If you’re facing a financial squeeze, you could catch a temporary break on repaying a federal student loan but end up owing more. That’s forbearance.
Interest accrues on nearly all federal student loans in forbearance. After the payment pause, the interest is typically added to the principal balance. (The pandemic-related government forbearance, which paused interest accrual on federal student loans, was an exception.)
Also, if you’re pursuing student loan forgiveness, any period of forbearance will not count toward your forgiveness requirements.
So even though a payment reprieve could bring short-term relief, it might be worth exploring alternatives.
Types of Student Loan Forbearance
There are two main types of forbearance for federal student loans: general and mandatory.
With general forbearance, sometimes called discretionary forbearance, your loan servicer will decide whether or not to grant your request for forbearance if you are unable to make your loan payments.
General forbearance is available for Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Perkins Loans for up to 12 months at a time. Borrowers still experiencing hardship when the forbearance period expires can reapply and request another general forbearance, but there is a cumulative limit of three years.
Unpaid interest is capitalized (added to your balance) on Direct and FFEL loans but not on Perkins Loans, according to the Federal Student Aid office.
Your loan servicer is required to grant you forbearance if you meet certain criteria , including:
• You are serving in a medical or dental internship or residency program.
• The total amount you owe each month for all federal student loans is 20% or more of your total monthly gross income.
• You are serving in an AmeriCorps position for which you received a national service award.
• You are performing a teaching service that would qualify you for teacher loan forgiveness.
• You qualify for partial repayment of your loans under the Department of Defense Student Loan Repayment Program.
• You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
Direct and FFEL loans qualify for mandatory forbearance for any of the above reasons. Perkins Loans also qualify if a borrower has a heavy student loan debt burden.
Mandatory forbearance is to be granted for no more than 12 months but can be extended if you continue to meet eligibility requirements.
Private Student Loan Forbearance
Some private lenders offer student loan forbearance as well.
If you’re having trouble making private loan payments, you may want to contact your loan holder. Interest-only payments, interest-free payments for a limited time, or a change in interest rate could be options.
How Do Forbearance and Deferment Differ?
While both student loan deferment and forbearance offer the opportunity to press pause on your student loan repayment, there are some key differences between the two.
The main one is that you may not be responsible for paying interest on the loan during the deferment period.
Here is a quick breakdown of the types of loans that likely won’t require interest payments during deferment:
• Direct Subsidized Loans
• Federal Perkins Loans
• The subsidized portion of Direct Consolidation Loans
• The subsidized portion of FFEL Consolidation Loans
You will be required to pay the interest during the deferment period on the following loans:
• Direct Unsubsidized Loans
• Direct PLUS Loans
• FFEL PLUS Loans
• The unsubsidized portion of Direct Consolidation Loans
• The unsubsidized portion of FFEL Consolidation Loans
For most deferments, you must provide your student loan servicer with documentation to show that you meet the eligibility requirements.
Does Forbearance Affect Credit Scores?
There are lots of things that affect your credit scores, but going into student loan forbearance is not one of them. The late payments are not reported on your credit reports.
On the other hand, without a forbearance or deferment agreement, making partial loan payments or none at all is considered delinquency, and that can really hurt a borrower’s credit scores.
Alternatives to Forbearance
Income-Driven Repayment Plans
If you’re having trouble making student loan payments because of circumstances that may continue for an extended period, or if you’re unsure when you’ll be able to afford to resume payments, one option is an income-based repayment plan.
Monthly payments hinge on your income and family size. Income-driven repayment plans are intended to also forgive any remaining loan balance after 20 or 25 years.
Student Loan Refinancing
Refinancing your student loans with a private lender is another option to consider. You’d take out one new loan, hopefully with a lower interest rate, to pay off one or more old loans.
You may also be able to change the length of the loan.
Borrowers eligible for student loan refinancing typically have a solid financial history, including a good credit score. Just realize that if you refinance federal student loans with a private lender, you give up federal benefits like income-driven repayment and loan forgiveness.
Student loan forbearance is an option when you’re struggling to make payments, but in most cases interest will accrue and be added to the loan. Deferment, income-driven repayment, or refinancing could make more sense.
SoFi offers student loan refinancing with a fixed or variable interest rate and a simple online application.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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