Quick overview

Deferment and forbearance both give short-term relief from required monthly payments. The practical difference: deferment can prevent interest from accruing on specific federal loans (for example, subsidized federal loans during school), while forbearance typically allows you to pause payments but interest continues to build. That difference affects how fast your balance grows, whether interest capitalizes, and whether you keep progress toward loan forgiveness programs.

(For official rules see the U.S. Department of Education: https://studentaid.gov/.)

How deferment works

  • Eligibility: Deferment is a formal pause that the federal government and some private lenders offer for borrowers who meet specific conditions—returning to school, unemployment, economic hardship, military service, or certain rehabilitation programs. Each type of deferment has its own eligibility rules (U.S. Department of Education).

  • Interest treatment: For federal Direct Subsidized Loans and Subsidized Federal Family Education Loans (FFEL), interest is not charged during approved deferments. For unsubsidized federal loans and most private loans, interest continues to accrue during deferment and may capitalize (be added to principal) when the deferment ends (U.S. Department of Education).

  • Timing and paperwork: You must request deferment from your loan servicer and the servicer must approve it. It is typically documented in writing and has fixed start/end dates.

  • When deferment makes sense: If you have subsidized federal loans and qualify for deferment (for example, returning to school or documented economic hardship), deferment can save you money because the government pays the interest during eligible periods.

How forbearance works

  • Types: There are several forms of forbearance. Lender (or discretionary) forbearance is granted at the servicer’s discretion. Mandatory forbearance is required when a borrower meets specified conditions. Administrative or emergency forbearances can be applied for short-term crises (Consumer Financial Protection Bureau).

  • Interest treatment: Interest accrues on all loans during forbearance—federal and private. If you don’t pay the interest while in forbearance, that interest typically capitalizes at the end, increasing your principal and future interest costs.

  • When forbearance makes sense: Forbearance is useful for short-term cash-flow emergencies—unexpected medical bills, a brief job gap, or temporary loss of income—when you cannot make any payment at all. Use it intentionally and with a plan to resume payments quickly.

Pros and cons — practical comparison

Pros of deferment

  • Can stop interest for eligible subsidized federal loans (saves money).
  • Does not require immediate cash to cover interest.
  • Well-defined eligibility that can protect borrowers in school or specific hardship.

Cons of deferment

  • Many loans (unsubsidized federal and most private loans) will still accrue interest.
  • Not all borrowers qualify.

Pros of forbearance

  • Easier and faster to obtain in many cases.
  • Gives immediate cash-flow relief.

Cons of forbearance

  • Interest accrues on all loans—leads to faster balance growth and possible capitalization.
  • Time in forbearance generally does not count toward forgiveness programs like Public Service Loan Forgiveness (PSLF) or toward qualifying payments under income-driven repayment (IDR) plans.

(See more on how forbearance affects forgiveness at the U.S. Department of Education and the CFPB: https://studentaid.gov/ and https://consumerfinance.gov/.)

Real-world examples

  • Deferment example: A borrower who returns to graduate school qualifies for an in-school deferment on eligible federal loans. Their subsidized loans do not accrue interest during enrollment, keeping their balance stable until graduation.

  • Forbearance example: A borrower loses a job and requests a six-month discretionary forbearance to avoid default. Interest accrues during the forbearance; when payments resume, the unpaid interest capitalizes and increases monthly payments.

Effects on loan forgiveness and repayment programs

  • Public Service Loan Forgiveness (PSLF): Periods in deferment or forbearance generally do not count as qualifying payments toward PSLF because qualifying payments must be made under a qualifying repayment plan and actually paid. Exceptions are rare and specific—always verify with your servicer and the federal guidelines.

  • Income-Driven Repayment (IDR) plans: Months where you are not making qualifying payments because of deferment/forbearance usually do not count toward IDR forgiveness. In some administrative cases, the Department of Education may grant credit; do not assume it happens automatically (U.S. Department of Education).

Tax effects of deferment and forbearance

  • Deductibility of interest: The student loan interest deduction (Form 1040 line related rules) lets eligible taxpayers deduct up to $2,500 of qualified student loan interest paid during the year, subject to income limits and phaseouts (Internal Revenue Service). Interest that accrues during forbearance or deferment is not deductible until you actually pay it. If interest capitalizes and you later pay that interest, you may be able to claim a deduction in the year you paid it, subject to IRS rules.

  • Reporting: Lenders typically send Form 1098-E to borrowers who paid $600 or more in interest during the year, but the deduction can still be claimed even if no form is issued. Keep payment records and year-end statements (IRS: Student Loan Interest Deduction).

  • Special programs and taxability: Occasionally, a lender or third party might pay interest during a relief period. Most of the time, the payer may issue a Form 1099 if required—consult a tax advisor. The IRS rules can change, so verify current guidance at https://www.irs.gov/.

Private loans vs federal loans

  • Federal loans: Deferment and forbearance options are well defined by the Department of Education, and eligibility categories are standardized across federal servicers (U.S. Department of Education).

  • Private loans: Policies vary by lender. Some private lenders offer forbearance or hardship plans, but true deferment with interest subsidy is unusual. Always get terms in writing and ask whether interest will accrue and whether it will capitalize.

(For private loan handling, see our related guide: Managing Private Student Loans During School Deferment.)

Steps to decide and apply

  1. Review your servicer’s options: Log in to your federal loan account at https://studentaid.gov/ or contact your private servicer.
  2. Check eligibility: For subsidized loans, deferment may save interest; for short-term emergencies, consider forbearance.
  3. Ask about interest capitalization: Will unpaid interest be added to principal? When?
  4. Request terms in writing: Confirm start and end dates, whether payments are reduced or paused, and whether months count for forgiveness.
  5. Consider alternatives: An IDR plan or consolidation may be better for long-term affordability and to preserve forgiveness progress—see Income-Driven Repayment Plans: Choosing the Best Fit for Student Loans.
  6. If possible, pay at least interest: Making interest-only payments during a pause prevents capitalization and saves money in the long run.

Checklist for contacting your servicer

  • Ask whether your loans are federal or private and which type (Direct Subsidized/Unsubsidized, Perkins, FFEL, private).
  • Confirm whether the period will accrue interest and whether interest will capitalize.
  • Ask whether the paused months will count toward PSLF or IDR forgiveness.
  • Request a written confirmation of the forbearance/deferment terms and timeline.
  • Keep copies of all communications and confirmation numbers.

Common mistakes to avoid

  • Assuming all deferments stop interest for every loan type.
  • Failing to get terms in writing from a private lender.
  • Relying on forbearance as a long-term strategy—interest growth can make repayment much harder.

Final recommendations (expert perspective)

In my financial-planning practice, I recommend prioritizing options that minimize long-term cost and preserve progress toward forgiveness. If you qualify for deferment on subsidized federal loans, that is usually better than forbearance because it prevents interest from accruing. If you cannot qualify and must use forbearance, treat it as a true short-term stopgap: set a plan to resume payments, consider making interest-only payments, and explore IDR plans or consolidation as longer-term solutions.

Where to get authoritative help

Disclaimer: This article is educational only and does not constitute personalized financial, tax, or legal advice. Rules and dollar limits change; consult your loan servicer or a qualified tax or financial advisor for guidance specific to your situation.

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