If you’ve got student loans you’re repaying, you may have heard people talk about student loan forbearance. But what does it mean to put your student loans into forbearance? And, is it worth it?
According to the Federal Student Aid department, the definition of a forbearance is as follows:
A deferment or forbearance allows you to temporarily stop making your federal student loan payments or to temporarily reduce the amount you pay.
Most federal student loans offer deferment and forbearance options. Some private student loan companies offer these options too.
But is it worth it to stop making your student loan payments? What are the costs? How can a forbearance help you? How can it hurt you?
We’ll talk about these questions as we ponder whether or not it’s worth it to take a hiatus from paying your student loans. Since forbearance and deferment procedures are more common with federal student loans, we’ll discuss details about those loans in particular today.
How is Student Loan Forbearance Different from Student Loan Deferment?
With student loan forbearance you get a temporary break from making your payments. However, you still need to pay the monthly interest accrual payment on those loans.
With student loan deferment you are, in some cases, allowed to defer the interest payments as well. This means you could pay nothing at all per month during the deferment period, although interest will still accrue.
But remember; not all deferment programs defer interest and principal payments. Some only defer the principal portion of the payment.
Deferment generally is granted on only certain types of federal student loans, such as Perkins loans and direct subsidized loans.
Forbearance is offered on a broader range of student loan types. But again, only the principal portion of your student loan payment is put on hiatus with a forbearance.
This means that when you agree to a forbearance on your student loans, you still have to make a payment. However, the payment will be smaller since it’s an interest only payment.
Is There More than One Type of Student Loan Forbearance?
Generally, there are two types of student loan forbearance options: A General Forbearance and a Mandatory Forbearance. Each works a bit differently, and not everyone qualifies for both types of forbearances.
A General forbearance is a type of forbearance where your loan servicer gets to decide whether it will grant approval. General forbearances are typically used in the following types of situations:
- If a borrower is having financial difficulties
- When a borrower has been burdened with high medical expenses
- If a borrower experiences a change in employment
- Other reasons as approved by the loan servicer, such as in the case of a natural disaster
General forbearance approvals are granted at the behest of the loan servicer, based on certain circumstances. As a loan customer, you would need to call your servicer and ask for a General forbearance.
A Mandatory forbearance works a bit differently. A loan servicer has to grant a mandatory forbearance request – provided you meet the eligibility requirements.
Examples of eligibility requirements for a Mandatory forbearance are as follows:
- You are currently serving in a medical or dental internship or residency program. You must also meet certain other guidelines pertinent to this qualification.
- The total monthly payment for all of your student loans is more than 20% of your monthly gross income.
- You are serving in an Americorps position for which you received a national award
- If you work in a teaching position that would qualify you for teacher loan forgiveness
- If you are a National Guard member on active duty (mandated by a Governor) but are not eligible for a military deferment
- You qualify for partial repayment of your loans in accordance with the U.S. Department of Defense Student Loan Repayment Program
As you can see, Mandantory forbearances are offered in more specific circumstances. And again, a loan servicer has to grant a Mandatory forbearance if you qualify for one and want one.
For more information on the types of forbearances and qualification for them, go to the U.S. government’s Federal Student Aid website.
Can Anyone Get a Forbearance on a Student Loan?
I talked a little bit in the section above about the two main types of forbearance and who qualifies for each. Now we’ll go a bit more into detail about qualifying for a forbearance on a student loan.
General forbearances are grantable for Direct loans, Perkins loans and FFEL loans. You can be granted a General forbearance on these types of loans for up to 12 months at a time.
In some cases, you are allowed to reapply for another forbearance after your initial forbearance period expires. Note that on Perkins loans your cumulative forbearance time periods can’t total any more than three years.
However, on Direct and FFEL loans there is no cumulative limit on your forbearance periods.
Remember that you have to be experiencing some type of financial difficulty to be granted a general forbearance. Something like a job loss, some other type of financial difficulty or a medical bill that is extraordinarily large.
If you are in need of a general forbearance you have to contact your loan servicing center. They’ll inform you of the procedure for requesting the forbearance and let you know the status of your request.
As I mentioned earlier, loan servicers cannot deny a mandatory forbearance, provided you meet the qualifying criteria. Mandatory forbearances are granted for no more than twelve months at a time.
However, if you continue to meet the eligibility requirements when your mandatory forbearance expires, you can reapply for another forbearance. There are no cumulative limits on a mandatory forbearance as long as you continue to meet the eligibility requirements.
Now we’ll talk about whether or not forbearance is worth pursuing and accepting.
Is Forbearance Worth it?
Obviously, the main benefit of taking a forbearance lies in reduced payments. However, there are also downsides to taking a student loan forbearance.
The main problem with them is that you are simply extending the number of years before the loan is paid off.
And in the process, you are paying more interest on the loan because of that. To decide whether student loan forbearance is worth it for you, it’s important to ask yourself some questions.
Do I Really Need a Forbearance?
An important thing you need to remember when deciding whether to take a forbearance is that it’s a temporary solution. If you have a short, temporary problem, a forbearance may be helpful.
For instance, if you’ve been the victim of a natural disaster you might need a month or two to clean up. Or, if you’re in between jobs but are actively seeking another job, you might need payments covered in the interim.
However, maybe the issue causing your inability to pay is longer term. Maybe you just can’t find a high enough paying job in your area.
Or, maybe a medical condition prevents you from doing the job you went to school to do. If so, there may be other solutions aside from forbearance. If you’re struggling financially, there might be a way you can turn things around without having to get a forbearance. Here are some ideas.
Consider Refinancing Your Student Loans
Along with identifying and cutting unnecessary expenses so you have more cash, you could look at loan refinancing.
