What Is a Forbearance on Student Loans?
Forbearance is one of two main ways to delay repayments on a student loan, the other being deferment. The main practical difference is that interest continues accruing during the delay period with forbearance, which isn't always the case with deferment. Usually forbearance is at the discretion of the lender, while deferment is automatically based on specific criteria.
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Reasons
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Generally, forbearance is an option available when the person is in poor health, is unlikely to be able to afford to pay the loan back in full by the scheduled completion date, or has such a low income that the scheduled monthly payments are 20 percent or more of his monthly income.
In contrast, a person who is temporarily disabled, on military service, in education or working in some other public jobs may be able to defer the loans.
People in some other public jobs may be able to cancel loans. If a person dies, or is permanently disabled and unable to work, the loan can automatically be cancelled.
Basis
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In most circumstances, forbearance is not guaranteed. The borrower must apply for forbearance and the lender will assess whether or not to grant it.
In contrast, most of the eligibility requirements for deferment or cancellation are automatic, meaning that anyone who qualifies is guaranteed to receive such treatment if she applies for it.
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Interest
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The key principle of forbearance is that the loan continues to accrue interest during the forbearance period. The borrower has the option of paying the specific interest that accrues during this time. If he does not do so, the interest will be added to the total outstanding loan amount, thus having a compound effect.
In contrast, no interest accrues during a deferment period for a specific type of loan known as a subsidized Stafford loan: the federal government pays the lender an amount equivalent to the interest for the deferment period. With other types of loans, interest does accrue for the borrower during deferment.
Renewal
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Forbearance is granted for a one-year period, after which the borrower must reapply. It will again be up to the lender to decide whether to continue the forbearance.
In contrast, with a deferred loan the borrower will usually be guaranteed a successful renewal application if he still meets the conditions. However, deferment for a specific reason may have a total time limit, after which it cannot be renewed.
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