Hardship program

I. What is a hardship program?

A hardship program is a temporary arrangement between a lender and a borrower that modifies loan terms to help the borrower get through a period of financial difficulty. Common triggers include job loss, medical emergencies, divorce, or natural disasters. These are situations where a borrower's ability to repay has changed, but their intent to repay hasn't.

From a lender's perspective, hardship programs are a collections strategy as much as a customer service tool. Keeping a struggling borrower engaged and repaying at a reduced rate typically produces better outcomes than pushing them toward default. The math usually works in the lender's favor.

II. Types of hardship programs lenders offer

Lenders have flexibility in how they structure these programs. The most common options include:

• Payment deferral: Missed or paused payments move to the end of the loan term, keeping the account current without requiring immediate repayment
• Payment reduction: Borrowers temporarily pay a lower amount, often interest-only or a fixed reduced sum, until they can resume normal payments
• Interest rate reduction: The interest rate drops temporarily, lowering the cost of carrying the debt during the hardship period
• Fee waiver: Late fees, over-limit fees, or other penalties are waived to reduce the borrower's burden
• Loan modification: Loan terms are restructured more permanently, such as extending the repayment period to lower the monthly payment amount
• "Pay what you can" programs: Borrowers choose their own payment amount within a defined range for a set period before returning to their standard schedule

The right structure depends on the lender's risk tolerance, the borrower's situation, and the type of credit product involved. Installment loans, lines of credit, and credit cards each have different mechanics for implementing these changes.

III. What is a hardship repayment plan?

A hardship repayment plan is a structured arrangement that helps borrowers who have already fallen behind catch up on missed payments over time. Rather than requiring the full past-due amount upfront, the lender adds a portion of the overdue balance to each future payment until the account is current again.

This differs from a deferral or modification. The borrower is repaying what they owe, just on a more manageable schedule. Repayment plans are often used after a short-term hardship period ends and the borrower is ready to re-engage.

IV. Hardship program vs. forbearance

The terms are often used interchangeably, but there is a distinction worth understanding. Forbearance typically refers to a legally defined or formally structured pause in payments, sometimes mandated by law. Examples include the protections required under the Servicemember Civil Relief Act (SCRA) or the standardized treatment of federal student loans. For a deeper look at forbearance specifically, see LoanPro's forbearance glossary entry.

A hardship program is broader. It can include forbearance, but it can also include rate reductions, fee waivers, modified payment schedules, and other arrangements that go beyond simply pausing payments. Hardship programs are typically designed and offered at the lender's discretion rather than required by law.

In practice, a lender's hardship program might use forbearance as one tool within a larger set of options depending on the borrower's situation.

V. How lenders launch and automate hardship programs

The biggest operational challenge for lenders isn't deciding to offer hardship programs. It's executing them at scale. Modifying payment schedules, recalculating interest, sending compliant communications, tracking enrollment, and logging every change for audit purposes across thousands of accounts requires infrastructure that many legacy systems simply weren't built to handle.

Modern loan servicing platforms solve this through configurable automation. Instead of manual account-by-account updates, lenders can build business logic that identifies qualifying borrowers, enrolls them in the appropriate program, updates account terms, sends personalized communications for borrower consent, and logs every action with a full audit trail, all automatically.

When COVID-19 hit, Best Egg used LoanPro to launch two complementary hardship programs within two weeks. Borrowers could enroll via IVR in a skip payment program, then transition to a "Pay What You Can" model for six months before resuming normal payments. Defaults stayed low, and Best Egg went on to earn back-to-back top-10 spots in the J.D. Power consumer lending satisfaction rankings.

For lenders looking to build that kind of flexibility into their own operation, the LoanPro collections suite and this guide to building hardship and repayment programs are good starting points.