What Is Forbearance?

The term forbearance refers to the temporary postponement of loan payments, typically for a mortgage or student loan. Lenders and other creditors grant forbearance as an alternative to forcing a property into foreclosure or leaving the borrower to default.

The companies that hold loans and their insurers are often willing to negotiate forbearance agreements because the losses caused by foreclosures or defaults typically fall on them.

Understanding Forbearance

Although it is primarily used for student loans and mortgages, forbearance is an option for any loan. It gives the debtor extra time to repay what they owe. This helps struggling borrowers and benefits the lender, who frequently loses money on foreclosures and defaults after paying the fees. Loan servicers (those that collect payments but do not own loans) may be less willing to work with borrowers on forbearance relief because they do not bear as much financial risk.

The terms of a forbearance agreement are negotiated between borrowers and lenders. The chances of getting an arrangement depend partly on the likelihood that the borrower can resume monthly payments once the forbearance period is over. The lender may approve a total reduction of the borrower’s payment or only a partial reduction, depending on the extent of the borrower’s need and the lender’s confidence in the borrower’s ability to catch up at a later date.

In some cases, the lender may grant the borrower one of several options. These include:

• A full moratorium on making payments for some time
• Requiring the borrower to make interest payments but not pay down the principal
• The borrower pays only part of the interest, with the unpaid portion added to their total debt—a process known as negative amortization.

Forbearance may be mandated by law. For example, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed and signed into law in March 2020 to address the economic fallout from COVID-19, included provisions for student loan forbearance. The law also made provisions for mortgage payment forbearance for struggling homeowners during the pandemic.

How to Apply for Forbearance

Borrowers should contact their lenders or loan servicers to apply for a student loan or mortgage forbearance. In most cases, they must demonstrate a need to put off payments, such as financial difficulties associated with a significant illness or job loss.

Since forbearance agreements are negotiated, lenders have a lot of discretion when it comes to deciding whether or not to offer help and to what extent they do. Borrowers with a consistent payment history are more likely to be successful.

For example, a borrower who worked at the same company for ten years without ever missing a mortgage payment is a good candidate following a layoff. This borrower would be particularly likely to receive forbearance if they are highly skilled and can land a comparable job within a reasonable period. A lender is less likely to grant forbearance to a laid-off borrower with a spotty employment history or a track record of missed payments.

Forbearance for Student Loans

Student loan forbearance was mandated a part of the CARES Act passed in March 2020. That legislation suspended federal student loan payments, set interest rates to 0%, stopped collections on defaulted loans, and also halted negative reports to credit agencies.

This forbearance relief came to an end in 2023. Student loan interest began accruing again in September, while the first student loan payments since the COVID-19 pandemic were due in October.

Forbearance should not be confused with forgiveness, though both provide relief to borrowers. Forbearance is temporary relief, while forgiveness is permanent relief. For example, the Biden administration attempted to forgive up to $20,000 in student loan debt per borrower, a student loan forgiveness plan that was blocked by the Supreme Court in June 2023.

In response, the White House introduced the Saving on a Valuable Education (SAVE) plan, a new income-driven repayment option in which an estimated one million borrowers could qualify for $0 monthly repayments. While on the surface this looks like forbearance, it is not because the loans are technically in repayment.

SAVE sets monthly repayments at 5% of discretionary income for undergraduate borrowers. It also raises the discretionary income threshold to 225% of the federal poverty line. This means a single borrower earning $32,800 per year would have a monthly student loan payment of $0, because they have no discretionary income with which to repay their student loan. For a family of four, earning less than $67,500 per year would qualify you for a $0 monthly payment.

Although private student loans do not qualify for forbearance under current laws or federal programs, some private lenders may offer some form of forbearance on their own.

Forbearance for Mortgages

Mortgage forbearance assistance was extended to consumers as part of the CARES Act. COVID-19 mortgage forbearance applied to all federally backed and federally sponsored mortgages. This included loans backed by the following:

• U.S. Department of Housing and Urban Development (HUD)
• Federal Housing Administration (FHA)
• U.S. Department of Agriculture (USDA)
• U.S. Department of Veterans Affairs (VA)
• Fannie Mae
• Freddie Mac

If your loan was backed by HUD/FHA, the USDA, or the VA, then the deadline for requesting an initial forbearance was extended until the COVID-19 National Emergency ended—which occurred in April 2023.

The Homeowner Assistance Fund established by the American Rescue Plan Act of 2021 provided nearly $10 billion for states and territories to offer relief to struggling homeowners through their housing departments. Mortgage forbearance periods through the Homeowner Assistance Fund have generally concluded, although there may still be lenders offering assistance.

What Happens After Forbearance Ends?

Once the forbearance period is over, the borrower is usually responsible for making up the delinquent payments. The lender often works with the borrower to devise a plan to catch up on the debt. Homeowners who received a COVID forbearance for their federally backed loan cannot be required to repay missed payments in a lump sum once the forbearance ends. Keep in mind that this may not be the case with other lenders.

Again, depending on the terms negotiated with the lender, the borrower may owe interest accrued during the forbearance period and possibly late fees.

The Bottom Line

Forbearance is a temporary suspension of loan payments that normally lasts for a set period, typically in reference to student loans or mortgages. It does not mean that you stop paying your loan entirely, but rather it delays your payments. It is important to know that being granted a reprieve from paying a mortgage will not erase all of your debt. You may still need to pay the amount that was past due at the time of the grant of the reprieve and any interest that may have accrued during the suspension, depending on the issuer. In addition, at the end of the grace period, you will again have to pay the full amount due on your mortgage when you started the suspension. If you cannot pay your loan after this temporary suspension, it will likely only worsen your situation in the future. It may be beneficial to contact your lender to discuss your options.