A job loss, a medical bill, or a flooded basement can send a $2,000 crisis your way just when a loan payment is due. When that happens, many borrowers look at two options: forbearance vs deferment. They may sound similar, but they work differently.
The biggest difference is what happens to interest while your payments are paused. Choosing the wrong option can allow interest to build up and increase what you owe. Understanding how each option works can help you choose the payment relief that fits your situation.
Forbearance vs Deferment: The Core Difference
Both forbearance and deferment can temporarily pause or reduce required loan payments. The major difference is how interest is treated during that period, according to CFPB guidance:
- Deferment: Interest does not accrue on subsidized federal student loans during the deferment period. On unsubsidized loans and most private loans, interest generally continues to accrue.
- Forbearance: Interest continues to accrue during forbearance, including on subsidized federal student loans. You may be able to pay the interest as it builds, or it may be added to your principal when the forbearance ends through a process called capitalization.
That capitalization can make a significant difference. For example, if you have $30,000 in unsubsidized loans at a 6% annual interest rate and payments are paused for 12 months, roughly $1,800 in interest could accrue. If that interest is capitalized, future interest may be calculated on the larger balance of $31,800.
The CFPB’s forbearance explainer explains how forbearance works, while the Department of Education’s deferment and forbearance page explains temporary relief options for federal student loans.
When Deferment May Be Better
In the forbearance vs deferment comparison, deferment may be available when you meet specific eligibility requirements. Depending on your loan type and circumstances, qualifying situations can include returning to school at least half-time, certain military service, Peace Corps service, unemployment, or economic hardship.
If you qualify for deferment on subsidized federal student loans, interest generally does not accrue during the qualifying deferment period. That can make deferment a less expensive form of temporary relief for those specific loans.
For unsubsidized loans, interest can still accrue during deferment. Even so, deferment may have advantages depending on your circumstances and the specific terms of your loan.
Before choosing between loan forbearance and deferment, contact your servicer, ask which option you qualify for, and request confirmation of the approved relief in writing.
When Forbearance May Make Sense
Forbearance can provide another form of temporary payment relief when you are experiencing financial difficulty. Depending on the loan, general forbearance may be available for situations such as financial hardship, medical expenses, or employment changes. Some circumstances may qualify for mandatory forbearance if you meet the applicable requirements.
The main drawback in the forbearance vs deferment decision is that interest generally continues to accrue throughout forbearance. That can make the loan more expensive over time.
Forbearance may make sense when:
- You are dealing with a temporary financial crisis
- You do not qualify for deferment
- You can afford to pay the interest while payments are paused
- The alternative would be missing required payments
For federal student loans, also check whether an income-driven repayment plan could reduce your payment before choosing forbearance. Depending on your circumstances, an IDR plan may lower your required payment substantially while keeping the loan in repayment status.
Does Forbearance or Deferment Hurt Your Credit?
One important part of the forbearance vs deferment decision is understanding how an approved payment pause affects your credit history.
An approved deferment or forbearance generally is not treated the same way as simply missing a required payment. However, the exact reporting can depend on the loan and servicer. Missing payments before your relief is approved can still result in negative payment history.
Keep these points in mind:
- Late payments from before your pause was approved can still affect your credit history.
- Future lenders may be able to see information associated with your account status.
- For revolving accounts such as credit cards, reduced payments do not necessarily prevent balances or utilization from increasing.
- A payment pause can extend the time needed to repay the loan.
The key is to get approval before simply stopping payments. Do not assume that a request for deferment or forbearance automatically means your payments are paused.
A Real-World Payment Pause Example
Consider Maya, who owes $25,000 in federal student loans: $15,000 in subsidized loans and $10,000 in unsubsidized loans. Assume a blended interest rate of 5.5% and a three-month payment pause.
With forbearance, interest would generally accrue on the entire $25,000. At 5.5% annually, that is approximately $344 in interest over three months.
With deferment, if Maya qualifies and the $15,000 subsidized portion receives the applicable interest benefit, interest would generally accrue only on the $10,000 unsubsidized portion. At the same rate, that would be approximately $138 over three months.
The difference is about $206 in newly accrued interest.
This example shows why the forbearance vs deferment comparison is about more than simply pausing payments. The interest treatment can affect how much the loan costs after the payment pause ends.
Alternatives to Forbearance and Deferment
Before choosing either form of temporary relief, consider whether another option could address the underlying problem. Depending on your loan type and financial circumstances, alternatives may include:
- Income-driven repayment: Federal student loan payments may be adjusted based on income and family size, and some borrowers may qualify for very low payments.
- Loan refinancing: Refinancing may reduce the interest rate or change the repayment term, although refinancing federal loans can mean giving up certain federal protections.
- Hardship programs: Some credit unions and community banks offer temporary hardship assistance, although eligibility and terms vary.
- Debt consolidation: Consolidation combines eligible debts into a new repayment structure. Compare the costs and terms carefully before making a decision.
- Emergency financing: If the issue is a one-time expense rather than an ongoing inability to repay the loan, another financing option may address the immediate cash need. However, consider the interest rate and potential credit impact before applying.
For more information, see our guides to loan refinancing explained, debt settlement vs. debt consolidation, emergency personal loans, and personal loan credit impact.
Common Forbearance vs Deferment Mistakes
Understanding the difference between forbearance vs deferment can help borrowers avoid several common mistakes:
- Choosing forbearance automatically: Ask your servicer whether deferment or another repayment option is available first.
- Ignoring accruing interest: If interest continues during your payment pause, paying it as it accrues may reduce the amount that eventually gets added to your balance.
- Stopping payments without approval: A verbal conversation does not necessarily mean your payment obligation has been officially paused. Get confirmation from your servicer.
- Using temporary relief repeatedly: Repeated payment pauses can extend your repayment period and increase the total interest you pay.
- Overlooking private loan assistance: Private lenders may offer hardship programs, but eligibility and terms vary. Contact the lender before missing a payment.
Forbearance vs Deferment: Practical Takeaways
The forbearance vs deferment decision comes down to several important factors:
- Interest treatment: Deferment can stop interest on eligible subsidized federal student loans, while interest generally continues during forbearance.
- Eligibility: Deferment typically has specific qualifying circumstances, while some forms of forbearance may be available for broader financial difficulties.
- Credit reporting: An approved pause is different from simply missing a payment, but borrowers should confirm how their servicer will report the account.
- Total loan cost: Accruing and capitalized interest can increase the amount you ultimately repay.
- Other options: Before choosing either payment pause, check whether an income-driven repayment plan or hardship program could work better for your situation.
Forbearance vs Deferment: Final Thoughts
Both deferment and forbearance can provide valuable breathing room when you cannot make your normal loan payment. The important thing is understanding the terms before accepting either option.
When comparing forbearance vs deferment, look closely at eligibility, interest accrual, capitalization, credit reporting, and how the pause will affect your repayment timeline. Ask your loan servicer to explain your available options and get the final approval in writing.
A payment pause should generally be treated as temporary relief rather than a permanent solution. Once your financial situation improves, returning to regular payments can help you avoid unnecessary additional interest and a longer repayment period.
This article is for educational purposes only and is not personalized financial advice. Eligibility rules, interest treatment, and credit reporting vary by loan type and servicer. Confirm your specific options directly with your loan servicer.
