Financial Planning

What Is Student Loan Forbearance?

If you're having trouble repaying your student loans, forbearance might be a solution. While forbearance is not a long-term affordability strategy and won't allow you to put off repayment indefinitely, it could be the right option for a limited period of time.

What is student loan forbearance?

Student loan forbearance is a student loan relief option that allows you to temporarily stop your student loan payments if you've fallen onto hard times, or if you have a qualifying extenuating circumstance (active-duty military, for instance). While your loans are in forbearance, you don't have to make payments.

However, the loan will continue to accrue interest, which means that you'll owe more over the life of the loan. It can be advantageous in the long run if you can at least pay the interest while in forbearance.

There are different loan terms for private student loan companies than there are for federal loans. When dealing with private lenders, forbearance options vary greatly and may be less flexible than the options on federal loans.

How long can you be in student loan forbearance?

It depends on whether you have federal or private student loans. Federal student loans typically offer more generous student loan forbearance terms than private companies.

With a federal student loan, you can declare forbearance for up to 12 months and renew it for up to three years if you remain qualified for financial hardship. In some cases, you can automatically qualify for forbearance for up to three years-if you're in the military on active duty, for instance.

Private lenders often offer forbearance in three-month increments for up to a year, possibly two, but the policies vary widely among lenders, so be sure to check. Note that some private lenders charge a fee in addition to the interest that accrues.

What is the difference between student loan forbearance and deferment?

The main difference with student loan deferment is that you typically are not responsible for paying any interest that will accrue during the deferment period. If, for example, you lose your job, you will likely qualify for deferment. Other reasons for deferring include serving on active duty in the military or in the Peace Corps.

With forbearance, you are responsible for paying the interest that accrues on all types of federal student loans. Forbearance is usually easier to qualify for than deference because you will end up paying more money in the long run.

Will student loan forbearance affect your credit score?

Your credit score will not be affected if you declare forbearance. In fact, forbearance can help prevent hurting your credit score because it minimizes the chances that you will make a late payment or miss a payment altogether, and in turn, create negative credit history. While forbearance won't affect your credit score, it will be noted in your credit report.

Student loans and life insurance

While federal student loans are dismissed after you die, know that most private loans do not offer the same liability protections. This is why you might consider taking out a life insurance policy to cover the cost of your student loan and interest, especially if you have private loans, so that your loved ones won't get stuck with a financial burden.

Get started today and fill out a free life insurance quote with Protective Life.

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