A forbearance is a temporary modification of the monthly payment obligation on an education loan. Both federal student 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 student loans.
There are three main types of forbearances:
- Temporary cessation of monthly payments
- Temporary reduction in the monthly payment amount (e.g., interest-only payments)
- Extension of the repayment time-frame
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 on Federal Student Loans
Forbearance is available for both 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 student 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 student loans: mandatory, mandatory administrative, administrative, and discretionary.
Mandatory forbearance must be granted for the following circumstances:
- The borrower is in a medical or dental internship or residency and has exhausted eligibility for deferments or the borrower’s promissory note does not provide for a medical or dental internship/residency deferment.
- The borrower’s federal loan payments are greater than or equal to 20 percent of the borrower’s total monthly income.
- The borrower is serving in a national service position, such as AmeriCorps, where the borrower receives an education award under the National and Community Service Trust Act of 1993.
- The borrower is eligible for partial loan repayment under the Department of Defense’s Student Loan Repayment Program.
- The borrower is teaching in a national need area or other position that would qualify for a federal teacher loan forgiveness program.
- The borrower is a member of the National Guard who qualifies for post-active duty student deferment but not a military or other deferment, and was calls to state active duty service of more than 30 consecutive days.
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
Mandatory administrative forbearance must be granted to a federal student loan borrower for the following circumstances:
- When a federal student loan would not be repaid within the maximum repayment period under the standard or graduated repayment plan because of a change in the variable interest rate on the loan. This forbearance is limited to a maximum total duration of three years.
- When a federal student loan would not be repaid within the maximum repayment period due to a decrease in the monthly payment under the FFEL income-sensitive repayment plan. This forbearance is limited to a maximum total duration of five years.
- During exceptional circumstances, such as a local or national emergency, military mobilization, natural disaster, or other circumstances identified by the U.S. Department of Education.
- During certain transition periods, such as while a borrower is waiting for approval of a deferment or forbearance or while the lender is waiting for documentation that the borrower has died. Such periods are limited to 60 days for FFEL borrowers and Direct Loan borrowers.
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 student loan holder may apply for administrative forbearance to cover the following circumstances:
- When the borrower was granted a deferment for which he or she was not eligible.
- During various transition periods, such as
- The period between the time a borrower entered repayment and the first payment was due.
- The period before the beginning of an authorized deferment or forbearance, when otherwise the borrower’s payments would have been overdue.
- For delinquencies at the time a federal education loan is sold or transferred. (Capped at 60 days.)
- After the end of a deferment or mandatory forbearance but before the next due date on a federal education loan.
- During a period in which the lender is collecting and processing documentation relating to a borrower’s deferment, forbearance, change in repayment plan or application for a consolidation loan. (Capped at 60 days.)
- During a period in which the lender is confirming the death of the borrower (or the student for a Parent PLUS loan borrower), for up to 60 days after the mandatory initial 60-day suspension of collection activities.
- During the period when a borrower’s application for total and permanent disability is being processed, including the time required to obtain a physician’s certification or other documentation of the total and permanent disability.
- For up to 120 days after the lender receives a valid identity theft report or credit reporting agency notification of identity theft.
- While the lender is verifying a borrower’s eligibility for a discharge due to bankruptcy, school closure, unpaid refunds and false certification (unauthorized disbursement by school, identity theft).
- While the lender is collecting and processing documentation of a borrower’s eligibility for loan forgiveness under the income-based repayment plan. (Capped at 60 days.)
- Due to military mobilization, local or national emergency or natural disaster. (Capped at 3 months.)
- When the borrower is suffering from an illness or experiencing financial hardship.
Lenders may offer a discretionary forbearance to help a borrower repay his/her federal student 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 student 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.