What is forbearance?
When situations that affect your financial earnings occur, such as unemployment or an injury, you may find yourself without the financial means to meet your obligations. Utility bills, food and medical costs may require your entire disposable income leaving loans and credit card bills at risk of entering delinquency. You may face foreclosure on mortgages or legal action on outstanding educational or personal loans. Many institutions provide the means to handle temporary financial setbacks by allowing you to enter into a forbearance agreement for a specified period.
If you temporarily cant meet your repayment schedule but youre not eligible for a deferment, your lender might grant you forbearance for a limited and specific period of time. Forbearance occurs when your lender or loan-servicing agency agrees to either temporarily reduce or postpone your student loan payments. Interest continues to accrue (accumulate), however, and you are responsible for paying it, no matter what kind of loan you have. Generally, your lender can grant forbearance for periods up to 12 months at a time, for a maximum of three years. Youll have to provide documentation to the lender to show why you should be granted forbearance. The lender must send you a notice confirming the terms that were agreed to and record them in your file.
Student loan forbearance is essentially a temporary get-of-out jail card, whereby lenders may choose to let certain struggling borrowers either put their student loan payments on hold for a period of time, or extend the length of the repayment plan in order to reduce their monthly balance. Who qualifies? Forbearance is never a guarantee. Applicants must prove financial hardship that may include a low to non-existent income (i.e. unemployment), health problems, or other outstanding loans like credit card debt and/or medical bills. It also helps your case if you have dependents.
What is deferment? Can I get a deferment or forbearance on a School Consolidation Loan? If you find you can’t meet your repayment schedule but you’re not eligible for a deferment, you might be granted forbearance for a limited and specified period. During forbearance, your payments are temporarily postponed or reduced. Unlike deferment, whether your loans are subsidized or unsubsidized, you’ll be charged interest during forbearance. If you don’t pay the interest as it accrues, it will be capitalized.
