Quick overview

Forbearance and deferment are short-term relief options that stop required monthly payments when you can’t pay. The key difference is how interest behaves and how time in relief counts toward forgiveness programs: interest almost always continues in forbearance, while deferment can stop interest from accruing on certain federal loans (notably Direct Subsidized Loans). That difference affects the loan balance, future monthly payments, and whether the period helps — or hurts — long-term forgiveness goals.

How interest accrues in forbearance vs deferment

  • Forbearance: Interest continues to accrue on federal and private student loans during forbearance. Accrued interest can capitalize (be added to the principal) at the end of the forbearance or at the first billing cycle after relief ends. That raises your principal and increases future interest.

    Example: A $10,000 loan at 5% interest accrues about $41.67 per month in interest. Six months of forbearance adds roughly $250 of unpaid interest. If that unpaid interest capitalizes, your new principal becomes $10,250; future interest is charged against the higher balance.

  • Deferment: For federal Direct Subsidized Loans, the Department of Education pays interest during deferment periods that meet eligibility rules (in-school deferment, certain economic hardship deferments, etc.). For Direct Unsubsidized Loans and most private loans, interest still accrues during deferment and may capitalize later.

Authoritative source: U.S. Department of Education student aid guidance explains which loan types receive interest subsidy during deferment and how interest capitalization works (see studentaid.gov). For a deeper explanation of how unpaid interest is calculated during forbearance, see this FinHelp glossary: “How Accrued Interest Is Calculated During Loan Forbearance” (https://finhelp.io/glossary/how-accrued-interest-is-calculated-during-loan-forbearance/).

Effects on loan forgiveness and repayment counts

  • Public Service Loan Forgiveness (PSLF): Generally, only qualifying payments made under an eligible repayment plan while working for a qualifying employer count toward PSLF. Time spent in forbearance or deferment does not count as qualifying payment months unless you are making qualifying payments (for example, some payments under an Income-Driven Repayment (IDR) plan will count). Always verify with your loan servicer and the PSLF Help Tool on studentaid.gov.

  • Income-Driven Repayment (IDR) forgiveness: IDR forgiveness requires a set number of qualifying monthly payments (usually 20–25 years depending on the plan). Months spent in deferment or forbearance normally do not count as qualifying payments because you are not making scheduled payments. The exception is if you are placed in a repayment plan that counts (for example, you can make zero-dollar IDR payments that still count as qualifying in some circumstances). Check the rules for your IDR plan and confirm with your servicer.

For additional analysis of how forbearance can affect long-term forgiveness and interest, see FinHelp’s article: “How Forbearance Affects Long-Term Forgiveness and Interest Accrual — Student Loans” (https://finhelp.io/glossary/how-forbearance-affects-long-term-forgiveness-and-interest-accrual-student-loans/).

Who is eligible and when each is appropriate

  • Forbearance is often used when you have a short-term cash shortfall: temporary job loss, medical bills, or other short-term hardship. Federal loan servicers can grant discretionary or mandatory forbearance. Private lenders may offer forbearance or alternative payment options, but rules vary.

  • Deferment is available for specific qualifying circumstances: returning to school at least half-time, active military service, certain types of economic hardship, or employment in public service in a limited set of cases. Deferment eligibility rules depend on loan type and program; federal subsidized loans are the most likely to receive an interest subsidy during deferment.

Actionable tip from experience: I usually encourage borrowers who qualify for deferment on subsidized federal loans to take that option first. It’s cheaper than forbearance because the government may pay interest on your behalf.

Private loans behave differently

Private student loans are contract-based. Whether interest pauses, capitalizes, or whether payments count toward forgiveness depends entirely on your promissory note and the lender’s hardship policies. Many private lenders will offer temporary forbearance or modified payment plans, but they rarely subsidize interest. Call your lender early and ask for written terms.

Interest capitalization and long-term cost: a closer look

Capitalization is the single biggest hidden cost when you pause payments.

