Have You Ever Gotten A Forbearance On Student Loans?
Because if you haven’t, I have a few secrets to tell you - and why, for me, it would be a true last resort.
I’ve had a few comments about saving vs debt and they’ve been all over the map, but a few of them bring up the point that paying off the student loans at faster than minimum when I don’t have a full, 6 month (or more) emergency fund is concerning - because in a true emergency situation, I could get a forbearance on my loans and not have to pay them for a while. While technically true, it isn’t as rosy as it might sound.
When my spouse became unemployed in 2003 due to the company he worked for practically going under and laying him off, he applied for (and was granted) a forbearance on his student loans. And he’s said numerous times since, that if he knew then what he knows now, he’d never have done it.
Forbearance is basically temporarily suspending payments on your student loan (usually for a 6 to 12 month period) based on financial difficulty in paying. There are requirements that need to be met, but if you are approved you will get a hiatus from paying down the loan. You are not obligated to make payments on your loan during this time, but interest on the loan still accrues. So your total amount owed will keep going up. Depending on your interest rate and the total amount owed, you’ll accrue a little or a lot more debt during that time.
Why my spouse would never do it again (although since his loan is paid off, it is a moot point) and why I would only use it as a last resort is that in our case, Sallie Mae reconfigured our loans when they came out of forbearance. The interest rate was the same, but they treated it kind of like a brand new loan with a different payment plan and a different (longer) length of payments in which, if we hadn’t been paying attention to things (and I wasn’t so good about looking up terms online etc that many years ago) it would have seemed like we were back in the same plan (the payments were similar to what they were before the forbearance) but the actual payoff end date was almost 7 years later than it was when he went into forebearance. Tricky.
Do I know that every lender does this? Nope. No idea. But my loan is also with Sallie Mae and frankly, Sallie’s gotten enough of my money as it is.
Do I think that it is a great idea to NOT have a 6-month (or more) emergency fund? No, of course not. But when you have debt and insufficient savings, you have to make choices (unless you have an unlimited income or source of money), and these are the choices we’ve made so far. Concentrate on debt elimination, increase savings when we feel its appropriate, and get to a place where the choices are much more straightforward. Your choices may have a different balance, and that’s okay. As long as they work for you and you feel (and see) progress being made. Motivation is one of the keys to progress, and we want to stay motivated.
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March 20th, 2009 at 12:53 pm
Please make sure your readers understand the difference between a deferment and a forebearance.
There are certain authorized periods of deferment, during which you may temporarily stop making student loan payments. For Subsidized Stafford Loans the federal government pays the interest during a deferment. Unsubsidized Stafford Loans continue to accrue interest during deferments.
Unemployment 2 or 3 year limit
(Granted in 6 month increments) Federal Subsidized and Unsubsidized Stafford, SLS, Parent PLUS and Consolidation Loan
Economic hardship
(Earning less than minimum wage, poverty level, or other condition specified in deferment criteria and first loan disbursed on or after July 1, 1993.) 3 year limit Federal Subsidized and Unsubsidized Stafford, SLS, Parent PLUS and Consolidation Loan
March 20th, 2009 at 12:56 pm
Yeah, I have and so has my wife. STUPID!!!!
For us it was an extremely bad choice. When we did it the first time, yes we have done it more than once, we couldn’t make the payments, pay rent, food, utility bills, etc. The student loan payments were in forbearance for 12 months and at the end of the twelve months we began to pay them again. Everything was fine for a couple of years and then we moved across the country, again placed on forbearance. We got settled in our new home within months and could have begun to start making the payments, but we didn’t. Instead we let the interest accrue while decided to spend, Spend, SPEND! Dumb, dumb, dumb…
Now, here we are, changing our ways and our way to be debt free.
March 20th, 2009 at 12:57 pm
EDIT: We did a hardship deferment.
March 20th, 2009 at 1:39 pm
Hello PaidTwice,
I really enjoy reading your blog. You have encouraged me and my husband, and we have learned a lot from reading your blog.
This one really hit home; so this is the first time that I am responding.
My husband has two loans with Sallie Mae one is an FFELP loan and another one is a private loan. One day, I was analyzing how much will be paying in interest with a simple interest/ payment calculator. The FFELP loan was right on track with the payment plan. On the Private loan, if we followed the payment plan, we would have paid $7000 over what our principal & interest would be for the X number of months we were paying. Basically our minimum payment should have been $130 for X number of months, but they wanted $230 for X number of months. We called, and all they could say was “hmmm, that is weird”. It is awful when you are talking about your financial future with a person that does not have any basic financial sense. Scary!
Watch out for yourself! It is your money!
