Student loan forbearances can be an economic life-saver, allowing you to put monthly student loan payments on pause while you get some breathing room to save up money and reestablish firm financial footing.
Even though it’s 2016 and the economic recovery is supposed to be well under way, we all know that there are still millions of people facing serious financial difficulties, including tens of millions having trouble making their monthly student loan payments.
Fortunately, the federal government has made forbearance programs more widely available than ever before, allowing many of those who’ve failed to qualify for a federal student loan deferment eligible for needed financial assistance.
What is a Student Loan Forbearance?
Forbearances are relatively simple, and operate almost identically to deferments, meaning that your student loan is put on pause so you can temporarily stop making monthly payments.
However, unlike many of the deferment programs available in 2016, at the time of writing, forbearance does not prevent your loan from accumulating interest.
What’s that mean? Even though your loan is put on pause, it will continue to accrue interest, meaning that you’re going to end up with bigger monthly payments once your forbearance period ends (unless you’re able to qualify for a loan modification of some sort at that time).
What Types of Forbearances are Available?
In 2016, there are two types of forbearances available to those with federally-funded student loans, with some important distinctions between how each of them operates, how they’re applied for, and how they’re approved.
Here are the details on how it works for each type:
A discretionary forbearance is one that your lender voluntarily agrees to offer you, after you’ve requested it from them (and you do have to request it – they’ll never simply offer one to you in advance).
Typically, discretionary forbearances are requested once you’ve already tried (and failed) to receive a deferment, since again, deferments don’t accrue interest and are better in the long-run.
Technically, however, you can request a discretionary forbearance at any time, but it’s entirely up to them as to whether or not they’re going to accept the request, and traditionally, they’re only granted for one of the two following reasons:
- Serious Financial Hardship
- Serious Illness
As far as we can tell, there aren’t any official restrictions or eligibility guidelines on how serious a financial hardship or how seriously ill you have to be to qualify for the forbearance, so again, it seems to be entirely up to the lender.
And as we know from experience, the odds of receiving an approval on something that they don’t have to give you, which hurts their bottom line, is likely slim to none.
Fortunately, there’s a back-up plan available to those facing dire financial straits.
If you’re in so much financial trouble that you’re literally sure you can’t survive making monthly student loan payments, but you know you don’t qualify for a deferment (or you’ve already been denied one), then you it’s time to consider requesting a Mandatory Forbearance.
It doesn’t sound right, because something that’s “mandatory” shouldn’t have to be “requested”, but again, you won’t be able to receive one (or even have one offered to you) without first requesting it through official channels.
Mandatory forbearances are the safe-haven for those of us who would literally be put out of house and home or sent to a debtors prison due to having such high monthly student loan payments that there’s no hope for ever getting them in on time.
In fact, the way it works is that if you meet any of the following eligibility criteria, your lender is legally required to grant you a forbearance:
- You are serving a medical or dental internship, or you’re in a residency program, and you meet specific requirements (ask your lender for them, they’re legally obligated to provide them to you)
- You are serving in a national service position (like AmeriCorps, Senior Corps, the Social Innovation Fund, etc.) for which you’ve received a national service award
- You are serving as a teacher in a position that would qualify for the Federal Teacher Loan Forgiveness Program, also known as the Stafford Loan Forgiveness Program
- You are serving as a member of the National Guard and have been activated by a governor, but you do not qualify for a military student loan deferment
- You qualify for partial repayment of your loans under the eligibility conditions of the U.S. Department of Defense Student Loan Repayment Program
- The total amount of all of your monthly student loan payments is 20% of more of your monthly gross income
So, now that you know what they are, and how to qualify for one, how do you actually request a forbearance?
How Do I Apply for a Forbearance?
This part is relatively easy, except for the fact that there’s no single application, document, or process for requesting your forbearance.
The reason it’s not standardized or consolidated into a single process is that each lender has their own process for receiving requests, evaluating them and issuing approvals, and you’ll have to ask your lender to provide those details to you.
The good news is that getting those details is as easy taking a few minutes to make a phone call or shoot off an email, so there’s no valid reason not to do it right now.
Your lender should tell you exactly what process you need to follow, including what documentation (if any) will be required to process your request.
To prepare for this conversation, I’d recommend getting together your financial statements, like your paycheck stubs, taxes paperwork, and especially your papers showing how much your monthly student loan payments are, and having them ready in advance so that you can provide those numbers at initial contact.
Can I Avoid Interest Accrual During Forbearance?
In short, no.
No matter what type of forbearance you receive, the interest on your loan will continue to accumulate throughout the forbearance period.
However, you can avoid having that interest recapitalized after your forbearance ends (which means added to your loan principal, which increases your monthly payments and the cost of your loan), by paying it off as it continues to accumulate.
Basically, even though your loan will be on pause with the forbearance, you can continue to make monthly payments for whatever interest amount is accumulating, and that will allow you to prevent the amount you owe from growing.
If you can afford to do this, then you need to do it, because failing to do so will mean higher monthly payments and more debt after the forbearance period has ended, and you definitely don’t want that.
When Can I Stop Making Payments?
This part is important – do not stop making your monthly student loan payments until your lender contacts you in writing to state that your forbearance request has been approved and granted.
If you stop making your payments before then, and your request isn’t approved, you’ll be delinquent as soon as a payment misses, and at risk of defaulting on your loan.
Once you’ve defaulted on a student loan, you’ll have a much harder time receiving any form of assistance, so don’t let that happen!
What if I Can’t Get a Forbearance?
If you’re not eligible to receive a forbearance, and you’ve already been turned down for a deferment, then it’s time to start considering changing your repayment plan, or requesting a loan modification.
The first thing to do when you think you’re going to have trouble making your monthly payment is to contact your lender, let them know, and ask them what options you have.
Some lenders will offer forgiveness, extensions, interest rate reductions or other loan modifications that could save you serious money simply because you’ve told them you need it, but none will do that if you haven’t asked.
Be honest with your lender, back up your requests for assistance with facts and documentation, and you just might be surprised at what you could receive in response.
Where Can I Ask Questions?
If you have questions there weren’t answered in this post, please feel free to drop us a line in the comments section below.
We’ll do our best to get you a response within 24 hours.
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