The interest on your account is calculated and capitalized, or added to the principal loan amount, during a forbearance. Most lenders allow you to make interest-only payments during the course of your forbearance if you want to avoid growing your principal balance.

Two primary strategies for delaying payments on a student loan are deferment and forbearance. One major difference between deferment and forbearance is the treatment of the interest on the loan and whether that interest is capitalized. This is especially true with federally subsidized educational loans, as the federal government may actually pay your interest while your loan is deferred.

With deferment, the loan is pushed back during times of financial hardship or other circumstances to help avoid default. Forbearance acts in a very similar fashion but is generally harder to qualify for, and lenders have more discretion on whether to grant a forbearance. Deferment is often considered a right of the loan holder, while forbearance is a favor granted by the lender in circumstances when the borrower is not eligible for deferment.

If you have non-subsidized student loans, the difference between receiving a deferment or forbearance is negligible as interest accrues similarly in both cases. It is very important to check with your lender before requesting and being granted a forbearance. If you are asking for a lengthy forbearance, as the maximum student loan forbearance is three years, find out what your principal balance will be if no interest payments are made. It is sometimes more advantageous to make your interest payments even when granted a forbearance.

  1. What are the differences between delinquency and default?

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  2. When capitalizing interest, will interest accrue while you are in a deferment?

    Learn what capitalized interest is. Understand why interest accrues while a person is in a deferment, based on capitalized ... Read Answer >>
  3. Can Direct Consolidation Loans be deferred?

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