Forbearance

Detailed Explanation

Forbearance allows borrowers to temporarily stop making payments or reduce their payment amount on federal student loans during periods of financial hardship. Unlike deferment, interest accrues on all loan types during forbearance, including subsidized loans. There are two types: discretionary forbearance (granted at the servicer's discretion for financial hardship or illness) and mandatory forbearance (required by law in certain situations such as medical or dental residency, AmeriCorps service, or National Guard duty). General forbearance is granted in 12-month increments for up to three years. While forbearance provides short-term relief, it significantly increases the total cost of the loan because unpaid interest capitalizes (is added to the principal) when forbearance ends. For example, a borrower with $30,000 in loans at 5% interest who takes 12 months of forbearance will see approximately $1,500 in interest added to their balance. Income-driven repayment plans are generally a better option than forbearance for borrowers with ongoing financial difficulty, because IDR payments count toward forgiveness while forbearance months do not.