Student Loan Forbearance: When is it Actually a Good Idea? | Student Loan Planner

You're struggling to make your payments on your student loans, and you have the option of using student loan forbearance, and you're wondering, is this a good idea? The answer is, it's always an indication that you need to fix your finances so that you never, ever, ever have to do it again. But, in some limited cases, student loan forbearance can be very helpful. Let me explain why. Forbearance is offered up into two categories. One is general forbearance, which is at the discretion of your loan servicer, and then mandatory forbearance, which is something that the loan servicer is required to give you under certain circumstances. That is a little bit more rare. The main one that you're going to be using is general forbearance. The loan servicer will approve you for this in 12-month increments. You get up to three years of forbearance on your student loans for the federal system. Now, when you get approved for this, you do not have to make payments. This is particularly useful for people who have a lot of credit card debt. If you've got credit card debt at a 25% interest rate, if you put your student loans into forbearance, yes, the interest will compound and grow, but 25% is way worse than 6% or 7%. So the primary use for forbearance, in my opinion, is to overhaul your finances and throw as much as possible at your consumer debt that's at a higher interest rate so that you can pay it down rapidly and get an emergency fund of at least $10,000 in the bank. At that point, you would want to restart your payments on an income-driven option until you get on your feet better and are able to craft a long-term plan for your student loans. We've seen student loan forbearance be very helpful, and in some cases, if you've already exhausted your forbearance of three years, you're able to get three more years of forbearance by consolidating into a new direct consolidation loan, which allows you to get an additional three years of forbearance. We would not recommend this. We just want you to know all of your options. Forbearance is a little bit different from deferment. Deferment lasts while you're in school, and deferment is something that is better than forbearance because deferment sometimes gives you the ability to have some of your interest subsidized while you're not making payments. In general, deferment and forbearance are not a good thing. You want to be making payments on your student loans because of the generous terms offered to you by one of the income-driven repayment options, like pay-as-you-earn or revised pay-as-you-earn. Forbearance is something to be used in limited quantities as a shot to the heart to revive your financial life. If you're utilizing it for that reason, to get rid of your credit card debt, to get an emergency fund, it has a place. Other than that, it does not. If you wanted to get a detailed look at your situation because you're struggling with your student loan debt, we make custom plans. Reach out to us with any of the contact links on our website, studentloanplanner.com.