Forbearance Spotlight: Automatic Forbearance

There are some forbearances that are placed automatically.  These forbearances are placed so that it can keep the account current or bring the account current so that a particular thing that needs to happen can happen.  Examples of this are when an Administrative Forbearance is placed in order to keep the account current from the time an Income-Driven Plan is approved till the time the plan starts or with the General Forbearance it is often times placed if you are delinquent when Direct Debit is approved so that your account is up to date and will only pull your regular monthly payment.

You are able to request that these be removed from your account, but the results are often times against what you are searching for.  For example if you do it in the above examples you will have to make the higher payment you couldn’t afford until your repayment plan starts or make the past due payment that existed through Direct Debit.

Often times these forbearances are non-capitalizing.  What this means is that even though interest does accrue it will not be added to the principal balance and thus will not make future daily interest higher.  This is the case for the Administrative Forbearance or Collection Suspension Forbearance.  Sometimes forbearances placed automatically are not non-capping as in the example of the General Forbearance or Delinquency Forbearance, this is a capitalizing forbearance.

Now that you know the why for this let us move on to the what.  Here is a list of them for the sake of brevity:

Administrative Forbearance-placed on the account by servicer to give time for something that needs to be done outside the borrower’s control such as time between when IBR is processed and payment begins. .

Delinquency Forbearance-placed on the account when an account is delinquent and a new payment plan is approved. This forbearance brings the account current so that the new payment plan can begin.

Alignment of Repayment Forbearance-used to align borrower’s Stafford loans already in repayment with those that have not re-entered repayment yet to avoid having some loans in Deferment while others in Repayment. This is most common if borrower goes back to school and obtains new loans that would have grace period.

60 Day Collection Suspension Forbearance-this is used to collect information and supporting documentation to deferment, forbearance or Income Sensitive Repayment. This can be placed if additional info is needed to be requested from servicer.

Late School Notification Forbearance-this is used to cover delinquency if school does not update status in timely manner. For example if borrower graduates in May and school updates in June, six month grace begins in May. However if borrower graduates in May but school does not update till January, technically the borrower’s grace period should end in November making borrower delinquent. This forbearance is used to prevent such as situation.

Bankruptcy Forbearance-used to stop billing while servicer verifies borrower’s bankruptcy. While in bankruptcy, though loans are more times than not not discharged, your servicer will not (and legally cannot) attempt to collect from you as one of your creditors

Death Forbearance-used to stop billing until death of borrower is confirmed.

Transfer Forbearance-placed to bring account current if loan is made delinquent due to transfer. When a transfer occurs there is a time when a borrower cannot make payments because it is not fully in either servicers system. This forbearance keeps the loans current during that time period.

Want to know how an experienced loan counselor can help you?

see plans and pricing