Does a Student Loan Forbearance Affect Your Credit?

Student loan forbearance offers a temporary pause in required payments for borrowers experiencing financial difficulties. This arrangement provides relief, allowing individuals to stabilize their finances. Understanding how this temporary suspension interacts with a credit report and score is important. This article aims to clarify the specific ways student loan forbearance is reflected on credit reports and its implications for credit standing.

Understanding Student Loan Forbearance

Student loan forbearance is a period when a borrower’s monthly student loan payments are temporarily suspended or reduced. This option is granted for specific reasons, such as financial hardship, significant medical expenses, or unemployment. For instance, federal student loan borrowers may qualify for general forbearance due to financial difficulties or changes in employment, or mandatory forbearance for situations like medical internships or a high debt-to-income ratio.

While payments are paused, interest continues to accrue on the loan balance, increasing the total amount owed over time. Forbearance is a temporary measure, lasting up to 12 months at a time. It is important to remember that forbearance is not a form of loan forgiveness; the borrower remains responsible for repaying the full loan amount, including any accrued interest, once the forbearance period ends.

Credit Reporting of Forbearance

When a student loan is properly placed into forbearance, its status is reported to credit bureaus as “account in forbearance,” “deferred,” or “payment paused.” This specific marking indicates that payments are temporarily suspended by agreement with the loan servicer. Unlike a missed or late payment, a correctly reported forbearance is not considered a negative event on a credit report.

A loan in forbearance remains an open and active account on the credit report, but with a status reflecting the temporary payment arrangement. As long as the forbearance is granted and managed according to the agreed-upon terms, it does not directly lower a credit score. Student loans remain in good standing on credit reports during forbearance periods.

Additional Credit Considerations

While forbearance itself does not negatively impact credit when properly managed, other factors surrounding the forbearance period can still influence an individual’s credit standing. If a student loan account was already delinquent or in default before entering forbearance, those existing negative marks will remain on the credit report and continue to affect the credit score.

Upon the conclusion of a forbearance period, borrowers must either resume regular payments or arrange an alternative repayment plan. Missing payments after forbearance ends will lead to delinquency, which is reported to credit bureaus, typically after 90 days, and can harm credit scores. Such delinquencies can stay on a credit report for up to seven years and negatively impact future access to credit.

Credit scores are also influenced by a range of other factors, including credit utilization and the overall length of credit history. Credit utilization, which is the amount of revolving credit used compared to the total available, accounts for a significant portion of credit scores, often around 30%. Even if forbearance itself is neutral, an increase in credit card balances or other debt during the forbearance period could indirectly affect the credit score by altering the credit utilization ratio.