Forbearance — What It Is, and What CommonBond Offers Posted April 25, 2017 by CommonBond Staff
Even the most responsible students like to know that a safety net like forbearance is built into their student loans, in the event that making timely payments becomes a problem.
After all, students of all types sometimes find themselves in unique situations that couldn't have been planned for, and we believe that part of a student lender's role is to help them through it.
That's where forbearance comes into play.
Before we get started, there are a few terms to know:
Deferment — Postponing payment on a loan due to qualifying circumstances
Forbearance — Suspending (or reducing) payments on a loan due to qualifying circumstances
Delinquency — Failing to make payments on a loan, starting at day one after the due date; 30-day delinquencies are typically reported to the credit bureaus
Default — Failing to make payments on a loan for a specified time period. For example, CommonBond's default occurs after 120 days of delinquency.
What Is Forbearance?
There is no rewind button in the world of student loans but forbearance is one of the closest comparisons to pushing pause.
Forbearance allows borrowers to temporarily postpone making payments because of financial hardship. Even a loan that is heading toward or already in delinquency could qualify for forbearance.
But pausing your loan payments isn't automatic; it's not as simple as hitting a button; and it's not the right choice for everyone. Read on to understand when to consider forbearance and what steps you have to take to qualify.
Consider deferment before forbearance
There's a reason that protections are baked into both federal and private loans. Lenders understand that a borrower can't predict the unexpected, like a major health scare or job loss.
In cases like those, deferment, not forbearance, should be borrowers' first option. Deferment allows borrowers to postpone payments on their loans' principal and interest for a specified amount of time.
Deferment is particularly advantageous for students who took out a Federal Perkins loan, a Direct Subsidized Loan and a Subsidized Federal Stafford Loan, as the federal government may foot the bill for the interest that accumulates before your payment due date reactivates.
Those with unsubsidized or PLUS loans offered by the federal government should still request deferment if their present need for relief outweighs the gathering interest and potential capitalization of interest on their loans.
The Department of Education doesn't specially outline every possible way to be eligible for deferment, but it does list the following four cases:
1. Being enrolled at least part-time in college, a career school or an approved postgraduate program
2. Being unemployed while looking for full-time work
3. Experiencing economic hardship
4. Serving (or recently having served) in the military.
Private lenders, like CommonBond, also offer forms of deferment. For example, at CommonBond, we offer academic deferment if members plan to go back to school. This option was designed for members who want to delay making payments while they're enrolled in school and can handle paying off the accumulated payments upon their graduation.
What to do before resorting to forbearance
Deferment and forbearance are safety nets, but taking advantage of these safety nets are a big decision that deserve your consideration. They shouldn't be your first resort.
Before deciding to explore forbearance specifically, exhaust your other, less invasive options.
Talk with your cosigner (if you have one)
While many loans may not require a cosigner, such a guarantor could help support you if you are considering forbearance. Support is the keyword here.
If you're considering forbearance, explain your situation. Ask for their advice. Your cosigner may decide it's best for both of you if he or she makes one or more interim payments on your behalf. At CommonBond, for instance, your cosigner is welcome to pay your outstanding monthly payment, particularly if it helps you avoid entering forbearance.
Talk with your loan servicer
At CommonBond, we understand any frustrations you might have with your lenders' customer service; that's actually how we got started. But we recommend giving your servicer a shot at listening.
After hearing you out, your servicer may decide to adjust your payment date, postpone a specific payment or offer to change your repayment plan altogether. While it would be naive to count upon any of these alterations, it's in your best interest to ask.
In some cases, CommonBond has suggested refinancing so that some members can switch to a lower monthly payment over a longer term, say from five years to 10. We're happy to help you evaluate all of your options.
Here are five noteworthy considerations to think about before you begin the process of applying for forbearance:
It doesn't stop interest from accruing on the loan; in fact, the interest capitalizes, increasing the loan's principal.It resets the clock on working toward cosigner release.It is creates a mark on your credit report but doesn't directly affect credit.It won't forgive a previous late payment or any related late fees. It's a temporary solution to a temporary problem, such as unemployment.
Types of forbearance available
Once it's become clear that forbearance is the best course of action, consider how your request will be categorized and therefore evaluated.
For federal loans, there are two kinds of forbearance approvals: discretionary and mandatory.
You may apply for forbearance through your loan servicer in the cases of illness or financial hardship.
Your lender must grant you forbearance if you meet one of six circumstances related to your chosen career.
CommonBond's forbearance protection, which can span a maximum of 24 months, could be granted in one of two ways.
This type refers to students who experience prolonged financial difficulties, such as a loss of expected income. To be approved for hardship-related forbearance, CommonBond members must be less than 60 days delinquent on their loan. This may require making a payment before requesting forbearance. The member must also ensure that they have time left in their allotment of eligibility.
This form of forbearance applies in a set of 12 unique circumstances including bankruptcy or injury incurred during military duty. Contact our care team via email at email@example.com or via phone at (800) 975-7812 if you have a question about these circumstances or other aspects of forbearance.
If you're struggling to make a future payment on a CommonBond loan, let us know. We are invested in you avoiding the path to delinquency and getting back on the path of putting your student loan behind you.