How Does Student Loan Forbearance Affect Your Credit Score?

Economic uncertainty and a slow job market make a lot of people wonder if they can keep making their student loan payments. If you’re worried about job security or if your company is announcing layoffs, consider your options for student loan forbearance.

Student loan forbearance is basically a temporary form of debt relief. Forbearance pauses payments on your federal student loans for 12 months at a time. But it’s not automatic—you have to apply for it. 

Student loan forbearance could help your budget, and it doesn’t hurt your credit score. Here’s how student loan forbearance affects your credit report, how it works, and what to do with extra cash while your student loans are in forbearance.   

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

What Is Forbearance?

Forbearance is a type of short-term debt relief that lets you pause or reduce your loan payments while you’re going through financial hardship. For most types of personal loans, mortgages, or credit cards, forbearance is only offered if the lender chooses, and not everyone who asks for forbearance on their loans gets approved by the lender. Federal student loan forbearance can sometimes be easier to get approved for, but you must meet rules and guidelines.

Here are a few key characteristics of forbearance.  

Forbearance is temporary 

Forbearance is not a permanent solution for debt relief. Federal student loan forbearance is not the same as loan forgiveness. For most loans, forbearance is only intended to help tide you over for a few months. 

With forbearance, your debt doesn’t go away. You just get a pause in making your loan payments, but you still owe the total amount of debt. That amount might even get bigger, because more interest is added to the loan amount. 

Forbearance is based on hardship

You can’t simply decide to use forbearance to take a break from your debt payments. Forbearance is intended for people experiencing short-term financial hardship. If you’ve lost your job, had a big reduction in income or hours, or suffered a medical crisis, natural disaster, or other short-term financial emergency, consider asking your lenders for forbearance. You have to apply for it, and you might need documentation and evidence.  

Federal student loan forbearance is more lenient

Not every credit card or mortgage lender gives you forbearance. But if you need forbearance on federal student loans, there are several ways to qualify—sometimes automatically. Federal student loans offer two types of forbearance: general forbearance (based on financial hardships like medical problems or changes in employment) and mandatory forbearance (people in certain occupations or who have very high levels of debt should automatically qualify). Federal student loan forbearance lasts up to 12 months at a time, but if the hardship remains, you can request another 12 months, and be approved for multiple years of cumulative forbearance.  

If you’re having trouble paying your bills or otherwise going through financial hardship, contact your lenders as soon as possible. Ask about forbearance programs for your loan or credit account. Federal student loan forbearance can be especially helpful in delivering relief for your monthly budget, and getting you to a better place in your financial life. 

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Student Loan Forbearance vs. Deferment

Student loan forbearance and deferment are different kinds of debt relief, with different benefits. The biggest difference between federal student loan forbearance vs. deferment is how additional interest charges work. 

With federal student loan forbearance, interest accrues on all types of loans. Even if you qualify to pause payments, you get charged interest for the months you miss. 

With federal student loan deferment, interest accrues only on some types of loans. If you have certain types of federal student loans, you might get to pause payments without getting charged interest. This can make deferment a better choice if you qualify.   

Here’s a side-by-side comparison table to see if federal student loan forbearance or deferment is right for your situation: 

Here are a few possible downsides of forbearance and deferment: 

• You don’t make progress on paying off your loans: Forbearance and deferment let you get some time off from paying your loans, but the total amount you owe does not go down. 

• Won’t make progress on loan forgiveness: If you are trying to get federal student loan forgiveness, forbearance or deferment can mean you stop making progress on that plan. 

• Income-driven repayment (IDR) plans might be a better choice: With an income-driven repayment plan, you can make your loan payment more affordable based on your disposable income. Some people’s IDR loan payments might even be as low as $0. This could be a better choice than forbearance or deferment.  

How Student Loan Forbearance Works 

If you’re having trouble making payments on your federal student loans or if you’ve experienced certain financial hardships or big changes in your life or career, you might qualify for forbearance. Here’s how student loan forbearance works. 

How long can you get student loan forbearance for?

Student loan forbearance is meant to be a short-term student loan debt relief solution. With forbearance on federal student loans, your lender lets you stop making payments for 12 months at a time, for a total of up to three years. This could free up cash in your monthly budget and help you get into a better financial position to keep up with your debts. 

