Forbearance
A temporary pause or reduction in federal student loan payments, during which interest continues to accrue and capitalize on all loan types.
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.
Related Terms
Federal Student Loan
A student loan funded by the U.S. Department of Education with fixed interest rates, flexible repayment options, and potential forgiveness programs.
Income-Driven Repayment (IDR)
Federal loan repayment plans that cap monthly payments at a percentage of discretionary income and forgive remaining balances after 20 or 25 years.
Loan Servicer
A company contracted by the Department of Education to manage the billing, repayment, and customer service for federal student loans on behalf of borrowers.
Federal Loan Consolidation
Combining multiple federal student loans into a single Direct Consolidation Loan with one monthly payment and a weighted average interest rate.
Frequently Asked Questions
What is forbearance?
A temporary pause or reduction in federal student loan payments, during which interest continues to accrue and capitalize on all loan types.
Why does forbearance matter for college ROI?
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).