What is Student Loan Forbearance?
What is Student Loan Forbearance?
On your way through your college career, you are probably picking up some loans, either federally funded or privately funded. These loans will be due for repayment about six months after your graduation. Therefore, you need to begin now thinking about a budget and about the best way to get these loans paid off.
Many people consolidate any student loans they have gathered on their journey. This consolidation process turns several loans into one loan with one lump sum to pay each month instead of trying to make several small payments. This usually works well for the student and the lender alike. However, sometimes things don’t go as we planned and we are left hanging with the student loans over our heads.
The payments on most student loans can be deferred for up to a year a couple of times during the life of the loan. Reasons that might influence your lender to allow this would be unemployment, military deployment, financial hardship, etc. With the granting of a deferment, you simply stop making the payments on the loan for a specified amount of time. When the time is up, you pick up paying where you left off.
If you have already deferred the loan the allowable number of times, you may be eligible for student loan forbearance when difficulties arise. This is a more expensive option, however. It is much better than allowing the loan to go into default but it is available to help get you back on your feet.
As with the deferment, student loan forbearance suspends or reduces your loan payments for a certain amount of time. Again, there are certain circumstances in which forbearance is allowed. In this situation, however, the interest continues to accrue. You have the option of paying the interest only during this time or allowing the interest to capitalize, effectively adding the interest into the original principal you borrowed. When you begin to repay the loan, your overall cost of the loan is higher resulting in higher payments each month.
To determine you eligibility for student loan forbearance, you need to check with your lender about all your options. We tend to want to run from problems as they arise. However, running from this problem will affect you credit score adversely. Therefore, you need to go to the lender and work out a payment plan that will be helpful to all concerned.