Types of student loan forbearance: general vs. mandatory

Federal student loans offer two types of forbearance: general and mandatory. The type of forbearance you ask for could decide whether or not you get debt relief. 

With general forbearance, your loan servicer reviews your request for forbearance and decides whether to let you have it. This is a discretionary type of forbearance, similar to asking your mortgage lender or credit card lender for forbearance. You’re not guaranteed to get what you ask for. You might get general forbearance if you have financial difficulties, medical expenses, changes in employment, or other reasons that your loan servicer agrees to accept.  

You can apply for general forbearance if you have federal direct loans, Federal Family Education Loan (FFEL) program loans, or Perkins loans. If you’re having trouble making federal student loan payments, talk to your student loan servicer to find out if you qualify for general forbearance. But keep in mind that you can only use general forbearance for a total of three years (cumulative). So try not to use general forbearance too soon or too often; you might be better off choosing an income-driven repayment (IDR) plan for your federal student loans. 

With mandatory forbearance, you have a few extra rights that may make this type of student loan debt relief much easier to get. If you meet the requirements for mandatory forbearance, your loan servicer is required to let you have the relief. Compared to general forbearance, there’s a much longer list of situations and programs that can help you get mandatory forbearance. 

You might be able to get mandatory forbearance for your federal student loans if you:

• Serve in AmeriCorps

• Qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program

• Serve in a medical or dental internship or residency program

• Serve in the National Guard on active duty but are not eligible for a military deferment

• Owe a burden of federal student loan debt that is 20% or more of your gross monthly income for at least three years

• Teach in a setting that makes you eligible for teacher loan forgiveness.

People with federal Direct Loans or FFEL loans can apply for mandatory forbearance. If your student loan payment is unaffordable—reaching 20% or more of your gross monthly income—you can also apply for mandatory forbearance on Perkins loans.  

The types of forbearance listed above only apply to federal student loans, and not all types of federal student loans have the same rules. But if you are struggling to pay your federal student loans, keep in mind that you still have options, and you can work with your loan servicer or with government staff to find a good path forward. Federal student loan programs tend to be more lenient than private student loans. 

Private vs. Federal Student Loan Forbearance

If you have private student loans, talk to your lender about private student loan debt relief options. However, you probably won’t have as many choices for student loan forbearance with a private lender. 

Federal student loan forbearance addresses a wide range of situations and offers clear ways to get debt relief. Private student loans work differently. If you fall behind on private student loan payments, talk to your lender as soon as possible. Many private student loan lenders offer forbearance, but usually in three-month increments—much shorter than the 12-month forbearance periods for federal student loans. 

If you need forbearance on private student loans, talk directly with the lender and read the fine print of your loan contract. The exact options for private student loan forbearance depend on your state laws, your contract, and your lender’s discretion. Not every private student loan lender will work with you in offering relief or creating a different loan repayment plan. Some might charge extra fees, along with interest. But if you need forbearance, talk to your private student loan lender as early as possible—preferably before your loan becomes delinquent or goes into default. 

What if you can’t afford to repay your private student loans at all? If you’re in serious financial difficulty and have no reasonable hope of paying off your student loan debts, forbearance might not be enough. You might want to consider more permanent solutions for debt relief—like a debt settlement program or bankruptcy. A debt settlement program can help you get rid of private student loans and other unsecured debts faster, by negotiating with your creditors and lenders. Private student loans can also be discharged in bankruptcy if you can prove that you are experiencing undue hardship. 

Student loan forbearance is not debt forgiveness 

Keep in mind that student loan forbearance isn’t student loan debt forgiveness. Your debt doesn’t go away. Forbearance is meant to give you some breathing room while you find a new job or strengthen your finances. 

While your student loans are in forbearance, your loans still accrue interest. If you don’t make any payments during your forbearance, your balance will grow. After your forbearance, you still have to pay the full amount you owe, plus the additional interest.

You could avoid a bigger loan balance by paying at least the interest during forbearance.

Student Loan Forbearance Won’t Hurt Your Credit Score 

Pausing your student loan payments can be a big relief and a nice boost to your personal finances. For example, if you’re used to paying $400 a month in student loans, a forbearance could free up that $400 a month for other goals. 

Another big benefit of student loan forbearance is that it shouldn’t hurt your credit score. That’s because student loan forbearance isn't the same as making a late payment. With forbearance, you've worked out a plan and gotten permission from your lender in advance, so it doesn’t appear on your credit report. 

