A forbearance is a temporary modification of the monthly payment obligation on an education loan. Both federal education loans and private student loans offer forbearances, but with different criteria and terms. Forbearance options on private student loans are generally more limited than the forbearance options on federal education loans.
There are three main types of forbearances:
Note that a forbearance is not a permanent modification of the loan terms.
Generally, forbearance is meant to help a borrower avoid default when he or she is willing but unable to repay the loan because of poor health, financial hardship or other reasons.
Forbearance may apply to the principal portion of a loan payment, the interest portion or both. If forbearance is granted on interest, the interest that accrues during the forbearance will usually be capitalized (added to the loan balance) unless the borrower chooses to make interest-only payments during the forbearance period.
Forbearance is available for both Federal Direct Loan and Federal Family Education Loan (FFEL) borrowers under certain conditions. Granting forbearance is usually at the loan holder’s discretion; however, there are circumstances under which the loan holder must grant forbearance.
Borrowers must apply for forbearance. Approval is not automatic. However, since July 1, 2008 , federal education loan borrowers may request forbearance by telephone and are not required to apply in writing. The lender must send notice to the borrower confirming the terms of the forbearance, if approved, to the borrower in writing. The lender must also document the circumstances and terms of the forbearance in the borrower’s file. Borrowers should continue making payments on their loans until they receive written approval of the forbearance.
When a lender grants a forbearance, the lender must help the borrower understand the impact of interest capitalization on the loan balance at the end of the forbearance as well as the impact on the total interest paid over the life of the loan.
During the forbearance, the lender must contact the borrower every 180 days to remind him or her that interest is continuing to accrue during the forbearance period. The lender must tell the borrower how much unpaid interest has accrued since the previous 180-day notification and the amount of interest that will be capitalized and when the capitalization will occur. The lender must remind the borrower, among other things, that the borrower has the option to pay the interest before it is capitalized and that the borrower has the option to discontinue the forbearance at any time.
There are four types of forbearance on federal education loans: mandatory, mandatory administrative, administrative and discretionary.
Mandatory forbearance must be granted for the following circumstances:
Such forbearances are typically granted in one-year or shorter increments with a three-year cap on the collective duration of the forbearance.
Mandatory administrative forbearance must be granted to a federal education loan borrower for the following circumstances:
If a borrower qualifies for forbearance due to military mobilization, the borrower must provide the lender with documentation of the military mobilization. However, the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 (P.L. 108-76) grants a one-year exception to the documentation requirement (plus three months following this period) if requested by the borrower, a member of the borrower’s family or another reliable source. Documentation of the borrower’s military mobilization must be supplied to receive a forbearance beyond this one-year period.
The federal education loan holder may apply for administrative forbearance to cover the following circumstances:
Lenders may offer a discretionary forbearance to help a borrower repay his/her federal education loan debt if the lender reasonably believes that the borrower is willing but unable to repay the loan. For example, if the borrower intends to repay the education loan but is unable to make scheduled payments due to poor health, financial hardship or other acceptable reasons, the lender may offer the borrower a discretionary forbearance. It is entirely up to the lender whether to approve or deny a borrower’s request for a discretionary forbearance. The borrower can request forbearance over the phone or in writing. If requested over the phone, the lender will send the borrower a notice confirming the terms of the agreed forbearance within 30 days. It is the responsibility of the borrower to review the notice to ensure that the terms reflect the agreed-upon forbearance.
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