Overview

Forbearance and deferment are short-term relief tools that can prevent missed payments when you face hardship. In my 15 years helping clients manage student debt, I’ve seen both tools deliver urgent relief—and also create lasting cost increases when used without a plan.

Key differences

  • Interest during the pause: Interest accrues on virtually all loans during forbearance. With federal subsidized loans, the Department of Education pays interest during specific deferments (for example, in-school deferment) but unsubsidized federal loans and most private loans keep accruing interest (U.S. Department of Education — StudentAid.gov).
  • Capitalization: Unpaid interest that accumulates during forbearance or deferment can be capitalized (added to principal) when the pause ends, increasing future interest charges.
  • Eligibility and timing: Forbearance is commonly approved for financial hardship, illness, or other short-term struggles. Deferment is available for specific situations (in-school status, active military service, some economic hardship programs) and depends on loan type.
  • Credit reporting: Entering an authorized forbearance or deferment generally does not directly damage your credit if your loan remains current; however, missed or late payments reported before relief can hurt your score (Consumer Financial Protection Bureau — CFPB).

Long-term consequences to watch

  • Higher total cost: Interest that accrues during a pause raises your outstanding balance. Example: a $30,000 loan at 5% accrues roughly $1,500 in interest over a 12-month forbearance—money you’ll still owe unless paid while paused.
  • Longer payoff time: Capitalized interest increases monthly payments or lengthens the repayment term if you keep the same monthly payment.
  • Forgiveness and repayment credit: Months spent in forbearance or deferment usually do not count toward programs that require qualifying payments (such as Public Service Loan Forgiveness or time-based income-driven forgiveness) unless you continue to make qualifying payments under those programs. Check the latest rules on StudentAid.gov for specifics.
  • Opportunity cost: Paying interest while paused means less money available to pay down principal, refinance, or invest—costs that compound over time.

Practical examples (short)

  • Forbearance: You pause payments for 6 months due to temporary income loss; interest accrues and capitalizes, boosting your principal and monthly payment when repayment resumes.
  • Deferment (subsidized federal loan): You return to school and enter in-school deferment; the government pays interest on subsidized loans during this time, keeping your principal steady (StudentAid.gov).

Who should consider each option

  • Forbearance is appropriate for short-term crises when you cannot make payments and have no better alternative. Avoid using it repeatedly without a clear exit plan.
  • Deferment is preferable when you qualify (in-school, active military, certain economic hardship programs) and you have subsidized federal loans, because it may preserve your principal.
  • Explore alternatives first: income-driven repayment (IDR) plans, temporary extra income, refinancing (for private loans), or making interest-only payments during the pause.

Professional tips

  1. Review loan types: Identify which loans are subsidized or unsubsidized and whether they’re federal or private. That determines interest rules and eligibility for deferment.
  2. Ask your servicer about capitalization rules: Confirm whether unpaid interest will capitalize and when—timing matters for cost. See our related guide on how interest accrues during forbearance for details: how interest accrues during forbearance.
  3. Make interest-only payments if possible: Paying accrued interest while paused prevents capitalization and reduces total cost.
  4. Preserve forgiveness eligibility: If you’re pursuing PSLF or IDR forgiveness, verify whether your relief period counts toward qualifying payments before opting for forbearance or deferment. Our primer on student loan deferment explains common deferment scenarios and their effects.
  5. Consider consolidation carefully: Consolidating can reset interest and affect forgiveness timelines—get personalized advice before consolidating.

Next steps and authoritative resources

  • Compare options and document communications with your loan servicer. Keep copies of approval letters and terms.
  • Check federal program rules and the latest guidance at StudentAid.gov (U.S. Department of Education) and review consumer protections at the Consumer Financial Protection Bureau (CFPB).

Sources and disclaimer

Information here is drawn from federal guidance and consumer protection resources (StudentAid.gov; ConsumerFinance.gov/CFPB). This article is educational and does not replace personalized financial or legal advice. For decisions that affect your long-term finances, consult a licensed financial planner or your loan servicer for guidance tailored to your situation.

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