Student loan forbearance is the practice of ceasing or reducing student loan payments for a short time through an agreement with the lender. Usually this is done when the borrower has some type of hardship or other circumstances that make him or her unable to pay the full amount. There are several types of forbearance depending on the circumstances of the borrower and the type of loan. Although it can help the borrower get through a difficult time, interest usually continues to accrue on the loan, and the borrower may end up paying more in the end.
Most subsidized student loans start out in deferment, and the borrower does not have to pay while they are still enrolled in school; private loans, however, usually need to begin repayment immediately, while the student is enrolled. Once a student loan is in the repayment period, not paying it can have a long-lasting negative effect on the borrower's credit rating. One way to avoid this is to request student loan forbearance from the lender. Forbearance can help the borrower avoid damaging their credit rating, but interest usually continues to accrue on the full principal during this time. This can result in paying more over the life of the loan.
For private student loans, student loan forbearance is available under differing terms decided on by the lender. Commonly forbearance is available while the student is in school and during the breaks between semesters. During the forbearance period, interest typically continues to accrue, and the student often has the option of allowing the interest to be added to the principal balance, or making interest only payments to keep future payments down. Once the student graduates, student loan forbearance is often available under the same terms as for subsidized loans.
With a subsidized student loan, no interest accrues until after the student graduates, or leaves school. Once it enters repayment, the student is typically responsible for making payments that include interest and principal. At times the student may find that he or she is unable to make these payments, and can request a student loan forbearance to avoid damaging their credit rating. During a forbearance period they may be granted permission from the lender to make reduced payments, or to stop payments altogether for a pre-determined period, usually a year. Examples of hardships that may qualify include serious illness, the inability to find employment, or a lack of sufficient income to pay.
There are also a few types of student loan forbearance called mandatory forbearance that apply to borrowers with specific circumstances that require the lender to grant forbearance. This includes students who have graduated but must complete a medical or dental residency as part of their training. Mandatory forbearance is also granted to borrowers who are performing certain types of vital service to the government, such as the Department of Defense in the US, or participating in specified community service efforts such as Americorps. Lenders are also required to grant forbearance to borrowers whose payments equal or exceed twenty percent of their gross income each month.