What Is Forbearance?
Forbearance is a temporary agreement between a borrower and a lender (or loan servicer) that permits reduced payments or a pause in payments for a limited time. It’s typically used for mortgages and student loans, though other creditors may offer it. Forbearance does not erase the debt — it postpones or reduces payments so borrowers can address short‑term financial hardship, such as job loss, illness, or pandemic‑related income loss.
Key takeaways
– Forbearance is temporary relief; the borrower remains responsible for repaying the loan.
– Terms are negotiated and vary by loan type and lender/servicer discretion.
– Interest often continues to accrue during forbearance and may be capitalized (added to the principal) when the forbearance ends.
– Federal programs (e.g., CARES Act, pandemic relief) have at times mandated special forbearance rules; those programs have changed over time.
– Forbearance is not the same as loan forgiveness, which permanently cancels some or all of the debt.
How forbearance works — the basics
– Who grants it: lenders, loan owners, or servicers. Servicers collect payments and manage accounts but may not own the loan; their willingness to negotiate varies.
– Types of relief: complete pause of payments, reduced/partial payments, temporary interest rate reductions, or placing the loan into a special status such as administrative forbearance.
– Typical concerns for lenders: avoiding foreclosure or default because major losses fall on lenders/loan owners.
– Borrower eligibility: lenders look at the borrower’s recent payment history, reason for hardship, and likelihood of resuming payments.
Forbearance negotiation — what to expect
– Contact your servicer immediately when you foresee trouble making payments.
– Expect to document hardship (e.g., job termination notice, medical bills, reduced hours, or pandemic impact).
– Options presented can vary: short extensions, graduated reductions, interest-only periods, or options to make up missed payments later (e.g., lump sum, repayment plan, loan modification).
– Always get the agreement in writing and confirm how interest, escrow (for mortgages), taxes, and insurance will be handled.
Forbearance under COVID‑19 and CARES Act history
– In 2020 the CARES Act and other emergency measures created broad forbearance and relief options for federally backed mortgages and federal student loans (0% interest and paused payments for a period).
– Pandemic relief for federal student loans ended in 2023 (interest began accruing again in September 2023 and payments resumed in October 2023).
– The Saving on a Valuable Education (SAVE) income‑driven plan (announced 2023) was blocked by courts; litigation affected implementation and temporarily moved affected borrowers into interest‑free forbearance. As of 1/15/2025, a federal court prevented the Department of Education from implementing SAVE and other IDR plans; borrowers in SAVE may be in general forbearance until further action.
– Mortgage forbearance for federally backed loans was available under CARES Act rules; many special pandemic forbearance windows have since closed. States used the Homeowner Assistance Fund to help homeowners, but many program periods have concluded as funds were disbursed.
Forbearance vs. forgiveness (student loans)
– Forbearance: temporary postponement; interest often accrues.
– Forgiveness: permanent cancellation of some or all of the loan (rare and subject to eligibility).
– Example: proposed student loan forgiveness in 2023 was blocked by the Supreme Court; other relief has been via repayment plan changes like SAVE, but legal challenges continue.
Will forbearance affect my credit?
– Forbearance itself need not damage credit if the servicer properly records the account as in forbearance or “current” per the agreement.
– However, missed payments before entering forbearance can harm credit. Also, servicers may report differently — always confirm how the forbearance will be reported to credit bureaus and get that in writing.
– Note: federal pandemic reporting rules temporarily banned negative reporting for covered loans during certain periods, but those protections have expired.
Will forbearance affect refinancing?
– If the loan is in active forbearance or you have recent missed payments, refinancing can be difficult until you’re back in good standing.
– Lenders look at recent payment history, current delinquency status, and remaining arrears. Clearing missed payments or completing a trial or full modification improves refinancing prospects.
What happens after forbearance ends?
Common outcomes:
– Repayment in full of missed amounts (lump sum).
– Repayment plan that spreads missed payments over time.
– Loan modification: extended term, interest rate change, or principal forbearance to lower monthly payments.
– For mortgages: reinstatement, loan modification, repayment plan, or — if unaffordable — options such as short sale, deed in lieu, or foreclosure avoidance programs.
Practical steps after forbearance:
1. Review the post‑forbearance repayment plan in your agreement.
2. Calculate the new monthly payment and whether deferred interest has been capitalized.
3. If you cannot afford the proposed plan, contact your servicer immediately to explore alternatives (loan modification, extended repayment, partial claim for FHA loans).
4. Consider refinancing only after you have reestablished on‑time payments and the loan is out of forbearance.
How to apply for forbearance — practical step‑by‑step
1. Gather information:
– Loan account numbers, balance, last payment date.
– Proof of hardship: layoff notice, unemployment documentation, medical bills, reduced hours, or pandemic‑related impact.
– Recent pay stubs, bank statements, monthly budget.
2. Contact your lender or servicer:
– Use the customer service phone number OR secure message via their website. Keep a record of call dates, names, and reference numbers.
