Does Putting Your Student Loan in Forbearance Hurt Your Credit Score?

Student loans have some of the highest default rates of any loan type, because of rising tuition costs. In 2007, for example, 6.9 percent of federally backed student loans were in default -- the highest since 1998, according to the Wall Street Journal. Forbearance is a temporary reduction in your monthly installment that can help you get back on track without damaging your credit.

Impact on Credit Score

Putting a student loan into forbearance will not hurt a credit score, because it is something the lender agrees to do for the borrower. As long as the borrower meets the conditions of the forbearance, such as paying interest on the principal, the lender will report the account as "paid as agreed" to the credit bureaus. This will generate positive payment history and boost a credit score.

Benefits

Asking a lender to put a student loan into forbearance will prevent defaulting on the loan in the short term if you are not already late on payments. More important than the few months of positive reporting data, you will not have negative marks from missing installment payments. In the meantime you can hopefully catch up on your bills, fix the issue causing you to need a forbearance or find new ways to earn money, or a combination of all three.

Time Frame

Borrowers with student loans should not use forbearance as a solution to any structural problems with their budgets or incomes. Lenders usually do not grant a forbearance lasting longer than a year. Also, during forbearance, the loan still incurs interest charges, and forbearance will lengthen the term of the loan or increase the monthly debt payment. You must prepare for one of these scenarios or you could miss payments once the forbearance ends, and your score might take a drop if default on the loan.

Tip

If you qualify for a forbearance, explore the option of a deferment. Deferment is like forbearance, but the lender puts off any payment indefinitely. To qualify, you usually have to be current on your payment plan and have some kind of hardship, such as losing a job or returning to school. In any case, you will almost assuredly have to pay back your loan at some point. Student loans are rarely discharged during bankruptcy, unless the borrower can prove they are an undue hardship, according to Nolo.