Dealing with student loans is a marathon, not a sprint. You finish college, land a job, and start chipping away at that massive principal balance. But life, as we all know, is unpredictable. Suddenly, you might face a financial crisis: a job loss, a medical emergency, or the decision to go back to school. When these events hit, making your monthly student loan payment becomes impossible, and the panic sets in.
In that moment of stress, knowing your options is the difference between keeping your financial life on track and damaging your credit score. That’s where the two most important safety nets in federal student lending come in: deferment and forbearance. Both programs allow you to temporarily stop making payments, but they are absolutely not the same thing. In fact, choosing the wrong one can cost you thousands of dollars in extra interest over the life of your loan. Understanding the core difference—when the interest keeps building and when it doesn’t—is the key to making the smart financial choice for your temporary pause.
The most critical distinction boils down to interest subsidy. When you enter deferment, the government, under specific circumstances, agrees to pay the interest that accrues on your subsidized federal loans. This is huge. It means that while you are not making payments, your loan balance is not growing; it’s simply frozen. When your deferment ends, you jump right back into payments on the same loan balance you had before the pause began.
On the other hand, when you enter forbearance, the government does not pay any interest for you. Interest continues to accrue—or build up—on all your federal loans, including subsidized, unsubsidized, and PLUS loans. This accrued interest is then added to your principal balance when the forbearance period ends. This process is called capitalization, and it significantly increases the total amount you will repay over time, essentially turning interest into new debt.
To put this into simple terms with a relatable example, imagine you have a $\$10,000$ subsidized loan and a $\$10,000$ unsubsidized loan, both at a $6\%$ interest rate. You face a year of financial hardship and need to pause payments.
If you choose Deferment: The government pays the interest on your subsidized loan (the $\$600$ for the year). Your subsidized balance remains at $\$10,000$. Your unsubsidized loan still accrues $\$600$ in interest, which is added to the principal, making that balance $\$10,600$. Total debt increase: $\$600$.
If you choose Forbearance: You pay the interest on neither loan, and the government pays nothing. Both loans accrue interest. Your subsidized balance is capitalized to $\$10,600$, and your unsubsidized balance is also capitalized to $\$10,600$. Total debt increase: $\$1,200$.
As you can see, choosing deferment saves you half the interest cost in this specific scenario. The rule is clear: always try to qualify for deferment first.
Now that we understand the core financial mechanism, let’s look at the specific circumstances that qualify you for each program. Deferment is considered the superior, needs-based safety net, so the eligibility requirements are stricter and tied to specific life events.
One of the most common reasons to qualify for deferment is the In-School Deferment. If you return to school, even just for a few classes, and are enrolled at least half-time in an eligible program, your loans automatically qualify for this type of deferment. This is an essential protection for those pursuing graduate degrees or going back for a career change. Your loan payments pause, and the interest on your subsidized loans is paid by the government while you focus on your studies.
Another major deferment option is the Unemployment Deferment. If you lose your job and are actively seeking new employment (you must register with an employment agency and prove you are searching), you can apply for this. You are typically granted this deferment in six-month increments, up to a maximum of three years. This gives you time to find a new job without the burden of payments and without your subsidized loan balance growing.
Other specific deferment types include Economic Hardship Deferment, which is available if you are receiving public assistance (like Temporary Assistance for Needy Families), working full-time but earning below $150\%$ of the poverty line for your family size, or serving in the Peace Corps. There is also a specific deferment for Military Service and Post-Active Duty, which covers you during periods of active military service and immediately afterward. In every single case of deferment, the qualifying event is clear, often verifiable with documentation, and the benefit is the interest subsidy on your subsidized loans.
In contrast, forbearance is easier to obtain because it is a broader, catch-all safety net, but it comes with that heavy price tag of accruing interest. Forbearance is granted when a borrower faces a temporary financial difficulty that doesn’t fit neatly into one of the specific deferment categories.
There are two main types of forbearance: General Forbearance and Mandatory Forbearance.
General Forbearance is the most common and is granted entirely at your loan servicer’s discretion, usually for up to 12 months at a time. This is used when you are dealing with a financial strain that isn’t a government-defined hardship—maybe you have large medical bills, your spouse lost their job (but you are still working), or you are facing high unexpected expenses. The servicer must approve your request, and while they usually do, they are not obligated to grant it. This is your quick fix, your immediate lifeline, but the interest clock is ticking.
