How Does Student Loan Forbearance Affect Your Credit Score?

Economic uncertainty and a slow job market can make many people wonder if they’ll be able to keep making their student loan payments. If you’re worried about job security or if your company is announcing layoffs, you might want to start looking at your options for student loan forbearance.

With student loan forbearance, you can get a temporary form of debt relief. Forbearance allows you to pause payments on your federal student loans for 12 months at a time. But you have to apply for forbearance and get approved—it’s not automatic. 

Student loan forbearance could help relieve your budget. And best of all: It doesn’t hurt your credit score. 

Let’s look at the bigger picture of how student loan forbearance affects your credit score, how it works, and what you should do with extra cash while your student loans are in forbearance.   

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

How Student Loan Forbearance Works 

If you’re having trouble making payments on your federal student loans, or if you’ve experienced certain financial hardships or big changes in your life or career, you might be able to get forbearance. Here’s a quick rundown of how student loan forbearance works: 

How long can you get student loan forbearance for?

Student loan forbearance is meant to be a short-term student loan debt relief solution. With forbearance on federal student loans, your lender allows you to stop making payments for 12 months at a time, for a total of up to three years. This could free up cash in your monthly budget and help you get into a better financial position to keep up with your debts in the future. 

Student loan forbearance has several options

Federal student loans offer two types of forbearance: 

• General forbearance. You can apply for this type of relief if you have federal direct loans, Federal Family Education Loan (FFEL) program loans, or Perkins loans. You need a qualifying reason, such as financial difficulty, medical expenses, or changes in employment. Talk to your student loan servicer if you’re having trouble making federal student loan payments to find out if you qualify. 

• Mandatory forbearance. People who have federal direct loans or FFEL loans can apply for mandatory forbearance. This type of student loan debt relief is meant for people who meet specific criteria, such as serving in the National Guard or doing a medical or dental internship or residency. Teachers participating in certain loan forgiveness programs and Department of Defense workers may also qualify. You might also qualify if your student loan payment is unaffordable—reaching 20% or more of your gross monthly income. This last criteria applies to Perkins loan borrowers, too.  

If you have private student loans, talk to your lender about private student loan debt relief options. You probably won’t have the same number of flexible choices for student loan forbearance with a private lender. Federal student loan programs are more lenient. 

Student loan forbearance is not debt forgiveness 

Keep in mind that student loan forbearance isn’t student loan debt forgiveness. Your debt hasn’t gone away. Forbearance is meant to give you some breathing room while you find a new job or strengthen your finances. 

While your student loans are in forbearance, your loans will still accrue interest. If you don’t make any payments during your forbearance, your balance will grow. After your forbearance, you’ll still have to pay the full amount you owe, plus the additional interest.

You could avoid facing a bigger loan balance by paying at least the interest during forbearance.

Student loan forbearance won’t hurt your credit score 

Being able to pause your student loan payments can be a big relief, and a nice boost to your personal finances. For example, if you’re used to paying $400 a month in student loans, a forbearance could free up $400 a month for other goals. 

Another big benefit of student loan forbearance is that it shouldn’t hurt your credit score. That’s because student loan forbearance isn't the same as making a late payment. With forbearance, you've worked out a plan and gotten permission from your lender in advance. It won’t appear on your credit report. 

Federal student loans that are in forbearance are reported to the credit bureaus as being in good standing. The same should be true for private student loans—but be sure to check with your private student loan lender and ask how their forbearance plans work.

Now let’s look at what you should do while your student loans are in forbearance to make sure you come out on the other side in a stronger financial position. 

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How to Manage Money During Student Loan Forbearance 

Student loan forbearance is temporary, but it’s a great opportunity to make long-lasting improvements in your personal finances. Make a plan for how to take advantage of the lower monthly obligation. Here are two approaches to make the most of student loan forbearance:  

• Lost income. Student loan forbearance sometimes happens in the wake of a financial emergency, medical problem, or job loss. If you’re unemployed or your income was reduced, then the money you’re saving on student loan payments should cover necessities like rent, food, and utilities. Put anything left over into an emergency savings fund to pay for future basic needs until your income is restored.

• Steady income. Other people might be steadily employed, but choose to apply for student loan forbearance for other qualifying reasons. If you have enough income to cover your basic needs and don’t have to make student loan payments at the moment, you may be able to use this time to strengthen your financial situation and pay off some debt. 

Forbearance isn’t free money, but it could leave you with extra cash in your budget. Here are some ways you could make good use of your money during student loan forbearance.

1. Build a safety net

Twelve months (or more) of temporary debt relief could leave you with extra cash. Try to sock some money away in a savings account. 

If you can, work toward saving enough money to cover three to six months of basic living expenses. There’s a certain peace of mind in knowing you can weather a financial setback, and it provides a solid foundation for future financial goals.

2. Make payments on your student loan

Let’s say you find a great job six months into your forbearance. There’s no reason you can’t start making your loan payments ahead of time. If your emergency savings safety net is in place and you don’t have high-interest debt to pay down, consider paying your student loan even while it’s in forbearance. Even though you’re not required to make payments during forbearance, you can choose to. 

3. Get rid of high-interest debt

If you already have an emergency savings fund, then student loan forbearance might be a good chance to get rid of other debt, like high-interest credit cards. Here are four ways you could temporarily steer your student loan payments toward other debt.

Debt consolidation loan

A debt consolidation loan is a new loan that you use to pay off multiple smaller debts. It’s a way to reduce the number of payments you have to make. This could be a good strategy if you qualify for an interest rate that’s lower than what you pay now and you can afford a monthly payment.  

DIY debt payoff

If you can afford to pay something toward your debt during forbearance, decide which debt to pay off first. The debt avalanche method focuses on paying off the highest APR credit card first, even if it’s the biggest balance and the biggest monthly payment. The debt snowball method focuses on your smallest debt, to get you to your first payoff soonest.

Balance transfer card

Do you have credit card debt on multiple cards? If you have fair or better credit, you might qualify for a balance transfer credit card. This can be a good tool for making a dent in your debt during student loan forbearance, since forbearance won’t hurt your credit score. 

If you qualify, you could consolidate multiple credit cards onto a new credit card with an introductory 0% APR offer (typically for 6 to 18 months). Then, any money you pay toward that debt will be applied to your principal balance, not interest charges. (There’s typically a 3-5% fee for each balance transfer, which is often equal to about two months’ interest.) 

You might not be able to pay off the whole credit card balance during the 0% intro period. If that’s the case, your remaining balance will be subject to the card’s regular APR. Credit card APRs tend to be very high. Before you apply for a balance transfer card, put a plan in place for how to handle the remaining balance.

Debt settlement

If you genuinely can’t afford to fully repay your debts, even with student loan forbearance, you might need an extra level of help. 

When you’re in serious financial trouble, debt settlement could significantly reduce the overall amount you owe. 

In debt settlement, you or a professional debt settlement company negotiates with your creditors to reduce the amount you owe so you can get rid of your debt sooner than you would by making minimum payments.

What Not to Do With Your Student Loan Payments

During the forbearance period, try not to spend your student loan payment money on nonessentials. It may be tempting to think of this as extra spending money, but just because you’re not paying on your student loan right now doesn’t mean that debt goes away. 

It’s still sitting there, and it'll keep accruing interest. If you get used to spending that extra money in your budget on other things, it may be harder to resume making your student loan payments when the forbearance period ends.

To find out your other options to deal with your debts, talk to one of our Certified Debt Consultants. The consultation is free, and you can easily get started online now.