Most student loans have a certain amount of forbearance options, which basically means a period when you don’t have to pay, but interest still accrues. Forbearance is a good idea to use in emergencies only. If you can discuss a better solution for a payment plan you can handle with the student loan company, then you should always go that route first. Over the life the student loan, whether it’s federal or private, you only have a certain about of forbearance time available, and then after that you’ll be expected to pay no matter what the circumstances. Federal loans generally have a longer time of forbearance than private loans. Sometimes, private student loans won’t offer forbearance options at all, so it’s good to review that part of the loan terms before signing on the dotted line. If you do have forbearance available to you, though, there are only very specific circumstances in which you should use it. If you have a loan that’s spread over many years, a lot can happen in that amount of time. Having an emergency back-up is good, so if you can delay using forbearance, do so. On the other hand, here are four situations where using forbearance is an advisable move.
You Lose Your Job
Losing a job is one of the worst things that can happen to anyone, and this is especially true if you’re a recent college grad who’s still paying off loans. Although you might be able to collect unemployment if you were laid off, that’s not going to be enough to pay your bills on top of your basic needs, such as food and shelter. This is a good time to use the forbearance on your student loan. Make sure you’re starting the forbearance at the right time, though, and use any payment grace period you might have before requesting your loan go into forbearance. The best way to establish what options you have available to you is to simply call the loan company and discuss it with a representative. Make sure you write down everything they say, the time and date that you spoke, and get the customer service associate’s name. This will help ensure that any information you receive is honored later. Sometimes you’ll be eligible for a reduced payment or other incentives to prevent you from defaulting on the loan, so explore those options first. Loss of employment is an appropriate time to use forbearance, though.
Paying off Debt with Higher Interest Rates
If you have a lot of credit card debt or other types of debt with particularly high interest rates that’s eating a hole in your bank account, it can be worth putting a student loan into forbearance to tackle the other debt. However, be very careful that the interest rate on the student loan itself isn’t actually more than the credit card. In essence, there’d be no point in trying to prevent interest from accruing on a credit card if you’re accruing the same interest rate on your student loan balance. This is also a huge waste of forbearance time. Only use this option if you have a huge balance on a credit card that you need to pay down, and will give you a financial leg up in the long run.
Medical emergencies are a big reason that many people use any kind of forbearance they have on student loans, and even declare bankruptcy. Hopefully you never find yourself in this situation. However, if you do, having the ability to put a hold on your student loans without defaulting keeps your credit score intact and also allows you to deal with unexpected bills if necessary. This is especially important if you’re uninsured, and will be expected to pay the medical costs associated with your treatment.
Sometimes, it’s inevitable that you need to move house. Whether it’s because your lease is up or you’re saddled with some kind of unfortunate situation you can’t escape, moving is expensive. Due to the fact that finding a place to live outweighs paying student loans on time, if you need a few extra months of income to successfully find a safe, secure place to live, it can be worth using the forbearance. Forbearance is also doled out in months, so usually you’re not forced to take a forbearance period all at once. You can request to only use a few months worth due to financial hardship, and the vast majority of the time your request will be granted. This can be a worthwhile use of forbearance if the extra money will help you successfully relocate and resettle, at which time you can pick the payments back up.