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Table of Contents

Overview

General Forbearance

Mandatory Forbearance

Private Loan Forbearance

Pros and Pros and

Alternatives

The Bottom Line

Student Loans and Loans

The Student Loan Repayment Program: Pros and Cons

It’s a temporary, not long-term solution for those whose finances are in a tight spot.

By Jim Probasco

Updated November 29 2022

Reviewed by Ebony Howard

Confirmed by Suzanne Kvilhaug

Student loan forbearance allows you to reduce or suspend your student loan payments temporarily, typically for 12 months or less during periods of financial stress. Forbearance may not be as beneficial as deferment, which means that you may not have to pay interest that accrues during the deferment period on specific types of loans.1 Forbearance means that you’re always accountable for interest accrued when the grace period has come over.2

Be aware that all federal student loan collection and payments have been suspended. The date for expiration of the relief initially December. 31, 2022–and the interest rate was set at zero percent due to the financial impact of the economic crisis.34 The Department of Education has again extended the pause on Federal student loan payments due to a federal court order that has blocked the White House’s loan forgiveness plan. Students loan payments are paused until the later of these two dates:

60 days after the department is allowed to begin the forgiveness program, or after the case is settled; or

60 days after June 30, 2023.

However, during periods of time that loans are being collected There are pros and cons of halting your payments. This article will discuss what those advantages and disadvantages are.

Key Takeaways

Federal student loan payments and collections have been paused by President Biden until 60 days following June 30, 2023 (or 60 days after the pending litigation against the forgiveness program is settled, whichever comes first).

When loans are being paid, there are arguments for and against the reason you may decide to stop your payments.

Forbearance is for temporary (typically 12-month) alleviation only. The program is not intended to be a long-term solution.

The option of deferment or an income driven repayment (IDR) plan is preferable over forbearance.

The federal student loans can be obtained in two forms: general and mandatory.

You must continue making required payments on your student loans until your application for forgiveness has been approved to keep from the possibility of default.

For a lower cost, ensure that you pay interest when it accrues while you are in the loan remains in forbearance..

Student Loan Forbearance: An Overview

With all student loan forbearance, you will be charged interest for your loan will continue to accrue throughout the period of deferral and is usually capitalized (added to the loan amount owed) at the conclusion of the deferral period , unless that you make the payment at the time it accrues.2

Perkins loans are an exception to the capitalization rule. With a Perkins loan the interest accrues during the deferral period but is not capitalized. Instead it is added to your balance of the interest (not that of the principal) at the time of repayment unless you pay it off as it accumulates. (Although it was announced that the federal government would stop providing Perkins loans in the year 2017 however, many are still paying back the money they borrowed through these loans. )56

Federal student loan forbearance typically lasts for 12 months at a stretch and is able to be renewed for up to 3 years. Conditions and payment amounts for some forms of federal student loan forbearance are required by law. In other cases, the loan servicer is in discretion.2

Private student loan forbearance is usually granted for 12 months, but lenders are not often able to provide renewal. Conditions and amounts for private loan forbearance are the sole discretion of the lender.

If you’re in the process of defaulting on your student loans You are not qualified for any of the strategies discussed in this article.7

General Federal Student Loan Forbearance

If you’re having difficulty paying your direct, FFEL, or Perkins loans and you aren’t eligible for deferment, you could ask for a general forbearance for at least 12 months with your student loan servicer.2

If your financial problems continue then you may request an extension of your general forbearance period of up to 12 months, and a further 12 months following that, for a total of 3 years. The loan servicer may determine a maximum duration per person for both direct and FFEL loans.2

General forbearance can be granted at an individual discretion by the loan servicer and is typically granted to cover unexpected medical expenses, unemployment, or almost any financial difficulty which prevents you from making loan payments. You may request general forbearance by making use of the form online or making a call to your loan servicer and requesting to be granted a forbearance by phone.2

Federal Student Loan Forbearance is a requirement of the Federal Government.

In contrast to a general forbearance which is at the sole discretion of your loan servicing company, it is mandatory that you will need to get a mandated forbearance if you qualify and request it. Most mandatory forbearance uses the same form, Mandatory Forbearance Request: SERV, however, there is a separate form for teacher loan forgiveness as well as the AmeriCorps.