Mandatory Forbearance is slightly different. The servicer is required to grant it if you meet specific criteria. Mandatory forbearance is often granted if you are serving in a medical or dental residency program, if your monthly loan payment equals $20\%$ or more of your gross income, or if you are serving in a national service position (like AmeriCorps) where you have already received an award. While the servicer must approve these, they are still forbearance, meaning interest accrues and is capitalized.
The hidden danger in both types of forbearance is capitalization. Imagine you take a one-year general forbearance on that $\$20,000$ debt. You owe $\$1,200$ in accrued interest. When the forbearance ends, that $\$1,200$ is added to your principal, and now you start making payments on $\$21,200$. That $\$1,200$ interest is now generating its own interest, costing you money every month for the next two decades. This process can significantly inflate your total repayment cost, turning a temporary pause into a substantial long-term increase in your debt.
Therefore, the smart borrower must treat forbearance as the option of absolute last resort. Before you even consider forbearance, you should explore other, less costly alternatives.
The most important alternative is Income-Driven Repayment (IDR) plans. These federal plans (like SAVE, PAYE, and IBR) are designed to make your monthly payment affordable by capping it at a percentage of your discretionary income. If your income has dropped significantly—say you lost your job—an IDR plan might reduce your monthly payment to zero dollars. A zero-dollar payment under an IDR plan is superior to both deferment and forbearance because it counts as a qualifying payment toward the 20 or 25 years needed for loan forgiveness, and, under the SAVE Plan, the government may even pay the remaining interest that your reduced payment doesn’t cover. This makes IDR the most protective option for borrowers with low income.
In summary, the key difference between deferment and forbearance is the interest subsidy. Deferment is the financial lifeline that saves you money by pausing interest accrual on subsidized loans, but it is only available for specific life events (in-school, unemployment, hardship). Forbearance is the quick, easy safety net for generalized financial stress, but its cost is high—interest accrues and is added to your principal, increasing your overall debt.
As a borrower, your hierarchy of financial moves should be crystal clear: First, apply for an IDR plan to get a zero-dollar payment that counts toward forgiveness. Second, if you qualify for one of the specific categories, apply for Deferment to freeze the growth of your subsidized loans. Third, and only if neither of the first two options is available, should you request Forbearance, knowing that it will temporarily save your credit score but increase your debt burden in the long run. By understanding this difference, you can successfully navigate financial challenges without sacrificing your long-term financial health.While both deferment and forbearance allow you to temporarily stop making payments on your federal student loans, the difference between them is critical and can cost you thousands of dollars in interest. The core distinction is that deferment is often subsidized (meaning the government pays the interest on some of your loans), while forbearance is never subsidized (interest accrues and is added to your loan balance).
The Core Difference: Interest Subsidy and Capitalization
The most important factor distinguishing these two options is how interest is handled during the pause.
Deferment: The Subsidized Pause
Deferment is the superior option because the government assumes responsibility for the interest that accrues on specific types of federal loans.
- Subsidized Loans: For Direct Subsidized Loans and Federal Perkins Loans, the government pays the interest that accrues during the deferment period. This means your loan balance is effectively frozen; it does not grow while you are not making payments.
- Unsubsidized Loans: For Direct Unsubsidized Loans, PLUS Loans, and consolidated loans, interest still accrues during deferment. However, you have the option to pay that interest as it accrues. If you don’t pay it, it will be added to your principal balance (capitalized) when the deferment ends.
Forbearance: The Unsubsidized Pause
Forbearance is a universal safety net, but it comes with a high financial cost because interest accrues on all loan types and is always added to your principal.
- All Loans (Subsidized and Unsubsidized): Interest accrues on all federal loan types during forbearance. The government does not pay any of the interest.
- Capitalization: When the forbearance period ends, all the unpaid, accrued interest is capitalized—it is added to your original principal balance. This increases the principal, meaning you start paying interest on a larger total amount, which significantly increases the total cost of your loan over its lifetime.
