A forbearance is a temporary postponement of your student loans. It allows you to place making any payments on hold for a period of time as specified by the lender. Interest will continue to accrue while in a forbearance, which means it will increase the total amount that you owe on the debt. If you have or are considering getting a forbearance, it's helpful to understand if this forbearance will affect your credit score.
FICO Scores
Your FICO credit score is based upon the credit information contained within your credit report. The score measures your overall level of debt, which makes up 30 percent of your score, and your payment history, which makes up 35 percent. The other key variables are the mix of credit types present on the report and how much new credit you've recently applied for, with each representing 10 percent of the score. The final 15 percent of the score is determined by the length of your credit history.
Significance
A forbearance is not reported to the credit bureaus by the lender. It is a postponement of the loan and not a default. The lender reports the loan as paid as agreed while you're in forbearance. Having a loan in forbearance does not affect your credit score. However, the fact that the interest on the loan continues to accrue and will be added to the total loan amount increases the total amount of debt that you owe. This could lower your score. On the other hand, a loan in forbearance can help your score by preventing late payments if you are unable to make your student loan payments on time. One 30-day late payment can drop a FICO score by up to 110 points.
Considerations
To apply for a forbearance, you will have to contact your lender and complete the necessary paperwork. Different lenders may have different qualifying criteria. However, a forbearance is generally granted if you experience unforeseen personal problems, including poor health; the monthly payment on your student loan exceeds 20 percent of your monthly income; or you are unable to repay the loan within the maximum repayment term, which is usually 10 years. A forbearance is granted for a limited time period, usually no more than one year.
Warning
Once a forbearance expires, you are required to take steps necessary to keep your loans in a current status. A default on the loan can lead to a garnishment of up to 15 percent of your wages by the Department of Education (DOE). The DOE does not have to sue you first before initiating the wage garnishment. The DOE can also seize your federal tax returns, add collection costs to the debt and seize up to 15 percent of federal benefits that you receive.
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