Should I Do Forbearance?

Forbearance

Kristen Hawley is a freelance writer with a personal interest in student loan debt. She blogs here to help others understand exactly what’s happening in the student loan universe.

Should I do forbearance?” It’s a question many of us have asked. If you’ve read the fine print on your student loan paperwork (or have been in the dire straights of needing to figure this out for yourself), you’ve realized there are a few options to postpone payments. Deferring your loans while engaging in some sort of approved activity (like getting another degree or become unemployed) isn’t too tricky. And during a sanctioned deferment, interest won’t accrue — so you don’t end up paying more than you would otherwise.

Unfortunately, though, just not having enough cash to cover your monthly payment isn’t a valid reason for deferment. But depending on your lender and situation, you may be granted a forbearance: a temporary suspension or reduction of loan payments. Of course, unlike a deferment, interest will accrue during this time period.

Each loan is different, so check your individual terms before starting the forbearance process. There are two types of forbearance: discretionary (which means your lender decides whether or not to grant the forbearance) and mandatory, which applies to certain situations like medical and dental residency programs, teacher loan forgiveness, and others.

For purposes of this post, I’m talking about those discretionary forbearances, which you are often able to request due to financial hardship. For private loans, terms vary depending on your specific loan and lender. My private loan offered up to two years of elective forbearance. Thanks to the few months it took me to find a full-time job post-college (and the paltry salary it carried), I used nearly one year of this elective forbearance as soon as I could. After a year, I struggled to make payments, and at times considered using it again. My bank allowed forbearance in three-month increments, so when I decided to move into my own Brooklyn studio apartment, I elected to stop payments. “Just for three months until I pay back the security deposit into my savings,” I assured myself.

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You can probably figure out how this turned out. Three months turned into six (I needed new curtains. New furniture. New stuff!) Six to nine. After nine months, I panicked. I now had just three months of elective forbearance left. What if I lost my job and couldn’t pay? My savings account wasn’t any healthier, and I didn’t exactly score a large enough raise (or miracle) to make up the difference in loan payments and continue my lifestyle.

This type of forbearance isn’t awful, and – real talk – sometimes you might need to consider using it. But before you get caught up in the siren song of not having to pay on your loan for a few months, consider these pros and cons:

PRO: Elective forbearance is there to help you in times of need, and you should use it if you need it. That said, make sure you’ve exhausted all other options. If you’re unemployed and receiving unemployment, you may qualify for a deferment. Read your loan documents and apply for any deferment you think you might be eligible to receive.

CON: There is a limit to how much forbearance you can use. Think about the life of your loans and your future. Use it when you need it, but don’t drain what could be a sanity-saving option a few years down the road.

PRO: Although choosing to use voluntary forbearance may feel like a last resort, this is one of the few facets of student loan repayment that you, the borrower, control. You choose when to use your elective forbearance. Use this as an opportunity to be smart and savvy.

CON: This is also a tempting option. If you’re like me, you’ll be tempted by that new couch, curtains, dress, shoes, or vacation to use “just one more month” of forbearance. Generally, this is not worth it. It’s there for emergencies only.

PRO: You can still make payments during this period. So, if you find yourself in a better financial situation one month, you can throw some extra cash toward your loans for a feel-good mood boost.

CON: Interest will accrue, and if you don’t pay it monthly, it gets tacked onto your principle at the end of the forbearance period. Pay the interest — or at least part of the interest — monthly, if you can.

Paying your loan bill is always better than not paying it — no surprise here. But if you are in a bit of trouble, considering these facts (as well as understanding your options) may provide a small bit of relief. Hopefully this post will help anyone who’s wondering “should I do forbearance?” to make the right decision.

Have you used forbearance (or thought about it)? Share your experience in the comments below.

Image credit: shawnhempel

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