If you run into trouble paying your student loan, chances are you’ve been told to “just go on forbearance.” Here are five reasons that is a terrible idea in many cases:
- The client I just finished speaking with has had a few hardships in her life (health, divorces, low pay, disabled daughter etc.). When she called her servicer for help, she was told she could go on a forbearance. She’s been on many forbearances over the years. Her servicer never adequately explained her options. She could have taken advantage of an income based plan with ten year debt forgiveness because she was a teacher. She’s been a teacher for practically forever. She would owe zero right now if she’d known what to do. But instead her loan has ballooned from 23k to, wait for it, $126,000. It’s gone up 10x! And she has only three years until she retires, divorced with a disabled daughter. Do.Not.Trust.Your.Servicer.to.do.the.Right.Thing.
- You might ask, how does a loan go up 10 times from 23k to 126k? Easy, although this is one of the worst I’ve seen. The interest capitalizes every time the forbearance is renewed. This means the unpaid interest is added to the principal balance and now you owe interest on interest.
- If your forbearance isn’t renewed unexpectedly, or delayed, guess what, you probably go into default. When you default on a federal student loan, they add a 25% collection fee. If you default more than once, it’s another 25%, and another 25%, starting to get the picture?
- Why would a servicer want to just put the loan in forbearance anyway – your payment is zero – how does this benefit them? Well they are still getting servicing fees. And the balance you eventually have to pay is getting bigger.
- Forbearances are cheaper to process than time consuming Income Driven paperwork. Servicers can hire less people to service the loans.
- And finally, my favorite, the CFPB sued Navient and one of the allegations is that Navient’s customer service representatives are compensated, in part, based on how short they can keep their average call. (mike drop). Seriously, if proven, Navient pays their reps more to NOT explain options, and to get off the phone as quick as possible with as little work as possible. This is part of their pay structure!
So let’s recap. Forbearances can be good for short term events. But for chronic underemployment or chronic inability to pay, find a student loan attorney who can get you on the most appropriate income based plan for a reduced payment within your budget and debt forgiveness after a period of years. If you are a teacher, or other public service worker, you are leaving money on the table by not doing this. Forbearance can be bad b/c it increases the balance sometimes by huge amounts, it doesn’t lead to debt forgiveness, and it is being offered to you because it’s cheaper for the servicer to do that, rather than their jobs.
Please reach out to Arkovich Law. for help. Sign up for a free consult above. Or if you are in another state other than Florida, reach out to someone knowledgeable about student loans there.