Loan Forbearance: What It Is and How It Affects Your Loan

In an ideal world, you'd never have trouble keeping up with loan payments. But that doesn't always happen, whether due to a sudden job loss, expensive medical bills, or another unexpected situation. In those scenarios, loan forbearance is one option to explore to get the break you need from payments.

Forbearance allows you to temporarily pause payments or make lower payments. Though this can offer a lifeline when needed, interest will typically continue to accrue during a forbearance, and you'll also lose progress toward repayment.

Here's what you need to know about forbearance, including how it affects your credit and alternatives to consider.

What is loan forbearance?

Forbearance is a temporary pause or lowering of your monthly payments on a student loan, mortgage, or other debt.

Student loan forbearance

Forbearance for federal and some private student loans is available when a borrower can't make payments due to financial difficulties like a change in their employment status or another reason. It's ultimately up to the loan servicer's discretion to grant a forbearance.

For federal student loans, a forbearance for financial hardship is known as a general forbearance. You can also be granted a mandatory forbearance, which is automatically initiated in certain circumstances, such as being activated for National Guard duty, serving in a medical or dental residency or internship, or having a student loan debt burden that exceeds a specific threshold.

Not all private lenders offer forbearance to borrowers, though many provide a hardship forbearance if you meet the requirements and your application is approved.

Mortgage forbearance

Mortgage forbearance is similar to student loan forbearance in that you can request it if you're experiencing financial hardship. It will either pause your monthly payments or allow you to make smaller payments.

Keep in mind that you must repay any missed or lowered payments. You typically have to pay back the entire missed amount in one of three ways:

1. You repay the entire missed amount at once after the forbearance ends.
2. You make additional payments at the end of your loan term.
3. You take out a new loan, which you repay all at once.

When you choose reduced payments, the amount you owe is generally added to your monthly payments over a set number of months to cover what you didn't pay.

How does loan forbearance work?

Loan forbearance can offer temporary relief for borrowers in one of two ways: by pausing payments altogether for a period of time or by lowering the loan payment amount you owe each month.

A federal student loan forbearance can last for up to 12 months at a time. However, once your current forbearance expires, it's possible to request an extension if you can't resume your usual payments. Cumulatively, the limit on forbearance is three years over the life of the loan. Private student loan forbearance rules vary by lender.

A mortgage forbearance can generally last up to six months, though you can request an extension after that initial period.

Loan forbearance vs. deferment: What's the difference?

Loan deferment and forbearance are both potential solutions in the case of financial hardship. Each allows borrowers to temporarily suspend their payments to avoid default.

A mortgage deferment can actually help you handle mortgage payments that you skipped during a forbearance. The deferment lets you add the payments you missed while in forbearance to the end of your loan term, so you simply postpone the payments.

When it comes to student loans, there are some major differences in terms of eligibility criteria, interest accrual, and duration.

Student loan forbearance and deferment eligibility

To be eligible for a student loan deferment, you must have a Direct Loan, a Federal Family Education Loan (FFEL) program loan, or a Perkins Loan.

You can qualify for a deferment for the following reasons, though you'll need to meet specific eligibility requirements for each:

• Economic hardship
• Cancer treatment
• Military service
• Continued schooling
• Enrollment in an approved graduate fellowship program
• Rehabilitation training
• Unemployment

A deferment can last for up to three years or for as long as the cited reason continues to apply, after which there's generally a six-month grace period before payments begin again.

To qualify for a general forbearance, you must have the same types of loans that a deferment requires: Direct Loans, FFEL program loans, and Perkins Loans. However, the duration of a forbearance is more limited, with a cap of 12 months at a time and 36 months cumulatively.

Student loan interest accrual: Forbearance vs. deferment

While interest will continue to accrue regardless of which type of loan you have during forbearance, interest will only keep accumulating on some loan types in deferment.

Borrowers are not responsible for paying the interest that accrues during a deferment if they have the following types of loans

• Direct Subsidized loans
• Federal Perkins Loans
• The subsidized portion of Direct or FFEL Consolidation Loans

“If you qualify for a deferment over a forbearance and you have subsidized loans, it would make more sense to use the deferment over the forbearance,” says Farrell Chatwell, a student loan consultant at Student Loan Professor who previously worked for federal student loan servicer Mohela.

However, those with Direct Unsubsidized Loans, Direct PLUS loans, FFEL PLUS Loans, and the unsubsidized portion of Direct or FFEL Consolidation Loans are generally responsible for the interest that accrues during deferment.

How does forbearance affect your loan and credit?

Interest will continue to accrue while your loan is in forbearance. For federal student loans, pausing loan payments also means borrowers will not be making progress toward loan forgiveness.

Still, during forbearance, borrowers will likely get relief with no impact on their credit, even if the forbearance is noted on their credit report.

“Generally, an approved deferment or forbearance should not have a negative impact on the borrower's credit history,” says Mark Kantrowitz, author of “How To Appeal for More College Financial Aid.” That's because “the borrower is considered to be repaying the debt as per the agreement,” he explains.

The potential for credit consequences arises if a borrower doesn't seek a solution like forbearance.

“It is only if a borrower stops repaying their loans without an approved deferment or forbearance that the loans are reported as delinquent to credit bureaus,” says Kantrowitz.

In some cases, it's actually possible for your credit score to increase after entering forbearance if you were delinquent on your loan before.

After the forbearance ends, though, if interest accrual has caused the loan balance to increase significantly, that could drive up credit utilization, which influences your credit score. This impact may be more significant “for a newer borrower” who has fewer lines of credit than “an older borrower who has multiple credit lines,” according to Chatwell.

How to apply for loan forbearance

Whether you have a student loan or a mortgage, you generally must request a forbearance by contacting your loan servicer. You need to cite a reason for requesting a forbearance, such as financial difficulties, medical expenses, or a change in employment.

The student loan forbearance application process entails filling out a designated form. You'll need to provide personal details, including your contact information and Social Security number, the reason you're requesting a forbearance, whether you'd prefer a total payment pause or smaller payments in forbearance, and when you'd like your forbearance period to start and end.

You might also need to provide documentation to your student loan servicer showing that you meet the eligibility requirements for the forbearance. This could include proof of your current income, your job status, or the medical expenses you're dealing with.

Alternatives to loan forbearance

Given the implications of interest accrual and the limited lifetime allotment of time in forbearance, you might want to consider other options to help you with loan payments if you're having a hard time keeping up.

Some alternatives to look into that may provide relief include:

• Income-driven repayment plans for student loans: For those with federal student loans, income-driven repayment plans can offer a lifeline. These payment plans adjust your monthly payments based on your income and family size, in some cases reducing payments to as little as $0 a month.
• Refinancing or restructuring loans to lower payments: If lower loan payments would make repayment more financially feasible, there are other options for achieving that beyond forbearance. If you have private student loans and your credit has improved since you initially applied, you might consider refinancing, which could help you secure a lower interest rate or a longer repayment term, either of which could reduce your monthly payments. Just note that a longer repayment term will increase the amount of interest you pay overall. Mortgage refinancing is also possible.
• Using an emergency fund: If you have emergency savings, that could help you cover your loan payments until you're back on your feet. This could apply in the case of an unexpected job loss, for example. Just make sure you replenish your emergency fund once you've made it through the rough patch.