What Is a Forbearance?
Put simply, a forbearance is a pause in payments when it comes to loans. Lenders can postpone payments rather than dealing with the headache of a foreclosure or default. In the wake of COVID-19, we’ve seen a massive economic shock. That shock has disrupted the finances of a great many people. In an effort to minimize the damage to consumers, and the financial institutions that have lent money to them, we’ve seen postponements on payments ranging from mortgages to school loans. This has stemmed from both a federal level, and individual financial institutions as they try to avoid mass defaults on their books.
Student loans are no different.
How the COVID-19 Forbearance Works With Student Loans
A labor shock like we just had can be especially painful for those with school debt, as it’s one more monthly bill on top of living expenses. In an effort to keep that extra pressure from becoming too much, the government, along with many lenders, has made moves to help people get through the pain.
According to StudentAid.gov, federal student loan borrowers were placed into an automatic forbearance on their payments on March 13, which will carry through until September 30 of this year. Of course, if you haven’t been financially impacted by recent events, and wish to keep up your payments so as to get them paid off sooner, you can do so.
Taking advantage of the postponement will not cause penalties. Interest will not accrue. You will not get a hit on your credit score.
Depending on who owns your loans, there is a 0% interest rate throughout the time period of the forbearance; creating an incentive for some to keep paying. Of course, you should always do your homework here to be sure that yours are included in that.
How Do You Qualify?
The COVID-19 scenario is a bit different than usual. It doesn’t take much at all to qualify, and the avoided interest makes it more appealing than the traditional way it works. Outside of this situation, obtaining a forbearance is a bit trickier.
Traditionally, if you go through the steps to obtain a temporary forbearance on your loans, they will accrue interest during that time that you need to pay. If you don’t, you’re just incurring a bigger liability over time. This would be the main reason to avoid a forbearance, and rather seek out a deferment on payments.
You must go to your loan servicer in order to get a forbearance approval. To justify the request, you should have a temporary inability to make your payments due to financial issues, medical costs incurred, or changes in your job. These are the types of qualifications or criteria for requesting a general forbearance where the loan servicer has the final say. These types of forbearance's apply to Direct Loans, Perkins Loans, and Federal Family Education Program loans.
Another type of forbearance is a mandatory one. This means that eligible criteria will require that the servicer grant you the postponement. Again, according to studentaid.gov, these include:
- Those serving an AmeriCorps position, which included a national service award.
- Those qualifying for partial repayment of loans through the U.S. Department of Defense Student Loan Repayment Program.
- Those serving medical or dental internships, as well as residency programs.
- Activated members of the National Guard who are not eligible for military deferment.
- Perhaps the most relevant to the general public, you can qualify for mandatory forbearances if your total amount owed monthly represents 20% or more of your gross monthly income for up to three years. This one only applies to Direct Loans and FFEL Program loans, as well as Perkins Loans.
As with general forbearances, mandatory forbearances can only be granted for up to 12 months. At the end of that period, you’ll have to requalify for a new postponement of payment.
To find more detailed information on your qualifications for obtaining a forbearance, the terms included, you can contact your loan servicer. There are also ample resources, as well as request forms, on studentaid.gov.