Federal student loans in forbearance are reported to the credit bureaus as being in good standing. The same should be true for private student loans—but check with your private student loan lender and ask how their forbearance plans work.

Now let’s look at what to do while your student loans are in forbearance to make sure you come out on the other side in a stronger financial position. 

How Long Does Forbearance Stay on Your Credit Report? 

If you handle your federal student loan forbearance process well and make post-forbearance payments on time, it shouldn’t hurt your credit score. Going into forbearance on federal student loans is not considered a negative event on your credit report like missing a payment or going delinquent or into default. Instead, forbearance is just a different way of managing your federal student loan during financial hardship or other qualifying situations.

If you don’t want to lose FICO® Score points, private student loan forbearance may prove a little more complicated. Private student loan lenders don’t have to follow the rules and limits that apply to federal student loan forbearance. Based on the fine print of your loan contract and the laws of your state, some private student loan lenders might put loans in forbearance on your credit report. But this shouldn’t drop your credit score too much, as long as you’re compliant with your forbearance, resume making your payments on time, and avoid more negative events. 

There’s no hard and fast rule for how long student loan forbearance stays on your credit report. It depends on the length of the loan and how soon you pay it off. But in general, as long as you  communicate with your lender or loan servicer and follow the terms of your forbearance agreement, your student loans should remain in good standing. You don’t have to worry about your credit score while you’re in forbearance. Just focus on working through your financial difficulties or career changes, and get ready to make payments again. 

The True Cost of Forbearance: Interest

The biggest cost of student loan forbearance is not a lower credit score—it’s the unpaid interest that can build up over time. If you’re going to choose forbearance on federal student loans (or private student loans), make sure you understand the total costs and are prepared to pay the extra interest. Forbearance doesn’t make your loan interest go away—it just gives you a break from making payments. But interest still gets added onto the loan. 

Some loans in forbearance capitalize the interest after forbearance ends. So if you leave interest unpaid during forbearance, it’s added to the total principal balance of the loan—and then interest accrues on that interest. It’s like the magic of compound interest on a savings account, but in reverse: your debt is “borrowing” more money, and the total is building upon itself. 

Depending on your loan’s APR and how much you’ve borrowed, capitalizing interest can increase future monthly payments. It might even erase progress you’ve made in paying down your loan balance.

If you want to avoid owing extra interest during student loan forbearance, find out the total amount of interest that will accrue during the forbearance period, and make a plan to pay it as you go. 

For example, let’s say that you owe $20,000 on federal student loans at 6% APR, and if you go into forbearance for a year, you accrue $1,200 of interest during that time. If possible, pay off this interest (about $100 per month) during the forbearance period. This can help you avoid increasing the debt. 

Not everyone can make interest-only payments during student loan forbearance. The impact varies based on loan terms and balances. If you’re in a serious money crunch, it might not be possible to pay even $50 a month toward your loan interest, and that’s fine. But during forbearance, try to free up some extra cash to pay off other debts, and plan ahead for paying off the extra student loan interest. 

How to Manage Money During Student Loan Forbearance 

Student loan forbearance is temporary, but it’s a great opportunity to make long-lasting improvements in your personal finances, starting with the lower monthly obligation. Here are two approaches to make the most of student loan forbearance:  

• Lost income. Student loan forbearance sometimes happens in the wake of a financial emergency, medical problem, or job loss. If you’re unemployed or your income was reduced, then the money you save on student loan payments should help cover necessities like rent, food, and utilities. Put anything left over into an emergency savings fund.

• Steady income. Other people might be steadily employed, but apply for student loan forbearance for other reasons. If you have enough to cover your basic needs and don’t have to make student loan payments, you may be able to strengthen your financial situation and pay off some debt. 

Forbearance isn’t free money, but it could leave you with extra cash in your budget. Here are some ways you could make good use of your money during student loan forbearance.

1. Build a safety net

Student loan forbearance can give you a chance to catch your breath, find extra money in your monthly budget, and make progress on your other financial goals. Twelve months (or more) of temporary debt relief could leave you with extra cash. Start by socking some of this extra money away in a savings account. 

