Before you pause your student loan payments, consider the risks
It’s an offer hard to refuse: a reprieve from your student loan bill.
Yet when your payments resume, they’re often higher because your debt has swelled, thanks to interest.
The Associated Press, citing a 2017 Department of Education audit, reported this week that Navient, one of the country’s largest student loan servicing companies, steered tens of thousands of struggling borrowers into costly delays of their payments, known as “forbearances.”
The Consumer Financial Protection Bureau alleges that Navient added more than $4 billion in interest to borrowers’ debt through the misuse of forbearances between 2010 and 2015. Navient disputes the allegations in the audit and those by the CFPB.
Despite the fact that putting off payments increases their debt, nearly 70 percent of people who began repaying their student loans in 2013 had their debt in forbearance for some period, according to an April report by the Government Accountability Office.
What else can a borrower do?
Borrowers should first ask whether a deferment is available before they opt for a forbearance, said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling.
That’s because interest does not accrue on subsidized student loans during an economic hardship deferment, for example, as it does with a forbearance. There are also deferments for cancer patients now.
If your difficulty repaying your student loans is unlikely to come to an end any time soon, you might want to enroll in an income-driven repayment plan, which caps your monthly payment at a percentage of your income. Some monthly bills wind up totaling nothing.
Is a forbearance ever a good idea?
Borrowers who find themselves in a short-term difficulty, such as a medical leave or temporary unemployment, might want to consider forbearance, said Mark Kantrowitz, an expert on financial aid and publisher of SavingForCollege.com.
A forbearance typically lasts a year, and borrowers can use the option up to three times.
If possible, however, people should request a partial forbearance and keep up with at least their interest payments during the break.
“This will prevent your loan from growing larger during the forbearance,” Kantrowitz said.
Can I trust my lender?
Given that student loan servicers might not always provide borrowers the best information, it helps to review your options with a nonprofit such as The Institute of Student Loan Advisors, an organization that offers free advice and dispute resolution.
The National Foundation for Credit Counseling also certifies student loan counselors.