The Cost of a Forbearance on Your Student Loan

The cost of forbearance on a student loan is generally more than it is worth for most students. While forbearance is voluntary and will give the student some time to focus on getting his or her financial life in order so they may begin making payments, it is not like deferment. Where deferment must be approved and is for a period of up to a year and no interest is tacked on to the student loan for the deferment period, forbearance continues to add interest to the overall loan balance. While no payments are being made on the original balance, interest is adding up. While this may help a student in the short term, in the long term it is only going to make the situation worse.

What is Forbearance?

Forbearance is simply a temporary postponement on your student loan payments. Since it is approved by the lender, it will allow you to stop making payments for a set period of time, while preserving your credit score. During forbearance, interest can accumulate on your loans, which will make the end balance, and thus your monthly payment higher or the length of time you must make monthly payments longer. If you know the issue that is causing you to not be able to make payments is going to be long term, put your loans in forbearance for a few months to cover yourself for the length of time it will take to get a deferment processed and approved. This way, for the majority of the time you are not making payments on your loans, interest is not being added to them. Common reasons for forbearance include: job loss, divorce, death in the family, or sudden illness.

The Financial Repercussions of Forbearance

While it is most helpful in a pinch where a month are two are rough, if the loans are in forbearance for an extended period of time, it can get costly. Having an additional balance on your loans at the end of the forbearance means you will have to pay more or make payments for longer, so in the long term it's not an ideal option. However, if it comes down to a forbearance or missed payments, your credit report will benefit from the forbearance. Having too many late or missed payments on your credit report will make it nearly impossible to get financing for a house or a car.

Applying for Forbearance

In most cases, it is as simply as calling your lender or loan servicer and asking for a temporary forbearance on your loan. Depending on the loan type, the program, the balance of the loan, and the history of the account, it may require more solid proof of financial hardship before it can be approved. If you are unsure of how to go about it, contact your lender and ask to speak to someone about the forbearance process.

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