When a borrower has taken out multiple loans but is now struggling to make payments, several options can help make debts easier to manage. One of these options is known as debt forbearance. In many cases, debt forbearance is only an option for private debt such as a mortgage. But for student loans, a common cause of debt problems among those recently graduated, there is an excessive debt option that also allows for a forbearance, provided that qualifications are met.
A forbearance is a temporary change to the terms of the loan structure. In a forbearance, the lender stops requiring mortgage payments for a period of time, usually a year. This gives the borrower a chance to pay off other debts, reach a more stable income level, create a budget and generally improve financial circumstances. When the loan payments are required again, the borrower should be in a position to make payments without further trouble, and both the borrower and lender profit.
Excessive Debt Definition
Student loans are often government loans or at least government subsidized, so typical forbearances are not applicable to them as high-priority debt. However, government-based organizations like Sallie Mae have created provisions for forbearance if students show that they have excessive debt. This is debt that, in total, either equals or exceeds 20 percent of the borrower's total monthly income. Of course, this means that the student or other party responsible for the loan must show proof of monthly income, such as wage statements, but it does provide a useful loophole for those truly struggling.
The excessive debt forbearance law helps those with student loans in particular, but it also helps those with any Title IV loan, and additional laws add that lenders must grant borrowers forbearance in certain cases. For instance, students in an internship or residency qualify if they cannot get any other type of deferment. Those eligible for the child car provider loan forgive program, the teacher loan forgiveness program, and several other programs also qualify for this forbearance regardless of debt.
Students and others interested in qualifying for the excessive forbearance allowance must fill out a standard form requesting it. This form is relatively simple, requiring answers to simple questions regarding economic hardship, received income and other questions. The form also includes an agreement that the information provided is true, that the borrower really cannot make schedule payments, and that the borrower will inform lenders concerning any new information.