Forbearance
Candlefocus EditorForbearance is commonly used for mortgages, student loans, and business loans. It is generally available when the borrower has missed payments, is unable to make payments, or is otherwise in financial distress. A borrower must typically meet certain conditions to qualify for forbearance, such as having a decreased income due to a medical emergency, job loss, or other hardship.
The terms of a forbearance agreement are typically negotiated between the borrower and the lender. In addition to temporarily suspending payments for a period of time, the lender might agree to change the payment amount or extend the loan term. Typically, interest will continue to accrue on the loan balance during the forbearance period and the borrower is responsible for paying it back in the end.
Forbearance is not the same as loan forgiveness. Although both can provide relief on monthly loan payments, only forgiveness eliminates the debt entirely. Therefore, it is important to understand the difference between forbearance and loan forgiveness. In the case of federal student loans, borrowers have the option of either forbearance or deferment.
In the wake of the coronavirus pandemic, many lenders have implemented expanded forbearance programs to help borrowers whose financial situation has been adversely impacted. Mortgagors whose loans are backed by government programs may qualify for special relief. In addition, the Biden Administration extended the federal student loan forbearance period for borrowers affected by COVID-19 until either 60 days after June 30, 2023, or 60 days after litigation blocking President Biden's student loan forgiveness program is resolved, whichever is earlier.
Forbearance can provide a lifeline for borrowers who are struggling to make payments, but it is important to understand the terms and conditions before entering into an agreement. While the respite from a forbearance agreement can provide temporary relief, it is ultimately just a stopgap. Borrowers must have a plan in place to make up any missed payments in the end and remain in good standing with the lender.