Forbearance and Deferred Payments

Deferment and forbearance are the two most common options when looking for student loan repayments or mortgage relief services or. So, if you find yourself unable to make a payment due soon, what should you do? Is it preferable for borrowers to choose one over the other?

Borrower ’s Sources of Educational Debt

Student loans are intended to pay only a portion of educational expenses. Many students borrow money from other sources to meet living expenses throughout their college years or other school-related expenses not covered by their student loans.

• A balance on a student loan is owned by 95% of borrowers with outstanding debt connected to their education.
• A credit card balance is held by 23% of borrowers with outstanding school debt.
• A home equity loan was used by 4% of indebted borrowers, while 11 percent used another sort of loan.
• Home equity loans were used by 11% of indebted borrowers who borrowed to pay for a child's or grandchild's education.

What is Forbearance?

The term "forbearance" refers to the temporary suspension of loan payments, which is usually for a mortgage or a student loan. Lenders and other creditors may provide forbearance instead of foreclosing on a property or allowing a borrower to fail on a debt. Since the losses incurred by foreclosures or defaults largely rest on the lenders and their insurers, they are often prepared to negotiate forbearance agreements.

Student Loan Forbearance

If you're having trouble making payments on your student loans, you may be eligible for a student loan deferment or forbearance.

During times of financial strain, student loan forbearance allows you to temporarily delay or reduce your student loan payments, usually for a period of 12 months or fewer. Forbearance isn't as appealing as deferment, which allows you to avoid paying interest on certain types of loans throughout the deferment term. When you use forbearance, you are always accountable for any interest that has accrued during the time of forbearance.

How do I apply for forbearance on my student loans?

Your student loan services has the authority to provide general forbearance. To apply, fill out the federal forbearance application and mail it to your services, or follow the instructions below:

• Please contact your service provider as follows: Check your most recent statement to see whom you pay and how to contact them if you don't know who you owe money to. You may be able to obtain forbearance over the phone in some situations. Other service providers may ask for a written request or form.
• Make your payments as usual: Continue making minimal payments as usual until you receive formal confirmation that your forbearance has been authorized.
• Apply again or restart your payments: Contact your loan services before the expiration date if you need to extend your forbearance. Otherwise, get back on track with your payments, as missing them could put you in trouble.

Knowing About Deferred Payments

Most consumers are familiar with the concept of deferred payment, which is defined as "buy now, pay later." You postpone something when you defer it. You will take possession of a good or service now and pay for it later if you defer payment.

Student loan deferment allows you to put off making payments on your loan for up to three years, but it does not result in the amount being forgiven.

Applying for Student Loan Deferment

Deferment is similar to forbearance in that it is applied for. To get started, simply follow these steps:

• Please contact your loan services at the following address: Check your most recent statement to see whom you pay and how to contact them if you don't know who you owe money to.
• Fill out the deferral form as follows: Fill out the proper form for your situation on the Federal Student Aid website.
• Send your application and supporting documentation to: Gather your forms and any other relevant documents and submit them for approval to your loan servicer.
• Make your payments as usual: You must continue to make payments until your deferral request is accepted. Stopping too soon could damage your credit or result in a default.
• Apply again or restart your payments: If your deferment period is coming to an end and you require further time, contact your loan servicer to reapply.

Understanding the Difference

Both deferment and forbearance suspend your monthly payments, but in different ways. If you have qualified loans, you may be able to avoid paying interest while in deferment. Your loans will continue to increase interest while you are in forbearance, which will be added to your balance when you begin payments.

Deferment and forbearance aren't the only options:

There are alternatives to deferment and forbearance if you don't qualify for deferment, have unsubsidized loans, or simply want a better option. Here are a few alternatives to think about:

• Income-driven repayment (IDR): As it is based on your income, an income-driven repayment plan will not pause your monthly payment but may lower it in the long run.
• Refinancing student loans: If you have strong credit, refinancing your student loans may help you qualify for a lower interest rate. If you refinance federal student loans, however, you will no longer be eligible for relief programs.

Conclusion

If you don't qualify for deferment, forbearance should be explored. Remember that deferment and forbearance are only available in the event of temporary financial hardship. If your financial issues will endure longer than three years and you have federal student loan debt, income-driven repayment (IDR) is a better alternative. If you are having problems making your student loan payments, you should call your loan services right once.