Participation in a medical or dental internship or residency (direct and FFEL loans for only)

The total amount of student loan payments that are 20% or more of your monthly gross income (direct, FFEL, and Perkins loans)

Service offered by AmeriCorps (direct as well as FFEL loans only)

Qualification for Teacher Loan Forgiveness (direct or FFEL loans only)

Qualification for partial repayment for your college loans in the U.S. Department of Defense Student Loan Repayment Program (direct and FFEL loans only)

Inactive service in the National Guard when it doesn’t offer a deferment to military (direct and FFEL loans only)2

Private Student Loan Forbearance

Your forbearance options with private student loans can vary depending on the lender, but they are generally less flexible than the options available for federal loans.

Many private lenders extend a forbearance option during the time you’re in school or taking part in an internship or medical residency. Some let you make interest-only payments while at school. In-school forgiveness typically has limitations on time and could result in problems if you have to wait longer than four years to graduate. Some lenders offer a six-month grace time after the time you graduate.

Certain private lenders offer forbearance if you are unemployed or have difficulty making payments after you graduate. Typically, these are granted to you for a period of 2 months in a stretch for no longer than 12 months total. There is a possible additional cost for each month you are in forbearance.

Other forms of forbearance are usually offered to active-duty military members or if you’ve been impacted by the effects of a natural disaster. In any private loans that are forbeared, interest accrues during the period of forbearance, and it is capitalized, unless you pay it as it accumulates.

Pros and Cons of the Student Loan Forbearance

Like many financial tools that are available, student loan forbearance has both advantages and disadvantages. If you have to choose between garnishment of wages or the loss of an income tax refund, as an example, forbearance may be a better option, both financially and in terms of the impact it will have on your credit.8

It is important to note that the accrued interest in deferment will likely be less costly than the interest rate you’d pay if you took out the personal loan or, perhaps, more importantly, a payday loan. However, the fact that interest accrued is capitalized, you’ll be paying more over the duration of the loan than have if you could not be able to forbear.

Pros

Better than garnishment or default

Payday loans have lower interest rates than personal loan

Frees you to pay critical expenses

Has no impact on your credit score.

Cons

Not a long-term solution

Interest accrued on capital is expensive

A repeating renewal could lead to loan default

Payments that are late or missed can affect your credit score

The option of forbearance is a temporary way to help you pay for the essential costs, like utilities and housing, but it can be expensive when you attempt to use it for a long-term plan by continuously renewing your status. It could lead to loan default, or even worse and the risk of serious damage to your credit.

While forbearance will be noted on your credit reports, it will not affect your credit score unless you’ve made late or missed payments.8 To avoid any complications or unnecessary expenses during and following forbearance, continue to make payments while your application is being considered, then end your forbearance as soon as you can afford it financially and, if possible you can make interest payments as they accrue.

The American Rescue Plan passed by Congress and approved by the President Biden at the beginning of March in 2021 contains an option that students loan forgiveness granted between January. 1st, 2021 between Jan. 1, 2021, and the 31st of December. 31, 2025, will not be taxable to the recipient.9

Alternatives to Forbearance

Prior to applying for forbearance and based on the kind of loan(s) you’re pursuing it is recommended to consider two alternatives: deferment and income-driven repayment (IDR) plans.

Deferment, like forbearance, lets you pause payments temporarily–typically up to three years. If you qualify for deferment and have subsidised federal loans and accrued interest over the course of time of deferral is paid to the federal government. All you be liable for at the conclusion of deferment is the original loan amount.1

Federal loan deferment as well as privately loan delay are treated the same way as forbearance. This means that interest is accrued and capitalized at the end of the deferral period adding to what you owe.1

IDR Plans for federal student loans come in four formats: Revised Pay As You Earn Repayment (REPAYE) Plan Pay As You Earn Repayment (PAYE) Plan as well as income-based Repayment (IBR) Plan and the an Income-Contingent Repayment (ICR) Plan.10

They are typically an amount of your income that you can afford and can be as low as zero dollars per month. A disadvantage is that since the repayment process is generally longer, you will pay more interest over the duration of the loan. One possible benefit is that if the loan is not fully paid at the time the period of repayment is over–20 to 25 years, any balance is forgiven. Visit the Federal Student Aid to learn more and make an online request for an income-driven repayment (IDR) plan.10

The Bottom Line

Student loan forgiveness is typically a last resort, not a first option. You can use it when you need short-term relief but don’t qualify for deferment. For longer-term issues, you may want to consider and income-driven payment (IDR) plan instead. If you can, pay the interest as it is accrued to avoid having to pay fees on the amount of interest you pay when you start the repayment. Finally, when you first start to notice financial difficulties Talk to your loan servicer to discuss your options for repaying.

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