What Is Deferment vs. Forbearance (Student Loans)?
Deferment and forbearance are two ways to temporarily pause or reduce federal student loan payments, but they differ in a critical way: during deferment, the government pays the interest on subsidized loans (it does not accrue), while during forbearance, interest accrues on all loan types and is capitalized when forbearance ends — increasing the total amount owed. Choosing forbearance when deferment is available can cost borrowers thousands in additional interest.
Key Facts
- During deferment on subsidized loans, the federal government pays accruing interest — the borrower's balance stays the same, making deferment significantly cheaper than forbearance for subsidized loan holders
- During forbearance, interest accrues on ALL loan types (subsidized and unsubsidized) and capitalizes when forbearance ends — a borrower with $40,000 at 6% accumulates $2,400 in interest during one year of forbearance
- The Navient $1.85 billion settlement (2022) centered on the servicer steering 2+ million borrowers into forbearance when they qualified for deferment or income-driven repayment — a practice that cost borrowers thousands each in unnecessary interest
- Economic hardship deferment is available for up to 3 years for borrowers earning below 150% of the poverty line or receiving means-tested benefits — the same borrowers who would likely qualify for $0 payments under income-driven repayment
- The COVID-era payment pause (March 2020 – September 2024) was technically an administrative forbearance, but with a special provision: interest did not accrue, making it the most borrower-friendly forbearance in federal student loan history
Key Differences: Deferment vs. Forbearance
Both pause payments, but the financial impact differs substantially:
- Interest on subsidized loans: Deferment — government pays. Forbearance — accrues and capitalizes.
- Interest on unsubsidized loans: Both — accrues and may capitalize. No difference for unsubsidized.
- Eligibility: Deferment has specific qualifying criteria (enrollment, unemployment, economic hardship, military). Forbearance is more broadly available (general forbearance up to 12 months at servicer discretion, mandatory forbearance for specific situations).
- Duration: Deferment varies by type (3 years for economic hardship, unlimited for in-school). General forbearance is granted in 12-month increments up to 3 years total.
- Application: Deferment requires documentation of qualifying status. General forbearance requires only a request — no documentation needed, which is why servicers steered borrowers there.
Types of Deferment
- In-school deferment: While enrolled at least half-time. No time limit.
- Unemployment deferment: While receiving unemployment benefits or unable to find full-time work. Up to 3 years.
- Economic hardship deferment: While earning below 150% of the poverty line, receiving SNAP/TANF, or serving in the Peace Corps. Up to 3 years.
- Military service deferment: During active duty or qualifying National Guard service. Duration of service plus 180 days.
- Cancer treatment deferment: During active cancer treatment. Added by the FUTURE Act (2019).
Types of Forbearance
- General forbearance (discretionary): Granted at the servicer's discretion for financial hardship, medical expenses, change in employment, or other reasons. Up to 12 months at a time, 3 years cumulative.
- Mandatory forbearance: Servicer must grant for specific situations: medical/dental residency, AmeriCorps/National Guard, teacher loan forgiveness, student loan payments exceeding 20% of gross income, or Department of Defense qualifying programs.
Why IDR Is Almost Always Better Than Either
For most struggling borrowers, income-driven repayment is superior to both deferment and forbearance:
- Payments can be $0/month if income is below the threshold — same practical effect as deferment or forbearance.
- Months of $0 IDR payments count toward PSLF and IDR forgiveness — deferment and forbearance generally do not.
- Under the SAVE plan, unpaid interest does not capitalize — better than forbearance.
- No time limit — IDR continues indefinitely, while deferment and forbearance have cumulative caps.
The American Distress Index's Debt Stress component tracks student loan delinquency, which rises when borrowers exhaust deferment and forbearance without transitioning to IDR — often because servicers failed to inform them of the option.
Frequently Asked Questions
Should I choose deferment or forbearance?
If you have subsidized loans and qualify for deferment, always choose deferment — the government pays your interest. If you only have unsubsidized loans, there's no interest difference. But in most cases, income-driven repayment is better than either because $0 IDR payments count toward loan forgiveness.
Does interest grow during deferment?
For subsidized loans: no — the government pays accruing interest during deferment. For unsubsidized loans and PLUS loans: yes — interest accrues during deferment and may capitalize when deferment ends. This is why unsubsidized borrowers should consider IDR over deferment.
How much does forbearance cost in extra interest?
A borrower with $40,000 in loans at 6% interest accrues $2,400 per year in forbearance. Over 3 years of cumulative forbearance, that's $7,200 in additional interest that capitalizes — increasing the balance to $47,200. Monthly payments after forbearance are recalculated on the higher balance.
Do deferment or forbearance months count toward loan forgiveness?
Generally no. Months in deferment or forbearance do not count toward PSLF's 120 payments or IDR's 20-25 year forgiveness timeline. The 2022 IDR Account Adjustment temporarily credited certain forbearance periods, but this was a one-time correction, not a permanent policy change.
What was the Navient forbearance scandal?
Navient systematically steered struggling borrowers into forbearance instead of income-driven repayment, because forbearance required less processing time (90 seconds vs. 20+ minutes). This cost borrowers thousands in unnecessary interest and delayed forgiveness progress. Navient settled for $1.85 billion in 2022.