Forbearance allows the borrower to temporarily postpone or reduce student loan principal payments. The borrower is still responsible for paying the interest that accrues during the forbearance period. Unpaid interest will be capitalized into principal balance at the end of the forbearance period.
Loan servicers are encouraged to grant forbearance to prevent the borrower from defaulting on the repayment obligation. Forbearance is not automatic. A borrower must apply by making a request to the loan servicer, although in certain circumstances, the forbearance is required to be granted.
Reasons for Forbearance
Circumstances for which a forbearance may be granted by the lender could include, but aren't limited to:
- The borrower does not qualify for deferment but is having financial difficulties that affect the ability to make the scheduled student loan payments, including for reasons of illness.
- The borrower is in an internship or residency program.
- The borrower is serving in a national service position or is an activated National Guard member.
- The borrower qualifies for a partial repayment of the loan by the Department of Defense.
- The borrower's total monthly educational loan repayment exceeds 20% of their monthly income.
- The borrower is performing teaching service that would qualify for teacher loan forgiveness.
The borrower should be encouraged to contact the lender as soon as an event occurs that temporarily affects the ability to make loan payments to avoid default. The borrower must continue to make the required loan payments until receipt of written notification from the lender that the forbearance is approved.
Two types of forbearance are available. Each type can be granted for specific reasons. Different types of forbearance have different time limits.
- Discretionary – can be granted for any reason agreed upon between the borrower and the lender (example, financial hardship; going back to school less than half time and no deferment eligibility; unemployed, but already received maximum deferment) and is granted at the discretion of the lender.
- Mandatory – must be granted by the lender for specific reasons if the borrower requests, for a specific length of time (example, total monthly educational loan payment is equal to or greater than 20% of the borrower's monthly gross income; internship or residency; national service; loan forgiveness or Department of Defense repayment). This type must be granted in 12 month increments.