Does Applying for a Student Loan Forbearance Cause Your Credit Score to Drop?

Making student loan payments can be very difficult for borrowers who have financial hardship. Lenders offer a few options, including repayment plans based on your income, or in extreme cases, forbearance. When you apply for forbearance, the lender evaluates your situation and determines whether it is willing to temporarily reduce the amount of your loan payments due or suspend payments.

Forbearance Status

Having a student loan in forbearance status does not affect your credit score at all. There is nothing in the credit score formula that accounts for whether a loan is in forbearance. In fact, part of the point of forbearance is to allow you to stop making payments without hurting your credit score. Therefore, if you need forbearance, do not hesitate to apply. Keep making payments on your student loan as scheduled between when you apply and when you receive confirmation that your forbearance has been granted. Missed payments during this time will hurt your credit score.

Related Factors

In most cases, you apply for forbearance when you cannot afford to make your student loan payments. This might be because of unemployment, severe financial hardship or medical problems. If you have missed any student loan payments before applying for forbearance, these will appear on your credit report and cause your credit score to drop. Your credit score might also drop if you used a high percentage of your available credit on credit cards to help make ends meet while you were making student loan payments before forbearance.

Loan Balance

The one way in which a forbearance might cause your credit score to decrease slightly is through the part of your score that considers the balances you owe. Not only do the absolute balances count, but also the current balance in relation to the amount you initially borrowed. Because interest accrues on your loan during forbearance, this will increase the amount you owe, which could slightly decrease your credit score.

Tips

When you are truly unable to keep making your student loan payments, forbearance will give you some breathing room while you get your finances in order. It is convenient that you can do this without damaging your credit. However, forbearance is not a long-term solution. You will need to get a better job, cut your discretionary spending or reduce your living expenses so you can eventually repay your debt. If you have federal student loans, look into repayment plans based on your income or occupations that offer full or partial loan forgiveness.