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Forbearance allows the borrower to temporarily postpone or reduce the principal payments. The borrower is still responsible for paying the accrued interest during the forbearance period. Unpaid interest will be capitalized into principal at the end of the forbearance period.
Lenders are encouraged to grant forbearance to prevent the borrower from defaulting on the repayment obligation. Depending on the reason for the forbearance, the borrower may need to make a written or verbal request; in other circumstances, the lender may be allowed to initiate the process without request from the borrower.
Reasons for Forbearance
Circumstances for which a forbearance may be granted by the lender could include, but aren't limited to:
- The borrower does not qualify for deferment but is having financial difficulties that affect the ability to make the scheduled student loan payments.
- The borrower is in an internship or residency program.
- The borrower is serving in the military or a national service position.
- The borrower qualifies for a partial repayment of the loan by the Department of Defense.
- The borrower's total monthly educational loan repayment exceeds 20% of their monthly income.
The borrower should be encouraged to contact the lender as soon as an event occurs that temporarily affects the ability to make loan payments to avoid default. The borrower must continue to make the required loan payments until receipt of written notification from the lender that the forbearance is approved.
Forbearance Types
Four types of forbearance are available. Each type can be granted for specific reasons. Different types of forbearance have different time limits.
- Discretionary – can be granted for any reason agreed upon between the borrower and the lender (example, financial hardship; going back to school less than half time and no deferment eligibility; unemployed, but already received maximum deferment).
- Administrative – can be granted by the lender for specific reasons without written authorization for payments that are overdue or would be due in certain circumstances, such as bankruptcy, identity theft, delinquency before/after deferment.
- Mandatory – must be granted by the lender for specific reasons if the borrower requests, for a specific length of time (example, total monthly educational loan payment is equal to or greater than 20% of the borrower's monthly gross income; internship or residency; national service; loan forgiveness or Department of Defense repayment). This type must be granted in 12 month increments.
- Mandatory Administrative – must be granted by the lender for specific reasons (example, the borrower is not able to repay using an income-sensitive repayment schedule within 10 years due to changes in the variable interest rate, the borrower's death; or other exceptional circumstances).
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