The Financial Impact: A Simple Example
Imagine you pause payments for one year on a $\$10,000$ Subsidized Loan and a $\$10,000$ Unsubsidized Loan (both at a 6% interest rate).
| Program | Subsidized Loan Interest | Unsubsidized Loan Interest | Total Debt Increase |
| Deferment | Paid by the government (Balance remains $10,000$). | Accrues and is added to principal (Balance becomes $10,600$). | $600 |
| Forbearance | Accrues and is added to principal (Balance becomes $10,600$). | Accrues and is added to principal (Balance becomes $10,600$). | $1,200 |
Deferment: Eligibility and Types
Because deferment offers the substantial benefit of a government-paid subsidy, the eligibility requirements are strict and limited to specific, verifiable life events.
1. In-School Deferment
This is the most common type. If you return to school and are enrolled at least half-time in an eligible college or career school, you automatically qualify for deferment. This is crucial for those pursuing graduate degrees.
2. Unemployment Deferment
If you are unemployed or working less than 30 hours per week and are actively seeking full-time employment, you can apply. This is granted in six-month increments, up to a maximum of three years.
3. Economic Hardship Deferment
This deferment is granted if you are receiving federal or state public assistance (like TANF), or if you are working full-time but your income is less than 150% of the poverty guideline for your family size. This option provides up to three years of relief.
4. Military Service Deferment
This covers periods of active duty military service and a post-active duty period. This ensures service members do not have to worry about student loan payments while deployed.
Forbearance: Eligibility and Types
Forbearance is easier to get because it covers a wider range of temporary financial difficulties, but it must be treated as the last option due to the interest cost.
1. General Forbearance (Discretionary)
This is the most common type and is granted at the loan servicer’s discretion (they can grant it, but they don’t have to). It is requested for issues that don’t qualify for deferment, such as high medical bills, temporary reduction in work hours, or other personal financial difficulties. It is typically granted for up to 12 months at a time.
2. Mandatory Forbearance
In these situations, the servicer must grant the forbearance if the borrower meets the criteria. Mandatory forbearance is required for reasons like:
- Medical Residency: Serving in a medical or dental internship/residency program.
- National Service: Performing a national service obligation (e.g., AmeriCorps) and having received an award.
- High Debt-to-Income: If your monthly loan payment equals 20% or more of your total monthly gross income.
Crucial Note: Even when forbearance is mandatory (the servicer must grant it), interest still accrues and is capitalized, just like with General Forbearance.
The Smarter Alternative: Income-Driven Repayment (IDR)
Before applying for either deferment or forbearance, the smart borrower’s first step should be to look into Income-Driven Repayment (IDR) plans (like the SAVE Plan, PAYE, etc.).
IDR plans cap your monthly payment based on your income and family size. If your income has dropped significantly due to job loss or hardship, your payment could be calculated as zero dollars ($0).
A $\$0$ payment under an IDR plan is superior to both deferment and forbearance because:
- It counts as a qualifying payment toward the 20 or 25 years needed for federal loan forgiveness.
- Under the SAVE Plan, if your calculated payment is less than the interest that accrues, the government waives the remaining interest. This means your loan balance does not grow, effectively giving you the interest subsidy benefit without the strict eligibility rules of traditional deferment.
Borrower’s Action Plan: A Hierarchy of Safety Nets
To minimize the cost of pausing your payments, follow this financial hierarchy:
- Prioritize IDR: Apply for an Income-Driven Repayment plan (like SAVE). If your payment is calculated as $\$0$, you pause the payment, stop interest growth (under SAVE), and count the month toward forgiveness. This is the best-case scenario.
- Seek Deferment: If you don’t qualify for a $\$0$ IDR payment but meet one of the specific eligibility requirements (In-School, Unemployment), apply for Deferment to prevent interest on your subsidized loans from growing.
- Last Resort: Forbearance: Only apply for Forbearance if you are ineligible for both IDR and Deferment. Understand that this option will save your credit score but increase your total debt. Be sure to pay the interest as it accrues if you can afford it, to prevent capitalization.
Understanding this difference is not just about paperwork; it’s about protecting your financial future from unnecessary interest costs. Always choose the option that prevents your loan principal from growing.
