:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-1197642276-103304001988491db7bbd720bc20e72b.jpg)
If you’re having trouble repaying your student loans, you may be able to get some relief by entering into forbearance, meaning your monthly payments will be paused or temporarily reduced. However, even though you may pay less in the short term, there can be hidden costs—such as accruing more interest—that may affect your long-term financial health.
Key Takeaways
- Student loan forbearance offers temporary relief by pausing or reducing payments.
- Interest will likely accrue during forbearance, potentially increasing total repayment costs.
- Forbearance can prevent default but may indirectly impact your ability to qualify for new credit.
Understanding Student Loan Forbearance
Student loan forbearance is a temporary pause or reduction in student loan payments. In some cases, you have to request forbearance from your loan servicer on the grounds of financial hardship. For federal student loans, your servicer is also required to grant you forbearance in some situations, such as if you’re serving in the National Guard or AmeriCorps and meet certain additional criteria.
Non-mandatory forbearance, known as general forbearance, can be granted for up to 12 months at a time and no more than three years altogether. Mandatory forbearance, meanwhile, can be granted for up to 12 months and then potentially renewed, without a cumulative limit. These time frames only apply to federal student loan forbearance; private loan forbearance terms can vary by lender.
What Are the Potential Pitfalls of Student Loan Forbearance?
The biggest benefit of student loan forbearance is that it provides immediate financial relief. If you’re struggling to repay your student debt, pausing or temporarily reducing what you owe can help prevent you from defaulting or needing to take out higher-interest debt, such as personal loans.
However, forbearance also comes with some downsides. The main issue is that interest typically continues to accrue while you’re in forbearance. As such, you could end up paying more in interest than if you hadn’t paused payments (assuming you don’t make any payments while in forbearance, which you can do if you so choose).
Important
For most federal student loans, interest that accrues during a forbearance won’t capitalize when that period ends, meaning you’ll still owe that amount, but it won’t be added to your principal balance right away.
Another problem is that entering forbearance might hurt your chances of qualifying for new credit. A forbearance may be listed on your credit report, which prospective lenders may still take into account, even if this doesn’t directly impact your score. Additionally, confusion around when your forbearance period starts and ends can cause you to miss or make late payments, hurting your credit score.
The Bottom Line
While student loan forbearance can get you out of a jam if you’re having trouble keeping up with payments, it only provides temporary relief. In the long run, you might end up paying more or hurting your credit, so it’s not a decision to take lightly. However, if forbearance helps you avoid defaulting on your student loans, you might be better off requesting a forbearance. Consider consulting with a trusted financial advisor to determine what makes the most sense for your situation.
