Student Loan Forbearance Guide

Forbearances differ from deferments in many ways. First, the interest accrues while the payments are being postponed, unlike some loans in a deferment. Forbearances are also at the discretion of the lender, they are not a right or granted automatically as with a deferment. Many lenders require proof of extenuating circumstances to grant the forbearance. You may also be required to continue submitting paperwork periodically to continue the forbearance. Like deferments, most lenders will grant the forbearance for no longer than 36 months, but it could be longer in certain cases. The most commonly used forbearances include:

The names of these forbearances could be different depending upon the lender. However, these forbearances are structured for the same specific purposes that will be mentioned.

Forbearance For Economic Hardship

The Economic Hardship Forbearance is the most common type of forbearance that is granted by lenders. This forbearance is for people that have student loan payments that equal or exceed 20% of their total gross income. This applies to your total monthly student loan payment, and not your individual payments, should you have more than one loan.

To see if you qualify, add up your total monthly student loan debt and compare it to your total monthly income or your yearly income as indicated on your W-2 for your place of employment. Let’s take a look at a few examples using the national average for student loan debt vs. the national average for income for the year 2011. Keep in mind that these are only averages and individuals could have more or less loan debt and/or income.

Typical Student Loan Debt With a Bachelors Degree

Student Loan Debt (National Average)$25,000
Average Income (National Average)$42,000 ($3,500 Gross Monthly)
Current Federal Interest Rate6.8%
Monthly Loan Payment$287 (120 months @ 6.8%)

Economic Hardship Calculation

Use the following formula to calculate your economic hardship payment to see if you qualify

(Monthly Gross x 20% = Qualifying Payment)

($3,500 x .20 = $700)

You can see from this example that the qualifying payment exceeds the monthly student loan payment ($700 > $287) and will therefore not qualify for the Economic Hardship Forbearance. This is typical for many college undergraduate students with a decent paying job. In fact, using the average student loan debt, a graduating student would have to make a monthly gross income of less than $1,450 or $17,400 per year to qualify for economic hardship in this example. 

Typical Student Loan Debt With a Masters Degree

Student Loan Debt (National Average)$50,000
Average Income (National Average)$42,000 ($3,500 Gross Monthly)
Current Federal Interest Rate6.8%
Monthly Loan Payment$574 (120 months @ 6.8%)

Getting a graduate degree costs more money than an undergraduate degree, especially because tuition costs are higher. A typical Masters degree will cost an additional $25,000. Using this information, let’s look at the calculations for economic hardship.

Economic Hardship Calculation

(Monthly Gross x 20% = Qualifying Payment)

($3,500 x .20 = $700)

Although the monthly gross income still exceeds the total loan payment amount ($700 > $574), it is much closer to qualifying for an economic hardship than the average debt incurred from getting a Bachelors degree. To qualify for an economic hardship using this example, a student would have to make less than $2,850 per month or $34,200 per year.

Typical Student Loan Debt For Degrees Beyond a Masters

Some students go on the pursue degrees beyond a Masters. For some students, this could mean a doctorate degree within a certain field of study. For others, this could mean getting a medical degree and license, dental degree or veterinary degree. Although these degrees typically earn more income, the total amount of student loan debt that is accrued could still be substantial enough to warrant the Economic Hardship Forbearance. Let’s see what a student loan debt of $100,000 would look like for an economic hardship.

Degrees Beyond a Masters

Student Loan Debt (National Average)$100,000
Average Income (National Average)$42,000 ($3,500 Gross Monthly)
Current Federal Interest Rate6.8%
Monthly Loan Payment$1,150 (120 months @ 6.8%)
Minimum Monthly Gross Income To Qualify = $ 5,750 per month or $69,000 per year

A person would have to make a gross income of $68,999 or less per year to be able to qualify for an economic hardship. The amount of student loan debt ($100,000) is just a typical example for someone that pursues a Bachelors degree, Masters degree and then any number of degrees beyond that. Students seeking degrees in medicine or veterinary sciences could have student loan debts that double this amount. They may need to borrow money for tuition for six years or more of school as well as for expenses incurred during their internship or residency. However, a student loan debt of $100,000 is a good starting point to consider the kind of income you will have to make to qualify or not qualify for the Economic Hardship Forbearance.

Forbearance For Financial Hardship

The Financial Hardship Forbearance sounds much like the Economic Hardship Forbearance, but the biggest difference is that this forbearance is for people that are experiencing difficulty making payments, but may not qualify for the Economic Hardship Forbearance. This is an option for people that may temporarily be unable to make payments due to many circumstances, such as unexpected bills. Although their student loan payment may be below 20% of their gross monthly income, even loan payments that are 10-19% of gross monthly incomes is a significant amount for any family budget. As previously mentioned with other forbearances, the lender has the discretion to grant the Financial Hardship Forbearance, unlike the mandatory conditions granted under the Economic Hardship Forbearance.

Internships

You could qualify for a forbearance due to an internship as a result of your job or as a condition of obtaining your degree. Medical, dental and veterinary students must complete internships as a requirement to receive their degree or appropriate license. These internships may pay little to no money, and these students may not be enrolled in school while the internship is taking place. In this case, a forbearance could be granted due to having an internship. You will need to contact your lender to learn more about the exact qualifications, but here are several guidelines that determine if you qualify:

  • You will need to be in a medical or dental residency at a college or university, hospital or other health facility.
  • You must be in a supervised program
  • The residency or internship is a requirement of your certification to practice medicine, and is done before such certification is granted
  • You must already have a Bachelors degree and be accepted into the internship to qualify
  • Only a program supervisor or other program official can certify the residency in order to qualify

This type of forbearance is granted for an unlimited period as long as you are serving under your internship of residency, however you will need to recertify the forbearance every 12 months.

National Community Service

If you are serving your country through national community service, you could qualify to have your payments postponed through this type of forbearance. The AmeriCorps organization, an organization through which national community service is handled, is one venue in which your community service can be recognized and verified in order to qualify for community service forbearance. If you work as a volunteer for a non-profit organization that is overseen by AmeriCorps, then tell your lender that you would like to necessary documentation to file and receive this type of forbearance. 

Money Saving Tip #1

  • Do you know some of the differences between deferment and forbearance? In a deferment, the loan doesn’t accrue interest if it’s a government subsidized loan, while a forbearance has interest that accrues even though your payments are postponed. Pay off the interest that accrues, if you can, so that it is not capitalized in the end.

Money Saving Tip #2

  • Not every representative from your lending company is an expert on every deferment or forbearance option. Before taking the word of one person, ask to speak to a supervisor to confirm your options, call back again to speak with someone else, or do your own research carefully.

Forbearance for Disaster

If you are a victim of a disaster such as a hurricane or other natural disaster, or you live in an area declared to be a disaster zone, then you could qualify for the forbearance as a result of your situation. There are several reasons for which a lender may use discretion and grant the forbearance. For one, the loss of property or temporary relocation could cause a temporary financial hardship. Also, you may not be able to complete school, which means you are not enrolled at least half time and should therefore begin making payments. If you have been impacted and are unsure whether or not you are located in a designated federal disaster area, you can visit the FEMA website to find out more at http://www.fema.gov/. Then you can contact your lender to find out if the Disaster Forbearance is an option.

The Bottom Line On Forbearances

Forbearances are similar to deferments and are granted for similar reasons as deferments. However, a forbearance is at the discretion of the lender, and not all forbearances have the same grace period. The interest will also continue to accrue with a forbearance. Although there were five forbearances mentioned in this article, other circumstances could yield other types of forbearance. The best thing to do is to contact your lender and discuss all of the options available to you.