Quick overview

Accrued interest during forbearance is the interest that accumulates while you’re not making your full contractual payments. It matters because unpaid accrued interest can either be billed when forbearance ends or capitalized (added to your principal), which increases future monthly payments and total interest paid over the life of the loan.

This article explains how lenders calculate that interest, shows step-by-step examples (including daily vs. monthly accrual), describes when interest may capitalize, and gives practical strategies to reduce the cost. Sources include the U.S. Department of Education (StudentAid.gov) and the Consumer Financial Protection Bureau (CFPB) (see links below).

How lenders usually calculate accrued interest

There are two common approaches lenders use to compute interest during forbearance:

  1. Daily (simple) interest accrual — most consumer loans, student loans, and mortgages calculate interest daily: Interest Accrued = Principal × (Annual Rate ÷ 365) × Number of Days in Forbearance. Some servicers use 360 days instead of 365; the loan contract will say which.

  2. Monthly approximation — some calculations use monthly periods for simplicity: Interest Accrued = Principal × (Annual Rate ÷ 12) × Number of Months. This is an approximation and can differ slightly from daily accrual.

Always check your loan contract or ask your servicer which method they use.

Example — daily accrual (most accurate)

  • Principal: $10,000
  • Annual interest rate: 5.00% (0.05)
  • Forbearance length: 90 days

Daily interest rate = 0.05 ÷ 365 = 0.0001369863

Accrued interest = $10,000 × 0.0001369863 × 90 ≈ $123.29

Note: A previous example that used the monthly formula but reported $12.50 for three months was incorrect; correct monthly calculation for 3 months is $10,000 × 0.05 ÷ 12 × 3 = $125.

Example — monthly approximation

  • Principal: $20,000
  • Annual interest rate: 6.0% (0.06)
  • Forbearance length: 6 months

Accrued interest = $20,000 × (0.06 ÷ 12) × 6 = $600

Both methods are straightforward: the daily method is more precise; the monthly method is a close approximation that lenders sometimes present on statements.

When does interest capitalize and why that matters

Interest capitalization is the process of adding unpaid accrued interest to the loan principal. After capitalization, future interest accrues on the higher principal, increasing monthly payments and total interest paid. Common capitalization triggers include:

  • End of forbearance or deferment when the servicer adds unpaid interest to principal (check your servicer’s terms).
  • Consolidation or refinancing of loans.
  • Transition from an interest-only or deferred repayment plan to a standard repayment plan.

Federal student loans have specific rules for capitalization; timing and frequency of capitalization depend on the loan program and the type of relief used (see StudentAid.gov on capitalization). For mortgages and private loans, servicer policies vary; some may offer repayment plans that avoid immediate capitalization but extend the loan term instead (see CFPB guidance).

Related reading: How interest capitalization works during forbearance (FinHelp) and Steps to resume payments after student loan forbearance (FinHelp).

Real-world scenarios and their long-term impact

Scenario A — Unpaid interest added to principal (capitalization)

  • Loan: $20,000 student loan at 6% annual
  • Forbearance: 6 months
  • Accrued interest (monthly formula): $20,000 × 0.06 ÷ 12 × 6 = $600

If that $600 capitalizes, new principal becomes $20,600. If you return to the original repayment term, your monthly payment and the total interest you pay over the remaining term both increase.

Scenario B — Borrower pays interest during forbearance

If you can afford interest-only payments while in forbearance, you will avoid capitalization and keep your principal unchanged. For the $20,000 example at 6% for 6 months, paying $100 per month (approximately) would prevent $600 of interest from compounding.

Differences: federal vs. private loans

  • Federal student loans: Policies can vary by program. During certain relief periods (for example, the COVID-19 payment pause that ended 8/31/2023), the federal government temporarily stopped interest accrual for borrowers. That pause is over; for most federal loans interest accrues now and unpaid interest may capitalize in line with Department of Education rules (StudentAid.gov). See StudentAid.gov for the latest program-specific rules.

