Forbearance: Definition & Who Qualifies

Forbearance is a temporary pause or reduction in student loan payments granted by a lender. In the context of study abroad, forbearance is a valuable option for students facing financial challenges, allowing them to temporarily postpone or reduce their loan payments.

Key Features of Forbearance

Temporary Relief

Forbearance provides a temporary break from making regular loan payments. This can be particularly helpful for students who encounter financial hardships, such as unemployment or unexpected expenses during or after their study abroad program.

Accrual of Interest

While payments are temporarily paused or reduced during forbearance, interest may continue to accrue on certain types of loans. This accrued interest may be added to the principal balance, potentially increasing the total amount owed.

Types of Forbearance

There are different types of forbearance, including discretionary forbearance, where the lender decides whether to grant it, and mandatory forbearance, which lenders must grant under specific circumstances (e.g., if you’re in a medical internship).

Scenarios Explained:

Financial Hardship During Study Abroad

If you encounter financial difficulties while studying abroad, such as unexpected medical expenses or a change in employment status, forbearance can provide temporary relief from making loan payments, allowing you to stabilise your financial situation.

Post-Graduation Unemployment

After completing your study abroad program, if you face challenges securing employment, forbearance can be an option to temporarily suspend or reduce loan payments until you are in a more stable financial position.

Interest Capitalisation

It’s crucial to understand the impact of forbearance on interest accrual. If interest continues to accrue during forbearance and is not paid, it may be capitalised, meaning it’s added to the principal balance. This can lead to a higher overall loan amount.

Communication with Lenders

Before seeking forbearance, it’s important to communicate with your loan servicer. Discuss your financial situation, explore other options, and understand the terms and consequences of forbearance. Some lenders may offer alternative solutions, such as income-driven repayment plans.

The Bottom Line Is..

Forbearance can be a valuable tool for managing student loan payments during challenging times. However, it’s essential to use forbearance judiciously, considering its impact on interest accrual and the overall cost of the loan. Communication with your loan servicer is key, and exploring alternative solutions, such as income-driven repayment plans, may be beneficial. Ultimately, using forbearance wisely can help you navigate temporary financial setbacks during or after your study abroad experience.

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