Forbearance period is a loan status that is primarily used in conjunction with student loans. In limited circumstances, this status is also available to home mortgage owners. Forbearance periods allow the holder of the loan to postpone loan payments or reduce the amount of payments made each month toward the loan amount due to financial hardships and job status. The two categories of forbearance include discretionary and mandatory forbearance.
Discretionary forbearance is a type of forbearance period that is used in cases where the loan recipient is facing financial hardship or illness and is unable to make the loan payment at all, or is only able to make a portion of the payment. In these cases, the individual needs to contact the loan holder and request forbearance status. Depending on the nature of the request, the individual may be required to provide detailed, personal information to document the nature of the hardship.
Mandatory forbearance periods must be provided by the lender. This type of forbearance is applicable in limited circumstances and can include individuals who are serving in an medical or dental internship or residency program, national service position, teacher service or National Guard. Individuals who qualify for partial repayment of their loans by the U.S. Department of Defense, or those who have a combined loan payment which is more than 20 percent of their gross income, may also be eligible if they meet additional conditions.
Forbearance is not an automatic option applied to loan accounts. The individual holding the loan must contact each lender to discuss forbearance availability and application processes. Ask each lender what the forbearance period is, what documentation is required, whether forbearance can be renewed and the maximum amount of time that forbearance will be allowed. This information may be available on the promissory note.
Forbearance is not without financial risk. During the forbearance period, interest will accrue on subsidized and unsubsidized loans. The interest charges can either be deferred or must be paid in full as they accrue throughout the forbearance period. Review the promissory note and speak to the loan representative to determine the amount of interest payments, if applicable. Remember that the interest accrued increases the total amount that you must repay on the loan.
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