If you're having difficulty paying off your federal student loans, you can request a temporary suspension of your monthly loan payments until your financial circumstances improve. One way to do this is known as forbearance. Here's a quick guide to how it works and how it differs from loan deferment, as well as another alternative you should consider.
What is forbearance?
The short version is that forbearance refers to a period of time during which you stop making payments on your federal student loans. Forbearance is granted for no longer than 12 months at a time and can be an effective way for certain borrowers to get relief from their debt obligations during difficult financial times.
During a forbearance, you don't have to make any student loan payments (you can also get a forbearance that requires a reduced payment), but the interest on your loans continues to accumulate. In other words, you aren't completely suspending your financial obligation -- your loan balance will be higher when the forbearance is over.
It's important to emphasize that only federal student loans are eligible for forbearance. If you have private student loans, your lender may have its own program that allows borrowers to temporarily stop making payments, but the details can vary. The information in this article specifically refers to federal student loan forbearance.
Mandatory vs. general forbearance
Forbearance is typically quite easy to qualify for (more on that in a bit), but there are some circumstances under which your lender is required to grant your request for a forbearance of up to 12 months. Known as a mandatory forbearance, this applies in the following circumstances:
- You're serving in a medical or dental internship or residency program.
- Your student loan payment is 20% or more of your monthly income.
- You're serving in an AmeriCorps position for which you received a national service award.
- You anticipate qualifying for teacher loan forgiveness and are currently performing the required teaching service.
- You qualify for U.S. Department of Defense Student Loan Repayment program.
- You are an activated member of the National Guard and don't qualify for a military deferment.
In addition, you can request a general forbearance from your loan servicer. You can request a forbearance if you're experiencing financial difficulties, have high medical expenses, are in the process of changing employment, or for just about any other reason.
The catch is that your loan servicer can decide whether or not to grant a general forbearance, so you will need to at least have a reasonably convincing explanation. That said, it's usually in your lender's best interest to grant a forbearance as opposed to simply letting you default -- after all, your interest continues to accumulate, and they want you to eventually pay the money back.
How to apply for forbearance
You can request a forbearance directly from your loan servicer -- that is, the company to whom you make your student loan payments. This is generally done over the phone or by filling out a short form, and the loan servicer may request documentation from you, especially in cases of a mandatory forbearance.
Deferment is the better choice -- if you qualify
There are two ways to postpone federal student loan repayment -- deferment and forbearance. The major difference is that while you're in deferment, the federal government pays the interest on any subsidized student loans you have, making this a financially preferable arrangement for most borrowers.
The problem is that not everyone qualifies for a deferment. In order to get a deferment, you need to either be in school (an in-school deferment is usually automatically granted) or have a qualifying hardship or reason. Unlike forbearance, however, and with a few exceptions, you can only use a deferment for a maximum of three years if you aren't in school.
The point is that if you qualify for a deferment, it's typically the better way to suspend your student loan repayment. So first ask your loan servicer if you can defer your loan and also consider an income-driven repayment plan (see below).
Look into income-driven repayment first
As a final thought, although forbearance and deferment can be effective ways to reduce your financial burden during tough times, they aren't always the best choice. Specifically, before you request a forbearance or deferment, it's worth looking into income-driven repayment if you haven't enrolled in it already.
Income-driven repayment plans limit your monthly student loan payment to a certain percentage of your discretionary income (10% in the case of the most popular repayment plan), and if you don't have any discretionary income, your payment can be as low as $0. This will give you credit toward loan forgiveness programs, including Public Service Loan Forgiveness) and will allow you to save the options of deferment and forbearance in case you need them in the future.