By the way, your link to the snowflake calculator has changed our lives. Thank you for all that you do!
March 20th, 2009 at 3:47 pm
But wouldn’t saving up for a full emergency fund reduce the risk that you’d have to get a forbearance? I would think that putting all your money on your student loan would put you at greater risk of that scenario because, in a major emergency, you’d just run out of income and may not be finished paying off your student loan yet. Of course we’re talking extreme scenarios here and based on your postings, you’re not the type to put all your eggs in one basket. (I have a terrible feeling that I shouldn’t be posting this late on a Friday and yet, because it’s Friday, I’m feeling to impulsive to stop. My apologies in advance.)
March 20th, 2009 at 6:55 pm
I still think there are situations where you’d want to keep the cash around NOW and worry about the SL as soon as you had income.
It is not a good idea to not pay any attention to new payment plans or to think interest isn’t accruing, but if made as an educated decision, it might be better than the alternatives if you have a small efund.
Agree with commenter 1 about deferment. My loans are in a school deferment, and I am accruing no interest.
March 20th, 2009 at 7:50 pm
I do not, in any way, think that one should never accept a forbearance on their student loan. If it was a matter of eating, shlter, etc I would definitely do it.
I think that sometimes, it just is too simplified and sounds like it is just putting off payments for a while. But in reality it is more complicated than that.
March 20th, 2009 at 11:00 pm
You have the option of paying interest during the forbearance period. They’re not going to turn your money away.
It sounds like the loan company capitalized the accumulated interest at the end of the loan. What else were you expecting them to do? With the interest rate remaining the same, they would have to either raise your monthly payments or extend the life of the loan to cover the additional money now owed. If you want to “reshorten” the loan, then make additional monthly payments.
March 21st, 2009 at 10:11 am
Why am I not surprised that Sallie Mae was a “tricky fish” here? It seems like I’m constantly hearing bad stories about them, even though they’re supposed to be the go-to company for student loans. I made a lot of mistakes when I got my student loans, because I knew virtually nothing about them, but I am so glad I had a natural aversion to anything but federal loans straight from the government.
People are always telling me that I could apply for deferment or forbearance, as well. Ok, yes, but that’s pretty much the same as the people who tell me I could live with my parents for 10 years or ditch my car to save money. Sometimes, these things work or are necessary, but people shouldn’t throw the ideas around like they’re gospel that will solve every problem for everyone.
March 21st, 2009 at 12:37 pm
I worked in the Student Loan Industry for 8 years and could not believe the amount of forbearances that were requested. Denial rates were low because it made more money for the servicers and lenders. Many people just saw the “no payments” for 6 or 12 months and did not realize that the interest was still accruing and most times was capitalized at the end of the forbearance period. I know the servicer that I worked for on the forbearance form, clearly showed the borrower the implications if they chose the forbearance. Most people just wanted the relief from the monthly payments and thought they could handle things after 6 or 12 months, what they did not realize was that their debt grew even larger and possibly more unmanageable!
March 21st, 2009 at 1:44 pm
Personally, since I need it anyway - I take advantage of the ‘part time student’ deferments you can got on a loan. If you take as little as six units your loan can go into deferment. Local community/city colleges usually have good rates per unit (My local city college is 20 bucks per unit) and I am usually able to make it job related so work pays for the classes. Currently I’m enrolled in a Database Theory course and SQL Server 2005 class - improving my work resume - allowing me to pay off the much higher credit card debts sooner…most local community/city colleges have night and or online courses that can be taken.
March 21st, 2009 at 2:16 pm
And-sorry to repeat- a SL will not be discharged in bankruptcy. You ALWAYS have to pay them back.
March 21st, 2009 at 2:25 pm
To follow up on that thought, some would recommend moving as much as possible to a CC if your financial life is looking dicey….
March 21st, 2009 at 5:17 pm
One of my student loans just came out of a 6 month forbearance. I had to do this because on my income last year I wasn’t able to make all of the payments to everything (all of my debt was school related - but I had put $6000 worth of tuition on a CC) and still have money left over to get groceries. (My grocery budget last year was $50 a month).
I only put my federal consolidated loan into deferment though. Sallie Mae wouldn’t allow me to without a fee, and I don’t like to mess with them anyway.
Moral of the story, the federal loan people didn’t screw with me. My loan payment has gone up a little bit since I accrued $600 worth of interest, but I paid off $3500 that was left on my CC from tuition.
I think anytime one tries to deal with Sallie Mae it winds up badly. I would just suggest to everyone not to get private loans.
