You may have debt, but you have options.
Summary: Thinking about pausing your student loan payments due to a recent hardship? Find out if a student loan forbearance request is the right choice for you.
For anyone that is suffering from serious financial struggles, forbearance can be an option. Essentially, a forbearance request grants a pause on paying your student loan payments. Although this might seem like an amazing option for someone who is struggling, it is not always what it seems. Putting your loans into forbearance does not mean you simply get away with not paying, and it can eventually be expensive in the long run.
If you truly think that you will not be able to make your payments for the next few months, having a repayment plan is a better option. These can be based on your income, and a percentage to be paid out as you are given a paycheck. This option changes your monthly payment according to what you are making and does not eliminate your ability to have loans forgiven after 20-30 years.
If it does not work for your situation to make a permanent change, then you may look into temporary forbearance. Despite this being an option, there are a few things that you need to know before ultimately making your decision.
The first thing you need to consider about student loan forbearance is whether or not you have acquired federal or private student loans. In some cases, forbearance will work differently, and in other cases, it may not even be available for you.
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Federal student loan forbearance
Over 90% of student loans in the United States are from the federal government. There are specific rules when it comes to forbearance on federal student loans, so this is something you should look into if you have federal loans.
For example, If you have a qualifying reason such as financial hardship, then you can simply ask to be put into forbearance. Although there is an application, including filling out a form and providing documentation, it is pretty simple. If you are approved you will be given a pause for 12 months on paying your student loan payments.
The downside to being put into forbearance is that even though you are not paying on your loan, interest will still pile up. This means your balance will increase, and you will have more to pay than before you went into forbearance. It will also push your student loan forgiveness eligibility back. This is due to needing to make a specific number of payments before qualifying (usually 120).
Typically federal student loans offer two different forms of forbearance, general and mandatory.
General forbearance is known as being the easiest form of temporary help to obtain, it is available for when you are struggling with sudden financial difficulties. For example, if you have suddenly become unemployed, changed jobs, or are suffering from medical debt, you may qualify. Even if you do not suffer from one of these problems, you can still apply for any “other reasons acceptable to your loan servicer.”
Most often general forbearance is given for 12 months at a time. If you make no payments during this duration and are still unable to pay at the end of the period, you can reapply for another 12 months. This can only be extended for a total period of three years.
Mandatory forbearance is for specific situations. These are granted in 12-month periods, but they do not have a limit for how long you can extend.
- Americorps: if you are serving in AmeriCorps, and you meet specific criteria, then you are automatically granted forbearance. This is because you are serving, and most likely making very minimal income.
- DOD Repayment Program: Other types of mandatory forbearance include the department of Defense student loan repayment program, which is offered as an employee of the Department of Defense. If you are on a student loan repayment program through your employer, then you should be able to qualify for forbearance.
- Medical/dental internship or residency: For health professionals going through training, you may not qualify for a deferment on your loans. Instead, you can apply for a forbearance program.
- National Guard duty: If you do not qualify for a military deferment, then you may be able to apply. The catch is that you must have been called for service by a governor.
- Student loans making up 20% or more of income: If your student loan payments make up 20% or more of your total income, then you may be qualified to have them placed into forbearance.
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Private student loan forbearance
Since more than 90% of all student loans in the United States are federal loans, it means that around 10% of all student loans are private. Private student loans are owned by individual lenders. This is similar to that of a mortgage loan or a car loan.
Private student loan forbearance is completely up to the lender. If they even offer the option, they can set their application process and requirements. They also decide how long it lasts.
Typically private student loans are not as adaptable as federal student loans are. It is essential for anyone with a private student loan to contact their lender and see what options are even available.
Ramifications of choosing student loan forbearance
If you are struggling financially then student loan forbearance is often seen as an attractive option because it is easy to qualify for. Despite this, there are many ramifications of choosing this option. If you are not prepared to pay more on your loan after forbearance is up, then you might also be surprised when your loan balance balloons, or when you are not able to utilize the loan forgiveness program later on.
Forbearance is usually the more expensive option when you think about it long term. Especially for those who have a large amount of debt, such as medical debt. If you have $100,000 in debt at a 5% interest rate, after a year in forbearance you will owe $5,000 more once you start paying on it. This is why a long-term payment plan is often a better option.
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