– If you have a federally owned loan (federal student loan or federally backed mortgage), identify your servicer and confirm federal program eligibility.
3. Request forbearance or hardship assistance:
– State the reason and requested relief period (e.g., 3–6 months).
– Ask what options you qualify for and whether interest will accrue or be waived.
– Request written confirmation of the agreement and how it will be reported to credit bureaus.
4. Confirm details to verify in writing:
– Start/end dates of forbearance.
– Payment amount during forbearance (if any).
– How missed payments will be handled afterward (lump sum, repayment plan, modification).
– Impact on escrow (mortgage taxes/insurance) and foreclosure timelines.
5. Keep communicating:
– If your hardship continues, request an extension before the initial forbearance expires.
– Keep records of all correspondence.
Practical script (sample) for initial contact
“Hello — my name is [Name], account number [XXXX]. I’m experiencing a [job loss/medical issue/etc.] and can’t make my full payment. I’d like to request forbearance or other hardship assistance. What options are available, what documentation do you need, will interest accrue, and how will this be reported to credit bureaus? Please send me details in writing.”
Forbearance for student loans — specifics and tips
– Federal student loans: contact Federal Student Aid (your servicer). Federal rules and relief programs occasionally change (e.g., pandemic pause, SAVE plan litigation). Confirm current status with your servicer and the Department of Education.
– Private student loans: no federal protections; some private lenders offer discretionary hardship forbearance. Ask your lender what they offer and get confirmation in writing.
– Watch interest: interest often continues to accrue on federal and private student loans during forbearance; unpaid interest may be capitalized at repayment.
– Alternatives to forbearance:
– Income‑driven repayment (IDR) plans (e.g., SAVE, PAYE) for federal loans — these reduce payments based on income (note SAVE litigation as of Jan 15, 2025).
– Loan consolidation or refinancing (careful: refinancing federal loans to private loans removes federal protections).
– Loan rehabilitation or consolidation if in default.
Forbearance for mortgages — specifics and tips
– FHA, VA, USDA, and conventional servicers may offer forbearance; federally backed loans had pandemic rules that have mostly wound down.
– Mortgage forbearance typically does not eliminate escrow obligations for taxes and insurance — check your agreement.
– Requesting forbearance does not automatically trigger foreclosure; federal rules limited certain foreclosure actions during specified emergency periods, but those protections have specific timelines and eligibility rules.
– Prepare documents: income statement, unemployment proof, hardship letter, recent bank statements, and a copy of government unemployment approval if applicable.
How to get out of forbearance — practical options
– Resume regular payments when you can.
– Repayment plans: spread past‑due amounts across months.
– Lump‑sum payment to bring the loan current.
– Loan modification: change rate, term, or principal to make payments affordable.
– Reinstatement (mortgage): pay all delinquent amounts in full to bring the account current.
– Refinance (after reestablishing on‑time payments and meeting lender requirements).
– For defaulted student loans, consider rehabilitation or consolidation.
Warnings and pitfalls
– Interest accrual: most forbearance allows interest to keep accruing. Capitalized interest increases loan cost.
– Credit reporting: verify how the servicer will report forbearance to the credit bureaus.
– For long or repeated forbearances: lenders may be less flexible in the future, and the loan balance can grow.
– For federal loans: program rules can change due to legislation or court rulings (e.g., SAVE delays). Stay informed through your servicer and official government sources.
– Never stop communicating with your servicer — a lack of communication often leads to worse outcomes.
Checklist for borrowers considering forbearance
– Assess your budget and determine how long relief is needed.
– Contact servicer early and request written terms.
– Confirm interest treatment, escrow handling, and credit reporting.
– Save all communications and written agreements.
– Explore alternatives (repayment plans, modifications, income‑driven plans for student loans, refinancing).
– Prepare for the end of forbearance by setting aside funds or arranging a repayment plan.
Resources and where to get authoritative help
– Loan servicer: primary contact for account‑specific information.
– Department of Education — Federal Student Aid: studentaid.gov for federal student loan details and servicer contacts.
– Consumer Financial Protection Bureau (CFPB): consumerfinance.gov for mortgage and student loan borrower rights, complaint submission, and guides.
– State housing or attorney general offices: for local homeowner assistance program details.
– HUD and VA: for FHA and VA mortgage program details.
Bottom line
Forbearance can be a useful short‑term tool to avoid default or foreclosure, but it’s temporary and often comes with increased cost (interest accrual and possible capitalization) and practical consequences for credit and refinancing. Act early, get everything in writing, understand how missed payments will be handled after the forbearance period, and explore alternatives before agreeing to terms that may increase your long‑term costs.
Source
Primary source for this summary: Investopedia — “Forbearance” (https://www.investopedia.com/terms/f/forbearance.asp). For current federal student loan or mortgage program status, check your loan servicer and official government sites (Federal Student Aid at studentaid.gov; CFPB at consumerfinance.gov).