Is It Worth It to Pause Your Student Loan Payments? Top Benefits & Risks

By Chika

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Last Updated: October 2, 2021

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Most students don’t fully understand the impact of student loans on their financial life in later years.

While in school, the rigors of education and fun of social life can easily overtake the stark reality that awaits us when we graduate. Most students assume that it would be easy to repay the student loan when they are gainfully employed. 

However, if we are to use historical records as our point of reference, then paying back student loans is not as easy as it seems.

Many millennials and Gen Zs are postponing the achievement of life milestones such as getting married, buying a car, or moving into their own house because of the student loan burden.

To take a breather from this burdensome debt, some people opt for student loan forbearance. 

This article explains what student loan forbearance means and examines if it is a good financial choice for you.

 

What is Student Loan Forbearance?

Student loan forbearance can be described as a pause on your monthly repayments on your student loan. It temporarily permits you to stop making payments on your student loan for as much as 12 months, but can be renewed for up to three years.

It is a lesser preferred option to deferment and does not accrue interest on certain types of loans during the deferment period. Most people apply for forbearance to give them breathing space to take care of other obligations.

Forbearance can be applied to different types of loans such as mortgages, credit cards, and student loans (the focus of this article). 

Types of Forbearance

There are two types of student loan forbearance: general and mandatory.

General Forbearance

You can qualify for general forbearance in your student loans. If you are having challenges servicing either your Direct, FFEL or Perkins loan, you can apply for general forbearance from your student loan provider.

However, the approval is subject to the discretion of the loan servicer and is granted due to unforeseen conditions.

This could be medical expenses, change in employment, or unemployment, though almost any financial difficulty that prevents you from making loan payments usually makes you eligible for general forbearance.  

Mandatory Forbearance

This type of forbearance is for those who are qualified for such based on certain criteria.

Unlike general forbearance, which is at the discretion of your loan servicer, mandatory forbearance is activated if you qualify for it. Those who are eligible for this type of forbearance include those on medical or dental internship or residency program.

If the total student loan debt you owe each month is 20% or more of your total monthly gross income, for up to three years; those serving in an AmeriCorps position and received a national service award; or teachers who qualify for teacher loan forgiveness.

To get a complete list of those eligible for mandatory forbearance, you can check with your loan service provider. 

 

3 Benefits of Student Loan Forbearance

1. Gives breathing space

Forbearance can be used as a stop-gap measure to give you breathing room to take care of other responsibilities and obligations.

Money that could have been used to service your student loan debt can be used to take care of other emergencies in the interim.

2. Does not affect your credit score

Forbearance has no impact on your credit score which could affect your eligibility for future loans and resulting interest rates.

This is better than a default which would negatively impact your credit score.

3. Protect your assets

A forbearance allows you to avoid foreclosure due to inability to pay missed loan repayments.

This gives some protection to your personal assets and prevents your lender from seizing them during the relief period.

 

3 Risks of Student Loan Forbearance

1. Short-term solution

Forbearance does not get you out of debt, it merely postpones the repayment, which could be deceiving.

The best way to reduce debt is to tackle it head-on. You can use either an avalanche or snowball method to reduce your debt.

2. Accrued interest

Unlike deferment, whereby no interest is accrued on the loan, in a forbearance you would still pay interest which is accrued.

As such, apart from the relief period you are given, you are not making any significant progress when it comes to paying your debt as the interest would still accumulate

3. Threatens financial independence

As stated before, student loan forbearance is merely a stop-gap measure, which gives a short-term solution to a long-term problem.

Considering that student loans are already preventing a lot of people from achieving life milestones, going through the forbearance route would keep you longer in debt and take financial independence further away from your reach. 

 

Final Word

Life is full of uncertainties that can affect us personally and also hurt our finances.

The decision you take in regards to educational funding can make or mar your future financial prospects. Forbearance may give us some elbow room to tackle unexpected expenses. But this should only be considered as a last resort.

Postponing your payments is akin to taking the high road. The effects could hurt you later in life when you have more responsibilities and may not be as productive as you are when young.

The best way to get out of debt is by formulating a repayment plan and sticking to it.

Photo by Phil Hearing on Unsplash

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