  • Private student loans and other private consumer loans: Servicer policies differ. Most private loans continue to accrue interest during forbearance and will capitalize unpaid interest unless you make interest payments. Carefully review your promissory note and ask the servicer how they will handle accrued interest.

  • Mortgages: Mortgage forbearance (including CARES Act protections for federally backed mortgages during COVID) typically paused payments but did not stop interest from accruing in many cases. Servicers may offer repayment options that avoid immediate capitalization (loan modification, repayment plan), but rules differ by servicer and mortgage program. See CFPB guidance on forbearance options and mortgage servicer requirements (ConsumerFinance.gov).

Authoritative sources: U.S. Department of Education — Federal Student Aid (StudentAid.gov) and the Consumer Financial Protection Bureau (CFPB) (consumerfinance.gov).

How accrual affects amortization and total interest

When accrued interest capitalizes, two things happen:

  1. Principal increases, so each future payment includes interest calculated on a higher balance.
  2. Over the remaining term, you will typically pay more total interest because interest compounds on the larger balance.

Short example — effect on monthly payment (simplified):

  • Original principal: $20,000, 10-year remaining term, 6% interest → monthly payment ≈ $222.04
  • After $600 capitalization → principal = $20,600; same 6% and 10-year term → new monthly payment ≈ $228.71

That’s a roughly $6.67 increase per month and more total interest across the life of the loan.

Practical steps to limit accrued interest costs

  1. Ask your servicer exactly how interest will be calculated during forbearance and when capitalization will occur. Confirm this in writing.
  2. Make interest-only payments during forbearance if you can — paying the accrued interest avoids capitalization.
  3. Negotiate alternative repayment options before forbearance ends (e.g., extended term without capitalization, repayment plan). Document agreements.
  4. Consider refinancing after repayment resumes if you can get a lower interest rate and better terms — but weigh the trade-offs (loss of federal loan protections, forgiveness eligibility).
  5. Keep records and dates — track start and end dates, daily accrual notices, and any servicer promises.

Common misconceptions

  • Myth: Forbearance always eliminates interest. Fact: For most loans, interest continues to accrue during forbearance unless the lender explicitly suspends interest.
  • Myth: Capitalization is automatic and instantaneous. Fact: Capitalization timing varies; some programs capitalize only at specific events. Ask your servicer which event triggers capitalization for your loan.

Frequently asked operational questions

  • Will forbearance hurt my credit? Applying for forbearance itself typically does not harm your credit if your servicer reports the agreement as an approved forbearance. Missed payments before obtaining an approved forbearance can damage credit scores. (CFPB guidance.)

  • Can I avoid capitalization on federal loans? Sometimes — federal programs have specific rules (e.g., certain rehabilitation or consolidation actions). See StudentAid.gov for program details.

Checklist before you accept forbearance

  • Confirm whether interest will accrue and the calculation method (daily vs monthly).
  • Ask whether unpaid interest will be capitalized; if so, when.
  • Get the forbearance terms in writing and keep copies of all communications.
  • Evaluate your ability to make interest-only payments during the pause.
  • Consider long-term cost trade-offs, including effects on forgiveness programs and repayment counts.

Final notes and professional perspective

In my professional experience helping borrowers for more than 15 years, clear communication with servicers and a simple interest calculation can materially change outcomes. Small monthly interest payments while you are in forbearance often prevent a larger, longer-term cost caused by capitalization. Always document what a servicer tells you and compare written terms to what is in your promissory note.

This article is educational and does not replace tailored financial advice. For loan-specific rules and the most recent federal program updates, consult the U.S. Department of Education (StudentAid.gov) and the CFPB (consumerfinance.gov).

Sources and further reading

Professional disclaimer: This material is educational and not personalized financial advice. Consult a licensed financial advisor or your loan servicer to determine how forbearance will affect your specific loans.