When you can’t make your student loan payments, you can temporarily put them on hold through student loan forbearance. This is an option with federal student loans, and there are also some private student loan providers that offer it.
If you’re approved, you can take a break from paying your student loans. With federal loan forbearance, your loan servicer can approve you for a forbearance period of up to 12 months. You can also reapply after that if you need more time.
Forbearance isn’t without its drawbacks. Your loans continue to accumulate interest during the entire forbearance period. You’re basically getting time off from your loans now at the expense of paying back a larger amount later.
Although it’s best to avoid forbearance if possible due to the extra money it will cost you, there are situations when it could be your smartest move.
1. You’re not making enough money to afford your loan payments
Have your hours have been cut? Does your income at your current job not cover your bills? Forbearance is a helpful option when you can't afford your student loan payments.
With federal student loans, you’ll qualify for mandatory forbearance if your total student loan payments are 20% or more of your gross monthly income. Mandatory forbearance means your loan servicers must grant your forbearance request, so it could be easy to qualify after a loss of income.
Even if your payments aren’t quite 20% of your gross monthly income, you can still apply for a general forbearance. With this type of forbearance, the loan servicer decides whether they’ll approve your request.
Pro tip: If you’re unemployed or working part-time, apply for deferment first.
Deferment is an option for those who are unemployed or can’t find full-time employment. It’s preferable to forbearance because you aren’t responsible for paying interest that accrues on the following types of federal loans during the deferment period:
- Direct Subsidized Loans
- Subsidized Federal Stafford Loans
- Federal Perkins Loans
- The subsidized portion of Direct Consolidation Loans
- The subsidized portion of FFEL Consolidation Loans
Another option is to check out your repayment plan options. You could get a more affordable monthly payment by switching to an income-based plan.
2. You’re dealing with unexpected extra bills
If you’re unable to afford your loan payments because of extra bills, you can apply for a general forbearance. The forbearance will let you focus on those new expenses, pay them off, and start paying your student loans again when you’ve gotten your budget under control.
Ideally, your first choice in paying for unexpected costs is an emergency fund. If you didn’t have an emergency fund or yours wasn’t sufficient, work on saving towards that once you get back on your feet. That way you’ll be better prepared the next time something like this happens.
3. Your federal student loans are delinquent
When you’ve missed a payment on a federal student loan, it becomes delinquent. It remains that way until you catch up on the amount that you missed, switch your repayment plan, or receive deferment or forbearance on your loan.
You don’t want your student loans to remain delinquent, because the consequences get worse the longer they stay that way. After 15 days, the loan servicers can start charging you late fees, and there are more fees the longer you take to make your payment.
After 90 days, the loan servicers report your delinquent loans to all three credit bureaus. That can significantly lower your credit score. Failure to make student loan payments for 270 days means you’ve defaulted on your loans, which results in the following:
- Your full remaining loan balance, including interest, is due immediately.
- You’re ineligible for loan deferment or forbearance.
- You can’t change your loan repayment plan.
- You’re ineligible to receive additional federal student aid.
- The default will be reported to the credit bureaus, further damaging your credit.
- Your wages can be garnished and your tax refunds can be withheld to repay your loan.
Forbearance is one way to resolve delinquent federal loans and avoid these problems.
4. You’re applying for or recertifying an income-based repayment plan
During the process of applying for an income-based repayment plan, you can have your federal loans placed in administrative forbearance.
With an administrative forbearance, you can wait to make further loan payments until you have a lower payment that’s based on your current income. If you don’t take advantage of administrative forbearance, you’ll need to continue making larger payments until your application is processed.
An administrative forbearance is also an option when you recertify your income-based repayment plan, which you must do every year. In this case, it only benefits you if your income has decreased and you'll have a lower payment after the recertification.
5. You have high-interest debt to pay off
Not all debt is created equal. If you’re struggling with credit card debt or personal loans with high interest rates, you may want to see if you can get your student loans into forbearance. That lets you put every penny you can towards the rest of your debt.
You’ll need to check the interest rates on all your debt to confirm that this is a smart idea, but student loans tend to have lower interest rates than credit cards and personal loans. By pausing those student loans, you can pay off your other debt more quickly and pay less interest in the long run.
This qualifies as a general forbearance request, so it's up to your loan servicers to decide whether your financial difficulties justify a forbearance. If they grant it, make sure you work hard to pay off your debt so you don’t waste the opportunity.
6. You’re in a program or position that qualifies you for mandatory forbearance
Loan payments that are 20% or more of your gross monthly income are one way to qualify for mandatory forbearance. But they’re not the only way. Other situations that could qualify you for mandatory forbearance are
- being in a medical or dental internship or residency program,
- serving in an AmeriCorps position for which you’ve received a national service award,
- performing teaching service that would qualify for teacher loan forgiveness, and
- being a member of the National Guard and being activated by the governor (without being eligible for a military deferment).
Again, even if you qualify for mandatory forbearance, you should only go that route if you need it.
Make the most of student loan forbearance
Student loan forbearance is an option to consider whenever you’re in a situation where you can’t pay your loans. (Though you should first check to see if you qualify for a deferment.) It could help you avoid a tight financial situation, such as defaulting on your student loans or falling behind on your other bills.
Just make sure that you only use forbearance as long as you need it. Since you’re still getting charged interest, forbearance can add a lot to the balance of your loan. If the issue is that your income won’t cover all your bills, look into income-based repayment plans, as well.