As a college student or recent graduate, you may be familiar with the stress of student loan debt. With the average student loan debt for a bachelor’s degree surpassing $30,000, many individuals are faced with the daunting task of repaying their loans while also managing other financial responsibilities.
Fortunately, there are options available to assist borrowers in managing their student loan debt. One of these options is called forbearance. Forbearance is a temporary postponement of student loan payments, typically granted to borrowers who are experiencing financial hardship. Understanding student loan forbearance is essential for anyone who may need to utilize this option in the future.
So, what do you need to know about student loan forbearance? Here are some key points to keep in mind:
Eligibility: To qualify for forbearance, you must be experiencing a financial hardship or be unable to make your monthly loan payments due to other circumstances. This could include unemployment, medical expenses, or other financial challenges.
Types of forbearance: There are two types of forbearance: discretionary and mandatory. Discretionary forbearance is granted at the lender’s discretion and may be for a specific period of time. Mandatory forbearance is required to be granted under specific circumstances, such as serving in a medical or dental residency program, or if your monthly loan payment is 20% or more of your total monthly gross income.
Interest accrual: While in forbearance, interest will continue to accrue on your loan. This means that your loan balance will increase during the forbearance period, potentially leading to a higher overall repayment amount. It’s important to consider this when deciding whether to enter forbearance.
Application process: To request forbearance, you will need to contact your loan servicer and submit a forbearance request. You may be required to provide documentation to support your request, such as proof of unemployment or medical expenses.
Impact on credit: Entering forbearance may have an impact on your credit score, as it indicates that you are unable to make your monthly loan payments. However, this impact is typically less severe than defaulting on your loans, which can have long-term negative effects on your credit.
Duration: Forbearance is typically granted for a limited period, such as 12 months. After this time, you will need to reapply if you are still experiencing financial hardship.
It’s important to remember that forbearance is a temporary solution and should be used as a last resort. If you are struggling to make your monthly student loan payments, there may be other options available to you, such as income-driven repayment plans or loan consolidation.
Before entering forbearance, it’s advisable to explore all of your options and speak with a financial advisor or loan servicer to determine the best course of action for your individual situation.
In summary, understanding student loan forbearance is crucial for anyone dealing with student loan debt. If you find yourself in a situation where you are unable to make your monthly loan payments, forbearance may offer temporary relief. However, it’s important to carefully consider the implications and explore alternative options before making a decision.