loan forgiveness
program.
● Your monthly student loan debt burden is 20% or more of your
total gross income per month.

General forbearance

It is available to borrowers who can not make their federal loan payment because of lessen circumstances. It is also known as “discretionary forbearance” because servers decides to accept or reject your request. Typical reasons to ask for general forbearance include:

● Financial hardship.
● Sudden urgent and necessary bills (like medical expenses).
● Income or employment changes.
● Other extenuating circumstances.

It offers repayment relief as it a last-resort option.