Forbearance

Forbearance summary:

• If you have a financial hardship, one potential option for relief is forbearance, which temporarily pauses or lowers your payments. 

• Forbearance is temporary relief, not permanent debt forgiveness.

• You will still eventually need to pay all the money you owe—forbearance doesn’t cancel your payments or lower the amount you owe. In some cases, the amount you owe could rise during your forbearance.

Forbearance Definition and Meaning 

If you’re having a hard time making payments to your creditors, you could reach out to ask for help. Forbearance may be a debt hardship program option for you. Forbearance can temporarily reduce or pause your payments until you get your financial footing back. If you qualify, forbearance could be a better option than foreclosure (in the case of a mortgage) or defaulting on the loan. 

Key Features of Forbearance

Forbearance is available for many types of federal student loans. You do need to apply for it. In some cases, your request will be automatically approved, such as if you're a member of the National Guard and have been activated. 

You might have also heard of mortgage forbearance, especially during the COVID-19 pandemic. There are also credit card forbearance programs, and you can ask other lenders about programs they offer for other types of loans. Forbearance doesn’t mean you’re off the hook forever, but could give you time to get your finances on track before resuming payments. 

Even if a forbearance is approved, you might not be able to stop making your entire payment. Depending on your lender and their terms, you might still be required to make interest payments during your forbearance period. 

It’s a good idea to keep paying the interest during forbearance. If you aren’t required to pay the interest (and don’t volunteer to do so), your balance is likely to grow while your payments are paused. In most cases, unpaid interest will capitalize. That means the interest will be added to your unpaid loan balance, and then you’ll be charged interest on the new, higher amount.

If you stop making payments for a time, your original loan term will be longer unless you get caught up on the skipped payments. 

Forbearance helps the lender as well as the borrower. The lender would likely lose money if you’re unable to keep up with your payments and end up in collections or default. Forbearance gives a lender the chance to let you continue to keep and manage your loan. 

Forbearance won’t impact your credit score. But if you miss payments on your loan before requesting forbearance, those missed payments could have a negative effect on your credit standing. If you know you won’t be able to make a loan payment as scheduled, get in touch with your lender to talk about forbearance.

How Do You Get Forbearance?

To qualify for forbearance, you’ll need to provide information to your lender about your financial situation. A natural disaster, job loss, or unexpected medical event are all valid reasons to ask for a forbearance. You might need to request forbearance within a set period of time after a disaster or other qualifying event. 

Real-Life Example of Forbearance

Let’s say you’ve been laid off from your job. You reach out to your student loan servicer right after you lose your job to request forbearance, and you’re approved. During this time, your loans will still accrue interest, but you can stop making payments until your forbearance ends.