Forbearance occurs when a student loan lender agrees to temporarily release a borrower from the obligation to make scheduled repayments. This is a voluntary decision on the part of the lender and is usually granted based on the borrower being in serious financial difficulty, or in other unusual circumstances.
Forbearance vs Deferment
There are two major differences between forbearance and deferment. With forbearance the payments cease but the loan continues to accrue interest, meaning the total amount the person pays back will usually be higher. With deferment, the entire loan is frozen, with no interest applied until the repayment period begins again. Forbearance is normally at the discretion of the lender, while deferment is usually automatic as long as the applicant meets the relevant criteria. Normally forbearance is restricted to people who do not meet the deferment criteria.
Renewals
Forbearance is normally granted for 12 months, after which it must be renewed. This renewal is not guaranteed, and the lender is usually under no obligation to renew the forbearance even if the circumstances are unchanged.
Forbearance Time Limits
Most loans have a maximum period for forbearance, though the precise details may vary by lender. Advice service FinAid reports that a typical maximum is three years, and this is the case for both Federal Perkins and Stafford Loans. In other cases it can be longer: for example Michigan's MI-LOAN program allows a maximum of 60 months of forbearance.
Repayment Time Limits
Forbearance can have an important effect on repayment. Many loans have a final date by which they must be repaid in full. Forbearance does not extend this date. This means that once the borrower starts repaying again he may have to either increase his regular repayments or pay a larger lump sum on the final repayment date.
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