Student Loans 101: What Does Forbearance Mean?

As of September 2022, Americans have $1.75 trillion in student loan debt. This is an average of $28,950 per borrower. When financial hardship strikes, it can seem like your bills, including student loan payments, come nipping at your heels all at once, looking for that monthly payment.

These financial demands can be overwhelming, potentially compounding the stress and anxiety the hardship has already caused. Fortunately, federal student loan lenders and some private student loan companies are willing to help with forbearance agreements when you need it most. 

What does forbearance mean? We cover that below. Plus, we'll outline when a person can file for forbearance, if all student loans offer forbearance, the pros and cons of forbearance and more.

What does forbearance mean?

Student loan forbearance is a postponement of student loan payments during financial hardship. The modifications could include skipping monthly payments or temporarily lowering monthly payments for up to 12 months. Unlike student loan forgiveness and income-based payment plans, forbearance is only temporary relief.

Student loan lenders and servicers agree to these modified terms with the promise not to report any agreed-upon skipped payments as missed payments to the credit bureaus. This agreement allows you to manage financial hardship without damaging your credit score.  

As mentioned, the key to forbearance is it's temporary. As soon as the forbearance period is up, you must request to extend your forbearance or resume your original repayment plan. Forbearance isn’t loan forgiveness; you must still pay your debt in full. Also, remember that the student loan servicer or lender may still charge the full interest rate during the forbearance period. That means you may come out of forbearance owing a higher balance.

Failure to resume your originally agreed-upon repayment plan after the forbearance period ends can result in serious consequences, ranging from negative marks on your credit report to foreclosure.  

When can I request student loan forbearance?

Federal student loan forbearance is available for a handful of reasons, giving you the chance to manage several types of financial difficulty without having to deal with student loan payments. You can apply for forbearance for any of the following reasons:

• Financial difficulties

• Medical expenses

• Change in employment or job loss

• Other reasons your loan servicer deems acceptable

As you can see, the reasons can be rather open-ended, including very generic financial difficulties and other reasons. So, no matter the reason you can’t afford to make your student loan payments, reach out to your loan servicer to see if they can put you into forbearance until you get things sorted out.

The federal government also has a range of mandatory forbearance periods, which you’re guaranteed approval for. Examples of forbearance applications that are guaranteed for approval include:

• If you’re serving in an AmeriCorps position for which you received a national service award

• If you qualify for partial repayment of your loans under the Department of Defense Student Loan Repayment Program

• If you’re in a medical or dental internship or residency and meet other requirements

• If you’re in the National Guard and are activated by the governor

• If your monthly student loan payment is 20% or more of your gross monthly income

Are private student loans eligible for forbearance?

Private student loans don’t qualify for federal forbearance programs and aren’t required to offer relief if you run into financial hardship. However, certain private loan companies will offer some type of forbearance program if you run into an issue paying your loans.

Like the federal student loan forbearance program, each loan provider will have a list of acceptable reasons to pause your payments. If you have this type of loan, contact your loan provider to learn more about your eligibility for relief programs or forbearance options.

What are the benefits of student loan forbearance?

Forbearance can offer plenty of benefits to borrowers during financial difficulty. Here are some of these benefits.

Freeing up cash flow each month

Student loan lenders may allow you to temporarily skip monthly payments. At the end of the forbearance period, the lender may request you resume payments immediately.

Some lenders may offer you reduced monthly payments, too. Similarly, at the end of the forbearance period, the lender will request you immediately pay all the unpaid portions of the payments or pay them over a set period. The lender may also add the unpaid portions to the end of the loan.

​The skipped or reduced payments the forbearance agreement provides could give you extra cash to pay for immediate needs, including your utilities, gasoline, groceries and other necessities.

Paying one less bill per month

Bills can sometimes get overwhelming, leading to you forget about a payment one month or constantly stress out over all your monthly payments. By entering student loan forbearance, you temporarily eliminate a bill, making your personal finances easier to manage.

Eliminating negative credit reporting

When you file for forbearance, your creditor agrees not to place any negative marks on your credit report due to the skipped or reduced payments. This gives you the time you need to get through your financial hardship without worrying about damage to your credit score.

Stopping collection calls​ and late fees

Collection calls are nerve-racking at best and a nuisance at worst, but student loan servicers have the legal right to contact you to collect the unpaid debt, as long as they follow federal debt collection rules. 

However, if the loan issuer agrees to your forbearance request, all collection attempts will stop, giving you a much-needed break from their calls. This relief option will also stop loan servicers from charging any late fees.

What are the drawbacks of forbearance?

Student loan forbearance can offer a lot of breathing room during a financial hardship, but it isn't without a few downsides.

Interest may still accrue

Depending on your payment deferral agreement, your account may still accrue interest charges. Read the forbearance terms carefully to see if the creditor will still apply the standard interest rate, a reduced rate or no interest. 

For example, consider your student loan interest rate is 7% and you’ve got a $10,000 balance when you enter a one-year forbearance that stops all monthly payments. Interest continues to accrue at the original 7% during that period. So, you'll have no payments, but your account balance will grow by about $700, bringing your balance to approximately $10,700 at the end of forbearance. 

The lender may expect a lump-sum repayment  

Read your forbearance terms carefully and check whether there’s a lump-sum repayment requirement after the forbearance term. For example, if your private student loans have a $250 monthly payment and go on a 12-month payment deferment, you could owe a $3,000 lump sum after the private student loan forbearance period ends.

If you leave this bill unpaid, it could result in a negative mark on your credit report.

Federal student loans have no lump-sum expectation when in forbearance. 

Monthly payments may be higher after forbearance

Some lenders may offer to break the lump sum mentioned in the previous section down into smaller monthly payments for a set term. While this can help lessen the immediate financial blow, it could still result in a significant short-term monthly payment increase.

Also, with the additional interest added to the loan, the student loan servicer may have to increase your monthly payment to satisfy the loan in the agreed-upon term.

Does forbearance hurt your credit score?

Forbearance doesn’t immediately or directly affect credit scores. However, this doesn't mean you don't have to take it seriously. Mismanaging forbearance could result in serious credit issues that will only compound once the forbearance period is over. 

Here's how forbearance could indirectly damage your credit. 

Increasing amounts owed

When your student loan servicer offers a forbearance plan, you may continue accruing interest charges at the original interest rate. This means your account balance will increase during the forbearance term.

As your balance increases, it can negatively impact the amounts owed variable in the FICO credit score algorithm. This makes up 30% of your FICO credit score, so it could cause your score to fall by several points.

Forgetting to resume normal payments

Your lender will usually give you ample warning before your forbearance ends. The warning could be in the form of a simple billing statement or a formal letter. Either way, it's your responsibility to resume payments once forbearance ends. 

If you forget to resume payments and are 30 or more days late, the late payment(s) could have a negative impact on your credit score. 

What does forbearance mean? Temporary financial relief

Forbearance comes down to three words: temporary financial relief. It allows you to modify or even skip debt payments during financial hardship. This means you'll have more cash for necessities like food, electricity and gasoline.

To sum up, there's more to forbearance than just skipping payments. You must also understand key aspects of this financial relief, including when you can file for forbearance, the pros and cons of it and how it could impact your credit history

Now you have a firmer understanding of how forbearance works and are better prepared should you face financial difficulties.

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