The Cost of a Forbearance on Your Student Loan

If you are considering a student loan forbearance, you should be aware of the effects. A forbearance on a student loan is very common, many student loan holders use a forbearance to offset loan payments because of  lack of income, job loss and other financial difficulties.

What is a Forbearance?

Student loans that are issued by the federal government have a feature within them that allow you to take a forbearance. A forbearance is a temporary reprieve from paying your monthly student loan payment. A typical loan forbearance period is one year. During this time period, the payments stop but the interest that is accrued does not. Your interest will still keep growing and will simply be added on to the body of the loan. 

A forbearance is only allowed for extenuating circumstances. Something bad has to happen to you that can be documented. Some common examples of reasons that forbearances would be allowed are: losing a job, a death in the family, divorce or a severe medical condition. As long as you can prove that you have a severe problem, you can usually get a forbearance without much of a problem.

Financial Impact

Forbearances can come in handy when you have financial troubles. Sometimes you need every bit of money that you can get your hands on just to pay the mortgage and get groceries. It is times like these where a forbearance can be a temporary lifesaver. While it sure helps in the short-term, the long-term impacts are usually substantial because the interest continues to grow.

When you are not lowering the principal at all on a monthly basis, the interest just keeps getting bigger. By the end of the forbearance term, they are adding a substantial amount of money to the loan balance each month. This means that your loans are continually increasing, leaving you in higher and higher debt each month. 

When you get out of the forbearance, your loan balance is typically much bigger than it was. Depending on how big your balance was to begin with, it is not uncommon to now owe several thousand more dollars. In addition, your monthly payment is now larger than it was initially. You owe more money in the same amount of time to repay the money. Therefore, it is now even harder to meet your financial obligation on a monthly basis. For most people, they do not change their financial situation enough in a year to make much of a difference. Therefore, now you are in the same situation you were in before except you have a larger student loan payment.

How to Apply

If you are in dire financial circumstances and really need a forbearance, you can apply online or by calling your lender. It is better to file a forbearance than being late or not making payments toward your loan. Your credit score remains intact because the lender will not report lates during a forbearance period.


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