This lesson is general education about U.S. personal finance, not financial, tax or investment advice. Tax rules and limits change every year; check IRS.gov or a qualified professional for your situation.
What you’ll learn
- On subsidized federal loans in deferment, the government pays the interest, so your balance does not grow.
- During forbearance, interest accrues daily on every federal loan type, including subsidized loans.
- A $20,000 balance at a 3.65% rate accrues about $2 per day, roughly $365 over a six-month pause.
- Federal forbearance can be granted for up to 12 months at a time; economic hardship deferment allows up to three years total.
- Income-driven repayment plans can set payments as low as $0, which may cost less than a pause.
When money gets tight, federal student loan borrowers have two ways to stop payments: deferment and forbearance. From the outside they look identical. Inside, they work very differently, and the difference comes down to one question: who pays the interest while your payments sit on hold?
Two Ways to Pause, One Question That Decides Everything
Both options let you stop required payments for a set period. You apply through your loan servicer, send documentation showing you meet the eligibility rules, and keep making payments until you receive notice that your request was approved. Skipping payments while you wait can put you behind.
A deferment is granted for specific situations, such as unemployment, economic hardship, going back to school at least half time, cancer treatment, or military service. Forbearance reduces or postpones payments when money is tight. If you qualify for a deferment, it is generally the better deal, because the government pays the interest on subsidized loans during deferment. During forbearance, interest keeps building daily on every loan type.
When Interest Keeps Running: Subsidized vs. Unsubsidized Loans
Which option costs less depends on the type of loan you hold. Subsidized federal loans go to undergraduate students who demonstrate financial need, and the Department of Education pays the interest while you are in school and during periods of deferment. On unsubsidized loans, the interest is your responsibility from the start, pause or no pause.
In deferment, the split is simple: subsidized loans stay flat, while unsubsidized loans keep accruing interest you will owe later. In forbearance, the split disappears. Interest builds on all loans, including subsidized ones. You can pay that interest as it accumulates, or your servicer may add it to your balance when the pause ends. On Direct Loans, forbearance interest is not folded into the principal, but on some older federal loans not owned by the Department of Education, it may be. Interest added to the principal is called capitalization, and it means paying interest on interest. Our article on why your student loan balance keeps growing walks through that math.
A Worked Example: What Six Months of Pause Costs on a $20,000 Balance
Numbers make the difference concrete. Take a $20,000 balance at a 3.65% annual rate. The daily rate is 0.01%, which works out to $1 of interest per day for every $10,000 owed. On $20,000, that is $2 per day, or roughly $365 over a six-month pause.
Where that $365 lands depends on your path:
- Subsidized loans in deferment: no new interest. The balance is still $20,000 when payments resume.
- Unsubsidized loans in deferment, or any loan in forbearance: about $365 accrues. Pay it during the pause and your balance stays at $20,000. Do not pay it and you owe $20,365.
- If the unpaid interest capitalizes at the end of a deferment on an unsubsidized Direct Loan, your principal becomes $20,365, and every future interest charge is calculated from that larger figure.
One six-month pause is manageable. Repeated pauses, or a pause that stretches a year or more, stack those costs.
Deferment vs. Forbearance at a Glance
| Question | Deferment | Forbearance |
|---|---|---|
| Interest on subsidized loans | Paid by the government; the balance does not grow | Accrues daily; you owe it |
| Interest on unsubsidized loans | Accrues; unpaid interest may be capitalized when the deferment ends | Accrues; may be added to principal on some loan types when forbearance ends |
| How long it can last | Economic hardship: up to one year at a time, three years total; other types vary | Up to 12 months at a time |
| How you qualify | Specific situations such as unemployment, hardship, half-time enrollment, cancer treatment or military service | Financial difficulty; general forbearance is at the servicer’s discretion, mandatory forbearance is required if criteria are met |
| Best fit | Borrowers who qualify and want to stop balance growth on subsidized loans | Borrowers who do not qualify for deferment or have exhausted their deferment time |
Who Qualifies for Each Option, and for How Long
Each deferment type comes with its own rules and time limits. The economic hardship deferment pauses payments for up to one year at a time, with a maximum of three years total. You can qualify by receiving federal or state public assistance, by meeting income criteria for your household size, or in some cases if you are already on a deferment with Direct or Perkins loans. You can use this deferment only if every loan you currently owe was borrowed on or after July 1, 1993.
The unemployment deferment covers periods when you are jobless or putting in fewer than 30 hours of work each week. You must certify that you are looking for full-time work and that you are registered with a public employment office. An in-school deferment covers enrollment at least half time at a school that participates in federal student aid programs.
Rules are changing for new borrowers. Under legislation passed in July 2025, federal student loans issued on or after July 1, 2027 will no longer offer unemployment and economic hardship deferment. Loans borrowed before that date keep the current protections.
Forbearance is the option for borrowers who do not qualify for a deferment or who have used up their deferment time. A federal servicer can grant forbearance for up to 12 months at a time, and you can usually apply over the phone. General forbearance is granted at the servicer’s discretion, while mandatory forbearance must be granted if you meet certain criteria.
Because interest builds on all loan types during forbearance, it works best as a short bridge rather than a long-term plan. If your hardship looks like it will outlast a few months, price the alternatives first.
Alternatives Worth Pricing Before You Pause
Income-driven repayment plans set your monthly payment based on your income, and some plans allow a payment as low as $0. A $0 payment costs nothing per month, which can make it cheaper than a pause that lets interest pile up on an unsubsidized loan. Ask your servicer whether changing repayment plans would lower your payment before you apply for a deferment or forbearance.
If the underlying problem is a job loss or a pay cut that drained your savings, rebuilding the cushion matters as much as fixing the loan payment. Getting started with paying yourself first is one way to build the emergency fund that keeps the next shortfall from turning into a debt problem.
Try it
You can make payments at any time during a deferment or forbearance, even while the pause is active. Paying the interest as it accrues keeps your balance from growing.
What to Check With Your Servicer Before You Apply
Before you submit a request, get clear on a few specifics:
- Which of your loans are subsidized and which are unsubsidized, since that decides whether the balance grows during a deferment.
- What happens to unpaid interest when the pause ends, including whether it will be added to your principal.
- How much deferment and forbearance time you have left, because available options are time-limited and vary by loan.
- Whether an income-driven plan with a lower or zero payment would cost less than a pause.
Private student loans are a separate matter. Lenders may or may not offer deferment or forbearance, the rules vary by contract, and the terms can be less favorable than the federal options. Contact a private servicer as early as possible if you need relief on those loans, and ask exactly what the interest will do while payments are stopped.
Common questions
Does interest accrue during deferment?
On subsidized federal loans, no, the government pays the interest during deferment. On unsubsidized loans, interest keeps accruing, and unpaid interest may be added to your principal when the deferment ends.
How long can I stay in forbearance?
Your federal loan servicer can grant forbearance for up to 12 months at a time. Total limits vary, so ask your servicer how much forbearance time remains on your loans.
Can I make payments while my loans are paused?
Yes. You can pay at any time during a deferment or forbearance, and paying the interest as it accrues keeps your balance from growing.
Do private student loans offer these options?
Maybe. Private lenders set their own rules, and the terms vary by contract. Contact your private servicer as early as possible if you want to explore a pause.