Companies such as Credible offer lower interest refinance options (as low is 4.99 percent) for student loan holders.
Getting a lower interest rate on your student loan may result in lower, more affordable payments for you. Those lower payments could help you eliminate the need for a forbearance.
Lowering your payments could also help you pay off your student loans faster. Check around with companies like Credible to see if refinancing your student loans could help you save money. Refinancing may help you to lower your payments as well.
Check Your Budget for Leaks
As one option, could you re-assess your budget and cut some other expenses? Have you ever done a Challenge Everything Budget? A Challenge Everything Budget involves analyzing every single expense you have, line by line.
If you find the expense isn’t a true and absolute necessity, it gets cut from the budget. This can be a great process for finding extra money and identifying waste in your budget.
Some examples of expenses that could be eliminated would include gym membership and satellite TV subscriptions. Salon expenses and restaurant purchases will also need to go.
Or, if you’re buying expensive designer clothes, you could opt for cheaper brands instead. On top of that you could commit to only buying clothing items that are absolutely necessary.
Getting rid of unnecessary expenses in your budget may provide you with the cash you need to pay student loans. It may even help you to have the money to pay extra payments and pay the loans off early.
Think About Bringing in Some Side Hustle Income
If a lack of income is an issue, you could potentially earn more money by doing some side hustles. Side hustles are ways to earn extra cash on the side.
The great thing about side hustles is that you can do many of them on your own time. You get to choose which side hustles work for you and your skills and schedule. Here are some side hustle ideas that may help you bring in some extra cash.
Drive with Uber or Lyft
Rideshare driving for a company such as Uber or Lyft can be a great way to earn extra cash. Rideshare driving works like a taxi service. You bring people from one destination to another.
Rideshare driving is a bit different from taxi service because it’s generally cheaper and more personal. Uber and Lyft are the two main ridesharing services.
When you sign up to work for Uber and/or Lyft, you can choose the hours you’re available to work. Note: Night, weekend and holiday workers tend to earn more money.
Along with earning cash for each ride, you have the potential to earn tips as well when you work as a rideshare driver.
To learn more about driving for Uber, go here.
To learn more about driving for Lyft, go here.
Do Some Freelance Work
Freelancing work is available for all kinds of skill sets. Whether you’re a writer, editor, graphic designer or administrative professional, you can find freelance work.
If you’re good at managing tasks you could earn income freelancing as a virtual assistant. You would work remotely to help people run a blog, website or business.
If you like to write and you’re good at it, you could find freelance work as a writer. You could write for blogs or websites, for instance. Are you good at graphic design? You could find work helping people design websites. Or, you could make your own designs and sell them on sites like Café Press.
Sites like Fiverr can help you advertise your own freelance services or help you find others that need your skills.
Put your freelancing skills to work and start bringing in some extra cash.
Get a Job That Allows You to Work from Home
Similarly, there are actual jobs that will allow you to work from home. Having a “real” job is nice because you don’t have to keep track of income and expenses, etc.
Companies such as U-Haul will allow you to work as a customer service rep from home. And there are other possibilities too, such as working data entry jobs from home.
The take-away here is that there are always ways to earn cash via side hustle jobs. This article on 60+ Creative Side Hustles to Make Extra Money will give you more ideas for increasing income.
Start Your Own Business
Another way you could potentially bring in some extra cash is by starting your own business. The available business ideas for a home business are expansive. Here is a list of some business ideas you could consider.
- Starting a lawn mowing or landscaping businesses
- Tutoring children in math, English, reading or other subjects
- Babysitting or pet sitting services
- House cleaning, office cleaning, or organization services
- Mobile car washing and car detailing business
And others. When working to find a good business to run, we suggest making a list of your talents and skills first. Then use that list to determine what types of businesses would be a good fit for you.
One thing to remember when you start your own business or do freelance work is that you are responsible for taxes. You’ll also have to keep track of your income and expenses.
Keeping detailed track of all of the costs and income associated with owning a business is vital. It will help you be prepared for claiming that income at tax time.
It will also help you to have the lowest taxable income possible as you can write off many expenses associated with the business.
There are programs such as Quickbooks that can help you keep track of business income and expenses. It’s important to use a program to help you track business costs so you can be more prepared at tax time.
Running your own business does take some work and organization. However, it can also be a great way to bring in some extra cash. And, you can run your business how you please and on your own schedule.
All of these ideas can help you to potentially avoid needing a student loan forbearance.
To Sum it All Up
At the end of the day, only you can decide if student loan forbearance is for you. Taking forbearance can give you some temporary relief from a portion of your student loan payments.
However, forbearance can also simply push a longstanding problem down the road further. This can result in you paying more and more interest on your loans.
It can be helpful when deciding about taking a loan forbearance to look in-depth at your situation. Determine whether the shortage in income or other type of crisis is short-lived or a chronic problem.
If the problem is short-term and will surely resolve itself soon, loan forbearance might be the way to go.
However, if there are longer term issues that don’t show any sign of resolving quickly, other solutions may be better. Perhaps a loan refinance, an increase in income via side hustles or a revamp of your budget will help.
Explore all of your options, and the potential causes of the problem, and map out a solution from there. The sooner you get your finances or other situation under control, the happier you’ll be.
And getting those loans paid off will result in more peace for your life due to less debt. After all, debt can be a serious burden; both financially and emotionally.
Okay, readers: it’s your turn.
Have you ever taken out a loan forbearance? If so, did you find it was the best solution for you? Or, were there other options that might have suited your situation better?
What advice do you have for fellow readers considering a loan forbearance? Share in the comments below.