Is student loan forbearance right for me?

If you have federal student loans, you qualify for automatic forbearance through January 2021. But is this the right option for you? (iStock)

As the coronavirus pandemic hit the U.S. in full force in March, Congress took action to protect student loan borrowers during the unprecedented economic chaos that followed. Federal student loan payments, interest charges, and late fees were suspended through September under the coronavirus relief legislation signed into law.

Although this moratorium on student loan payments was only supposed to last until the beginning of last month, President Trump signed an executive order that extended the forbearance period until January 2021. Therefore, those with federal student loans will not have to worry about making payments or accruing interest on their loans until next year.

Private student loan borrowers who are not getting any relief during the coronavirus pandemic should consider other options to lower student loan payments. Visiting Credible to explore refinancing options could be a good first step to do that.

Of course, even for those with federal student loans, opting out of making student loan payments now isn't necessarily the right move for everyone. Here are three ways to find out if forbearance (the loan relief option) is something you should take advantage of.

  1. Determine what student loans you have
  2. Assess your current financial situation
  3. Consider other outstanding debts you may have

1. Determine what student loans you have

Trump's executive order extends only to student loan borrowers with loans made by the Department of Education. If your loan was issued by your university directly or was made by a private lender, interest-free forbearance is not an option for you.

While most private lenders are willing to work with loan borrowers to pause student loan payments during times of economic hardship, putting your private loans into forbearance will not stop interest from accruing. Your loans will become more expensive to pay if you do this since the interest will cause the balance to grow during the time you aren't making payments.

Rather than pausing payments on private loans, you should consider refinancing if you're struggling to cover costs or if you simply want to make repayment more affordable. Interest rates are near record lows now and you may be able to both lower total interest costs and reduce your monthly payment by refinancing.

If you're looking for student loan payment relief, visit Credible. You can get prequalified student loan refinancing rates from up to 10 lenders to find out if this approach could save you money.


2. Assess your current financial situation

If you have money to make payments on your student loans right now, doing so might be a good idea even if you qualify for the forbearance the president put in place.

While interest charges aren't accruing on federal student loans during the forbearance period, if you pause in making payments you'll still extend the time it takes you to pay off your loans. That occurs simply because you won't be reducing the principal balance. You may not want to wait longer than necessary to get free of this debt.

And, in fact, if you make payments while your loans are in forbearance, the entire amount will go to the principal so you can reduce your balance faster — perhaps becoming debt-free sooner and saving on interest over the long-run.

Of course, as mentioned above, neither interest nor payments on private student loans were affected by the president's action. You want to avoid voluntary forbearance for private loans if you can afford to keep paying on them, otherwise, your borrowing costs will rise.

If you need more information on student loan forbearance and loan relief options potentially available to you, contact your loan provider or reach out to Credible for guidance.


3. Consider other outstanding debts you may have

Most people have only a limited amount of money for debt payment. If you have other high-interest debts to pay, you may want to prioritize those over continuing to pay student loans during this time. In fact, by using the extra money freed up while interest and payments on your loans are suspended, you could save substantially on borrowing expenses.  

Say, for example, you had a credit card with a $1,000 balance at 17% interest that you were making just $20 minimum payments on. If you were previously paying $150 toward your student loans, you could instead use that money to pay more toward your credit card debt while your loans are in forbearance. You'd end up paying off your card balance in just over six months and paying only $51.70 in interest total.


Conversely, if you kept making your student loan payments as normal even though you don't have to do so, it would take you 88 months to pay off your $1,000 card balance by making just the minimum payments — and you'd pay around $751 in interest instead.

The chance to pause payments on federal student loans without incurring interest or risking student loan default presents a unique opportunity to enjoy more flexibility regarding monthly budgeting so be sure to think carefully about what option is right for you.

Unfortunately, those with private student loans don't have this choice. If you're one of them, visit Credible today to learn more about private student loans and refinance options available to you.