If you can, work toward saving enough money to cover three to six months of basic living expenses. Or start by saving $500 or $1,000 of emergency cash, and keep it in a savings account. Even a small amount of savings can give you peace of mind in knowing you can weather a financial setback like a car repair or a medical bill, and it provides a solid foundation for your financial goals.

2. Make payments on your student loan

Let’s say you find a great job six months into your forbearance. There’s no reason you can’t resume your loan payments ahead of time. If your emergency savings safety net is in place and you don’t have high-interest debt to pay down, consider paying your student loan even while it’s in forbearance. Even though you’re not required to make payments during forbearance, you can choose to. And making interest-only payments on your student loans can keep your debt from growing bigger during forbearance. 

3. Get rid of high-interest debt

If you already have an emergency savings fund, then student loan forbearance might be a good chance to get rid of other debt, like high-interest credit cards. For example, if you owe 6% APR on your federal student loans and 25% APR on your credit cards, student loan forbearance could help you come out ahead by paying off that higher-interest credit card debt faster—even if you accrue some student loan interest along the way. 

Here are four ways you could steer the money from your student loan payments toward getting rid of other debt.

Debt consolidation loan

A debt consolidation loan is a new loan you use to pay off multiple smaller debts. It combines multiple high-interest debts into one, and reduces the number of payments you have to make. This could be a good strategy if you have fair to good credit, can qualify for an interest rate lower than what you pay now, and can afford the monthly payment.

For example, let’s say you have three credit cards with a total of $10,000 of debt, and you pay 25% APR (or more) on those cards. If you have good-enough credit and can qualify for a personal loan at (for example) 10% APR, this could help you cut interest costs and pay off debt faster.    

DIY debt payoff

If you can afford to pay something toward other debt during forbearance, decide which debt to pay off first. Two of the most popular debt payoff strategies are the “debt avalanche” and “debt snowball” methods. 

The debt avalanche method focuses on paying off the highest APR credit card first, even if it’s the biggest balance and the biggest monthly payment. This method creates an “avalanche” of unstoppable momentum from the top down. 

The debt snowball method focuses on your smallest debt, to get you to your first payoff as soon as possible. You won’t save as much on interest as you would with the debt avalanche, but the debt snowball method can help you build up a powerful sense of accomplishment and confidence—like a snowball rolling downhill, gathering speed and strength.

Balance transfer card

Do you have credit card debt on multiple cards? If you have fair or better credit, you might qualify for a balance transfer credit card. This can be a good tool for making a dent in your debt during student loan forbearance, since forbearance doesn’t hurt your credit score. 

If you qualify, you could consolidate multiple credit cards onto a new credit card with an introductory 0% APR offer (typically for six to 18 months). Then, any money you pay toward that debt will be applied to your principal balance, not interest charges. There’s typically a 3-5% fee for each balance transfer, which is often equal to about two months’ interest. 

You might not be able to pay off the whole credit card balance during the 0% intro period. If that’s the case, your remaining balance will become subject to the card’s regular APR. Credit card APRs tend to be very high. So before you apply for a balance transfer card, plan how you’ll handle the remaining balance.

Debt settlement

If you genuinely can’t afford to fully repay your debts even with student loan forbearance, you might need more help. 

When you’re in serious financial trouble, debt settlement could significantly reduce the overall amount you owe. This is often a good choice for people who have already fallen behind on payments and are receiving calls from debt collectors. If you want to get faster solutions for your debt while avoiding bankruptcy, a debt settlement program can help in ways that have less long-lasting impact on your credit. 

In debt settlement, you or a professional debt settlement company negotiate with your creditors to accept less than the amount you owe. This empowers you to get rid of your debt sooner than you would by making minimum payments. Debt settlement can’t be used for federal student loans. But if you have private student loans or other unsecured personal debts like credit cards, debt settlement may be another option to get rid of debts and move on with your life. 

What Not to Do With Your Student Loan Payments

During the forbearance period, avoid spending your student loan payment money on non-essentials. It may be tempting to think of this as extra spending money, but just because you’re not paying on your student loan right now doesn’t mean that debt goes away. 

It’s still sitting there, accruing interest. If you get used to spending that extra money in your budget on other things, it may be harder to resume making your student loan payments when the forbearance period ends.

To find out your other options to deal with your debts, talk to one of our Certified Debt Consultants. The consultation is free, and you can easily get started online now.