Quick answer

When you’re in deferment or forbearance, whether interest accrues depends on the loan type and the specific relief you received. Federal subsidized loans often stop accruing interest in qualifying deferments (for example, in-school deferment), but most unsubsidized federal loans and virtually all private loans continue to accrue interest during both deferment and forbearance. Any unpaid interest may be capitalized (added to principal) when the relief ends, increasing future interest costs.

(For official descriptions of deferment and forbearance and what qualifies, see U.S. Department of Education guidance: https://studentaid.gov/manage-loans/lower-payments/get-temporary-relief.)

Why this matters

Interest that keeps accruing while you’re not required to make payments can increase your loan principal when it capitalizes. Once interest is capitalized, you pay interest on a higher balance, which raises monthly payments and total cost over time. In my practice working with borrowers across income levels, I’ve seen six-month forbearance periods add hundreds or even thousands of dollars to balances when interest wasn’t managed. That blow-up in principal is typically what surprises people the most.

How interest accrual differs by loan type

  • Federal subsidized loans: In many qualifying deferment situations (e.g., in-school deferment, some economic hardship deferments), the Department of Education pays interest. That prevents accrual while the deferment lasts. (See studentaid.gov.)
  • Federal unsubsidized loans: Interest almost always accrues during deferment and forbearance. If you don’t pay the interest during the relief period, it’s usually capitalized thereafter.
  • Federal PLUS loans: Interest accrues in deferment and forbearance unless a special program covers it.
  • Private student loans: Terms vary by lender. Most private loans accrue interest in both deferment and forbearance; capitalization rules depend on the contract. Always check the promissory note and ask the servicer.

For the federal rules and how deferment and forbearance differ, the Department of Education explains available options and eligibility at studentaid.gov/manage-loans/lower-payments/get-temporary-relief and the Consumer Financial Protection Bureau provides plain-language guidance for private loans (https://www.consumerfinance.gov/consumer-tools/student-loans/).

Practical, step-by-step actions to manage interest (what to do now)

  1. Identify your loan type and servicer. Pull your loan records at https://studentaid.gov if you have federal loans. For private loans, review your loan statements and the promissory note.

  2. Ask the servicer two clear questions in writing or by secure portal: (a) “Will interest accrue during this deferment/forbearance?” and (b) “If interest accrues, when will it capitalize and how will that change my payment amount?” Keep the responses.

  3. If interest will accrue, consider paying only the interest during the relief period. Even small monthly interest payments stop capitalization. Example: on a $20,000 unsubsidized balance at 5% annual interest, interest accrues about $83/month — paying that avoids adding $500 in unpaid interest after six months.

  4. Check income-driven repayment (IDR) options for federal loans before choosing forbearance. IDR can lower or eliminate monthly payments while still protecting against capitalization for certain benefits; it may be a better long-term option than forbearance. See our guide on Income-Driven Repayment Plans.

  5. If you have private loans, compare short-term relief with refinancing alternatives once the crisis passes. See our guide on Student Loan Refinancing After Deferment: Steps and Pitfalls.

  6. Avoid repeated forbearances without a plan. Forbearance is temporary — multiple episodes compound interest and elongate repayment.

How much can unpaid interest cost you? (Simple example)

Use this conservative example to understand the math.

  • Balance: $15,000 unsubsidized federal or private loan
  • Interest rate: 6.0% APR

Monthly interest = 15,000 × 0.06 ÷ 12 = $75

If you enter 6 months of forbearance and make no interest payments, unpaid interest = 75 × 6 = $450. If the servicer capitalizes that interest, new principal = $15,450. That higher principal will then generate more interest going forward, lengthening the repayment and increasing total interest paid.

If you pay the $75 monthly interest during the relief period, you prevent capitalization and the principal stays at $15,000.

Note: Many loans compound interest daily; this example approximates monthly accrual to show the mechanism. For precise numbers, ask your servicer for a payoff/impact statement.

Choosing between deferment, forbearance, IDR, or refinancing

  • Use subsidized deferment (if eligible) first because interest is covered for qualifying periods.
  • If you’re eligible for an income-driven repayment plan for federal loans, apply before choosing forbearance—IDR can be better for long-term cost and forgiveness credit (see our Income-Driven Repayment Plans overview).
  • For short, unavoidable gaps in cash flow, forbearance buys time but usually increases cost. Keep it short and make interest payments if you can.
  • Private borrowers should weigh the merits of temporary forbearance against refinancing later. Refinancing can lower rates but may remove federal protections (e.g., Public Service Loan Forgiveness eligibility). See our internal comparison on refinancing after deferment: Student Loan Refinancing After Deferment: Steps and Pitfalls.

Common mistakes and how to avoid them

  • Mistake: Assuming all deferment suspends interest. Fix: Confirm whether your loan is subsidized or unsubsidized.
  • Mistake: Failing to document the servicer’s terms. Fix: Get written confirmation and keep copies.
  • Mistake: Using repeated forbearance as a long-term plan. Fix: Build a repayment strategy (IDR, budgeting, side income, refinancing) before relief ends.

Sample script for talking with your loan servicer

“Hello — I’m requesting a temporary [deferment/forbearance]. Please tell me: will interest accrue during this period? If so, when will accrued interest capitalize, and can you provide a written payoff/impact statement showing my balance if interest capitalizes after X months?”

Always follow up in writing (secure portal or email) and save the confirmation.

Frequently asked questions (short answers)

Q: Will deferment or forbearance hurt my credit?
A: Entering an approved deferment or forbearance in good standing does not directly damage your credit. Missing payments outside of agreed relief does. However, interest capitalization increases your balance, which can affect future default risk.

Q: Can I deduct interest that accrues during deferment/forbearance for taxes?
A: You can only deduct student loan interest that you actually pay during the tax year, subject to IRS limits and income phaseouts (see IRS guidance: https://www.irs.gov/credits-deductions/individuals/student-loan-interest-deduction). Consult a tax advisor for your situation.

Q: Can I convert forbearance into deferment?
A: Sometimes — it depends on eligibility and the loan type. Ask your servicer for options and timelines.

Where to get authoritative help

Also see FinHelp articles:

Final note and disclaimer

In my 15+ years advising borrowers, the best outcome usually comes from choosing the option that balances short-term cash needs with long-term cost. If you can, avoid letting interest capitalize. If you must pause payments, pay accrued interest where possible, apply for IDR if you have federal loans, and keep clear records from your servicer.

This article is educational and not individualized financial or tax advice. For decisions that materially affect your balance or taxes, consult your loan servicer, a qualified financial planner, or a tax professional.