March 21st, 2009 at 6:14 pm
I am with ya. I think it’s just nice to have certain bills you don’t have to pay every month, which is why I just paid off my student loans. Now I am trying to pay off my mortgage. I know “experts” say you shouldn’t pay it off for the deduction etc. I think of it like, what if I didn’t have to pay this huge bill every month? I’d have so much financial freedom!
March 22nd, 2009 at 7:44 am
I guess I’m confused about where the “gotchas” are with Student Loan Forbearance…. If you are putting off payments for x amount of time then one of two things is going to happen - your term will increase or your monthly payment will increase. They obviously aren’t going to let you out of the interest you owe them and it has to be factored in somewhere. What am I missing?
I put off my student loan for a year in order to pay off all my credit cards and a couple of other outstanding debts. My student loan interest rate is fixed at 2.75%. I couldn’t justify paying off debt at 2.75% when I could be using that money to pay off debt at 22% - 28%.
My loans are coming out of forbearance this month and my monthly payment has increased slightly since I didn’t make any interest payments during the hiatus. It’s nothing I didn’t expect though…
March 22nd, 2009 at 1:55 pm
Interest does accrue during a forbearance if you had previously gone into repayment. The only way it doesn’t is if it’s a subsidized government loan and you have remained continuously enrolled at least half time as a degree seeking student–and never stopped school long enough to get past the six month grace period and into repayment.
I took deferments through a 14 month period of unemployment and underemployment between professional jobs. I had a big pile of cash at the start–some life insurance money from Mom dying. But UI
March 22nd, 2009 at 2:04 pm
oops I used a less-than symbol and the combox didn’t like it. UI payments were less than the COBRA payments due each month–and I had to have COBRA. I lived with Dad and worked cashflow chump jobs and kept up the best I could while conducting a national job search in my profession–usually having to pay my own travel expenses to interviews. I was down to my last pennies before the next professional job paycheck came through.
When you are going through a layoff or a major medical issue, and your crystal ball isn’t working, you control your outflows the best you can. Uncertainty about the future during a crisis makes this a wise plan. I’m glad I deferred mine in that bad patch.
I became debt free of all debt March 19, 2008. My student loans qualified me for a better paying career than otherwise…and so they were worth it in terms of ROI. But I also didn’t have a huge student loan balance like people rack up nowadays.
You can pay off your student loan ahead of time. You don’t have to stick to the repayment schedule they gave you. The interest stops when there’s no more balance. Go for it.
March 22nd, 2009 at 8:52 pm
Now I’m not sure if it was a forebearance or a deferment, but I did have to monkey with my student loans at one point. When my partner was diagnosed with Leukemia, our world turned upsidedown. He was uninsured and we both ended up dropping school once the chemo started. Dropping school of course triggered loan repayment, not to mention I also needed to pay back the aid money I’d already received for that term.
I doubt I would do anything differently if I had it to do over–I needed to be where I needed to be, and at the time, that wasn’t in school. As best I can recall, they really tried to work with me, set up a repayment plan for the aid money with the stipulation that I couldn’t reenroll until it was paid back in full, and put my loans into a hardship status. I don’t remember if they accrued interest or not during that time.
March 23rd, 2009 at 7:21 am
Good grief! These people get you coming and going.
One of my research assistants was arrested for extreme DWI shortly after she finished the MFA. In our state, the practice is to try to break convicted DWIs financially. In addition to a jail sentence, the cost is just astronomical. Of course, she couldn’t afford a lawyer, so she was really slammed. She had to make some sort of arrangement to delay payment of her loans, because with a DWI conviction she couldn’t get a job and she couldn’t get back into school.
It looks like this must have added to her financial woes considerably. It’s amazing that she ever got back on her feet…more or less.
March 23rd, 2009 at 8:47 am
If DWI is driving while intoxicated, I’m not feeling a whole lot of sympathy for her.
March 23rd, 2009 at 10:22 am
I have gotten a forbearance on my student loans multiple times and I never regretted it. My multiple loans were with multiple lenders and this was about 9 years ago. It gave me tremendous relief to put off payments, but I didn’t put off interest. My lenders would send me a bill every so often with the interest that accrued. It was not necessary to pay it but they gave me the option to pay it and I took it. So while my payments were put off I wasn’t getting swamped with more money than originally intended. When I got my footing back financially, I got back on the payments and over payed each month. In no time I had all my loans payed off. All in all it was great, for me.
March 23rd, 2009 at 4:30 pm
I have had a couple of short forebearances on my school loans but I have an unsubsidized direct loan from the government with interest under 3%. With that type of loan the interest is compounded quarterly, not monthly, and I just make sure I pay the interest when it comes so it doesn’t compound. It’s not an ideal situation but I’d rather put that off for a few months than others.