Overview

Private student loan forbearance is a short‑term option lenders use to help borrowers who face financial hardship, job loss, medical emergencies, or other temporary setbacks. Unlike many federal programs, private forbearance usually permits interest to continue accruing. That accrual — and the common practice of capitalizing unpaid interest when forbearance ends — is the main way forbearance raises long‑term loan costs (Consumer Financial Protection Bureau).

In my practice advising borrowers, early communication with your lender and understanding how interest is handled have been the two most important steps to avoid surprises after a forbearance ends.

Types of Private Forbearance and common terms

  • Lender hardship or discretionary forbearance: The lender temporarily suspends or reduces payments because you show short‑term financial difficulty. Interest typically accrues.
  • Medical, military, or COVID‑related special forbearance: Some lenders offer targeted programs; rules vary by lender and timeframe.
  • Interest‑only or reduced‑payment plans: Instead of full forbearance, some lenders let you pay only interest or a lower fixed amount to limit balance growth.
  • Loan modification or extended forbearance: Changes to term length or repayment schedule; often lowers monthly payments but can increase total interest paid.

For details on when lenders grant hardship forbearance, see When Lenders Offer Hardship Forbearance and What to Expect.

How interest accrues and what “capitalization” means

  • Interest accrual during forbearance: With most private loans, interest continues to accrue daily on the unpaid principal and any unpaid interest. The lender may charge that interest each month or defer it.
  • Capitalization: When unpaid interest is added to the principal balance (usually when forbearance ends), future interest is calculated on a larger balance — compounding your cost.

Example: A $20,000 loan at 6% annual interest accrues roughly $100 of interest per month. A six‑month forbearance where you make no payments can add about $600 of unpaid interest. If that $600 is capitalized, you begin paying interest on $20,600 going forward, raising future interest costs and monthly payments unless the term is extended.

For a deeper comparison of deferment vs forbearance and how interest accrues, see How Deferment and Forbearance Affect Loan Interest Accrual.

Who is eligible and how to apply

  • Eligibility: Varies by lender; common requirements include proof of income reduction, unemployment, medical bills, or military service. Lenders assess account status, cosigner conditions, and borrower history.
  • How to apply: Contact your loan servicer early, ask for available forbearance options in writing, and request a written agreement that explains interest treatment and whether unpaid interest will be capitalized.

What a formal agreement should include is summarized in What a Forbearance Agreement Should Include to Protect You.

Pros and cons — short and long term

Pros:

  • Immediate relief from payments or reduced monthly burden.
  • Avoids delinquency, collections, or default if used appropriately.

Cons:

  • Interest usually continues to accrue and can be capitalized, increasing the total cost.
  • May delay progress toward loan payoff and can affect forgiveness timelines for federal loans (note: federal forgiveness rules do not apply to private loans).
  • Possible effects on credit if you enter alternative programs rather than a formal forbearance.

Practical strategies to limit cost

  1. Ask for an interest‑only or reduced payment option rather than full forbearance when possible. This prevents or slows principal growth.
  2. Make partial payments (even small amounts) if you can — they reduce interest that would otherwise capitalize.
  3. Get the forbearance terms in writing and confirm when and how interest will be capitalized.
  4. Compare refinancing options — if you have strong credit and stable income, refinancing to a lower rate can be cheaper than prolonged forbearance. See When Loan Forbearance Is Preferable to Refinancing for guidance.
  5. Consider targeted alternatives: temporary budget adjustments, deferment (if offered), or asking for a modified repayment plan.

In my experience, borrowers who ask for a short, documented forbearance and continue to make any feasible payment avoid the largest balance increases.

Common mistakes and misconceptions

  • Assuming forbearance stops interest. Most private loans continue to accrue interest; verify your lender’s policy.
  • Not getting terms in writing. Without written confirmation, you may be surprised by capitalization or new payment amounts.
  • Believing federal rules apply to private loans. Private loans are regulated by contract and state law; federal student loan protections do not automatically apply (U.S. Department of Education).

Short FAQ

  • Can I negotiate forbearance terms? Yes — many private lenders will negotiate, especially if you present documentation showing temporary hardship.
  • Will forbearance hurt my credit? Forbearance itself, if properly documented and not considered delinquency, typically won’t harm credit — but missed payments before an approved forbearance can.
  • Should I refinance instead? Refinancing may be a better long‑term choice if you can get a lower rate and have steady income; compare total interest, fees, and cosigner implications.

Sources and next steps

Consumer Financial Protection Bureau: Student loan resources and borrower guides — https://www.consumerfinance.gov/ (CFPB).
U.S. Department of Education, Federal Student Aid: Repayment options overview — https://studentaid.gov/.

Internal resources on FinHelp:

Professional disclaimer: This article is educational and does not constitute personalized financial advice. For decisions about your loans, consult your loan servicer or a qualified financial advisor.

Author note: I have 15+ years helping borrowers evaluate short‑term relief and long‑term costs; in practice I find clear written terms and small ongoing payments reduce the most harm from forbearance.