Being in forbearance means you have been granted a temporary postponement or reduction of your loan payments, typically by your lender, when you are experiencing financial difficulty. This option allows borrowers to manage challenging circumstances without falling behind on their loan obligations.
Understanding Loan Forbearance
When you are in forbearance for a loan, it allows you to temporarily stop making payments or reduce the amount of your monthly payments. This relief is generally provided when borrowers are having trouble repaying their loans due to specific circumstances. The period for which you can be in forbearance is typically limited, often up to 12 months at a time, though it may be possible to request extensions.
Forbearance can be a valuable tool to navigate short-term financial challenges without defaulting on your loan. It provides a crucial breathing room to address issues such as:
- Job loss or significant income reduction: Providing time to find new employment or adjust to a lower income.
- Illness or medical emergency: Allowing focus on health and recovery without the added stress of loan payments.
- Other significant financial hardships: Any unforeseen event that severely impacts your ability to pay.
Forbearance vs. Deferment: Key Differences
While both forbearance and deferment offer temporary relief from loan payments, there are key distinctions that impact your loan's long-term cost and how interest accrues.
| Feature | Forbearance | Deferment |
|---|---|---|
| Payment Action | You can stop making payments or reduce your monthly payments. | You can temporarily stop making payments. |
| Interest Accrual | Interest usually accrues on all types of loans during forbearance, potentially increasing your total loan cost. | Interest may or may not accrue depending on the type of loan (e.g., typically does not accrue on subsidized loans). |
| Eligibility | Often based on financial hardship, at the discretion of the lender. | Often based on specific criteria like enrollment in school, unemployment, or military service. |
| Duration | Typically granted for shorter periods, such as up to 12 months at a time. | Can be granted for longer periods depending on the qualifying event. |
When to Consider Forbearance
Forbearance is an option to explore if you are:
- Experiencing a temporary financial setback that makes it difficult to meet your loan obligations.
- Needing a short-term pause to reorganize your finances.
- Seeking to avoid delinquency or default on your loan when other options like income-driven repayment plans aren't immediately feasible or sufficient.
It's important to understand that while payments are paused or reduced, interest may continue to accrue on your loan during forbearance, which can increase your total loan cost over time. Therefore, it's often considered a short-term solution and should be pursued after exploring other repayment options if possible.