  • What is capitalization? It’s when unpaid accrued interest is added to the principal balance, so you pay interest on interest going forward.

  • When does it happen? Capitalization usually happens when a deferment or forbearance ends and repayment resumes. Certain repayment actions (like leaving an income-driven plan or consolidating) can also trigger capitalization.

Simple math example: $10,000 principal, 5% APR, no payments for 12 months. Unpaid interest = $10,000 × 0.05 × 1 = $500. After capitalization, new principal = $10,500. If you had a 10-year standard plan, monthly payments increase because the amortization is now on $10,500 instead of $10,000.

To learn more about capitalization mechanics and timing, see FinHelp’s guide: “How Interest Capitalization Works During Forbearance” (https://finhelp.io/glossary/how-interest-capitalization-works-during-forbearance/).

Strategy checklist: minimize cost and protect forgiveness

  1. Check loan types first. If you have Direct Subsidized Loans and qualify for deferment, that often beats forbearance.
  2. Talk to your servicer before you stop payments. Ask how accrued interest will be handled and whether the period will count toward any forgiveness or repayment program.
  3. Consider making interest-only payments during forbearance to avoid capitalization. Even small payments reduce the amount that gets added to principal.
  4. If you want to preserve PSLF or IDR qualifying time, avoid long forbearances. Explore alternatives like switching to an IDR plan (which may lower scheduled payments) or pursuing temporary reduced-payment plans.
  5. Be careful with consolidation. Consolidating non-Direct federal loans into a Direct Consolidation Loan can change forgiveness eligibility and may reset the clock on qualifying payments for PSLF.

From professional practice: a common win is converting a high-rate unsubsidized loan into an IDR plan and making low monthly payments rather than entering discretionary forbearance — this preserves qualifying payment counts and avoids long interest accrual.

Steps to apply and documentation to keep

  1. Contact your loan servicer (federal loans) or private lender immediately by phone and follow up in writing.
  2. Ask for the exact relief being offered, whether interest will accrue, and whether unpaid interest will capitalize — get dates and terms in writing.
  3. Request a written confirmation showing the start/end dates of forbearance or deferment and whether the period counts toward forgiveness programs.
  4. Keep copies of emails, letters, and any forms submitted to the servicer. Document the name of the representative and the time of the call.

Common mistakes to avoid

  • Accepting forbearance without understanding capitalization rules.
  • Assuming a payment pause counts toward PSLF or IDR forgiveness — it usually doesn’t.
  • Not asking whether accrued interest will be subsidized (for deferment) or capitalized (for either option).
  • Failing to get terms in writing from your loan servicer or private lender.

FAQ (short)

  • Will deferment always stop interest? No. Only certain federal loans (primarily Direct Subsidized Loans) have interest paid by the government during eligible deferments. Unsubsidized federal loans and most private loans will continue to accrue interest.

  • Does time in forbearance count for PSLF? Generally no — PSLF counts qualifying payments made while working full time for a qualifying employer under an eligible repayment plan. Confirm with your servicer.

  • Can I make payments during forbearance? Yes. Making interest-only or minimum payments while in forbearance can prevent capitalization and reduce long-term cost.

Bottom line (practical takeaway)

Forbearance and deferment provide short-term relief but differ in financial impact. Deferment can be materially cheaper if it triggers an interest subsidy for federal subsidized loans. Forbearance is easy to get in many hardship situations but almost always increases the amount you owe over time unless you pay accruing interest. If you’re pursuing loan forgiveness, avoid long stretches of forbearance and get clear, written confirmation from your servicer about what counts toward forgiveness.

Authoritative sources & further reading

Professional disclaimer: This article is educational and reflects general rules as of 2025, plus insights from 15+ years advising borrowers. It is not individualized legal, tax, or financial advice. Contact your loan servicer or a qualified advisor for guidance tailored to your situation.