Introduction: Understanding your federal loan payment pause options

When facing financial challenges, pausing your federal student loan payments can provide essential breathing room. The two primary ways to do this are through forbearance or deferment. Both temporarily suspend your monthly payments, but the critical difference lies in how interest is handled. With deferment, the government may pay the interest on certain loans, while with forbearance, you are always responsible for the interest that accrues.

Needing to pause payments is a common part of managing student debt, and making an informed decision can protect your long-term financial health. While both options offer short-term relief, one may be significantly less expensive over the life of your loan. Understanding the nuances between them empowers you to choose the right path for your specific situation without adding unnecessary costs down the road.

This guide will walk you through everything you need to know to make a confident choice. By the end, you’ll be able to:

• Distinguish the key differences between forbearance and deferment
• Identify which option you might be eligible for
• Understand the long-term cost implications of interest capitalization
• Navigate the application process with your loan servicer
• Choose the best relief option for your financial circumstances

Context at a glance: why payment pauses matter

Life is unpredictable, and financial setbacks like a job loss, unexpected medical bills, or a return to school can make it difficult to keep up with student loan payments. Federal student loan forbearance and deferment are safety nets designed for these exact situations, used by millions of borrowers to prevent default and protect their credit. Your federal loan servicer is your point of contact for requesting this temporary relief.

To understand how these options work, it’s crucial to know three key terms. First is the difference between Subsidized Loans, where the government may pay the interest for you during a deferment, and Unsubsidized Loans, where you are always responsible for the interest that accrues. Second is interest capitalization, the process where any unpaid, accrued interest is added to your principal loan balance. Once capitalized, you begin paying interest on that new, larger balance, increasing your total repayment cost.

Understanding these concepts is the first step toward choosing the most cost-effective way to manage your payments during a difficult time. Now, let’s compare forbearance and deferment side-by-side to see how they differ in practice.

Quick compare: forbearance vs. deferment at a glance

To help you see the practical differences, here is a side-by-side comparison of the most important features of deferment and forbearance. The primary distinction is who pays the interest on Subsidized Loans—a difference that can save you hundreds or even thousands of dollars.

Forbearance vs. deferment comparison

Source: U.S. Department of Education / StudentAid.gov

While this comparison provides a high-level overview, your eligibility is the deciding factor. Deferment has stricter, more defined criteria tied to specific life events, whereas forbearance is a more general-purpose tool for temporary financial distress. The following sections will provide a detailed breakdown of the exact qualifications for each, starting with the different types of deferment.

Deferment deep dive: eligibility and types

Unlike forbearance, which can be granted for more general financial difficulties, deferment is tied to specific, verifiable life events. To qualify, you must meet the defined criteria for one of the categories established by the U.S. Department of Education. For most of these, you’ll need to submit a formal request and provide documentation to your loan servicer.

In-school deferment

This is one of the most common types and is typically granted automatically. You are eligible if you are enrolled at least half-time at an eligible college or career school. This deferment remains active as long as you maintain at least half-time enrollment. Parent PLUS Loan borrowers can also request an in-school deferment while the student on whose behalf they borrowed is enrolled at least half-time, plus an additional six months after the student ceases to be enrolled at least half-time.

Economic hardship deferment

According to StudentAid.gov, you may qualify for an economic hardship deferment for up to three years if you are experiencing financial difficulty. You must provide documentation showing you meet at least one of the following criteria:

• You are serving in the Peace Corps.
• You are working full time but your monthly earnings are less than 150% of the poverty guideline for your family size and state.
• You are receiving means-tested federal benefits, such as Temporary Assistance for Needy Families (TANF).

Unemployment deferment

If you are out of work, you may be able to defer your payments for up to a cumulative total of three years. To qualify, you must be able to certify that you are either receiving unemployment benefits or that you are diligently seeking but unable to find full-time employment. You will need to provide documentation from your state’s unemployment office or keep records of your job search.

Other qualifying situations

Deferment is also available for other specific circumstances, including:

• Military Service: For periods of active duty military service during a war, military operation, or national emergency.
• Graduate Fellowship: If you are enrolled in an approved graduate fellowship program.
• Rehabilitation Training: If you are in an approved rehabilitation training program for individuals with disabilities.

Except for in-school deferment, you must actively apply for these options through your loan servicer. You can find the necessary forms on the official StudentAid.gov website. It is crucial to continue making payments until you receive confirmation that your deferment request has been approved to avoid becoming delinquent.

Forbearance deep dive: types and qualifications

While deferment is available for a narrow set of specific circumstances, forbearance serves as a more flexible safety net for borrowers facing financial difficulties who don’t qualify for other relief. Your loan servicer has the authority to grant forbearance, and it falls into two main categories: discretionary and mandatory. It’s important to remember that for all types of forbearance, interest continues to accrue on all your loans, including Subsidized Loans.

Discretionary forbearance

Also known as “general forbearance,” this type is granted at the discretion of your loan servicer. You can request it for a variety of financial challenges, and the servicer will decide whether to approve it based on your situation and documentation. Common reasons for requesting discretionary forbearance include:

• Financial hardship not covered by deferment
• Unexpected medical or dental expenses
• A change in employment, such as a temporary reduction in hours

Discretionary forbearance is typically granted for no more than 12 months at a time. While you can request additional periods of forbearance, there may be a cumulative limit, often around three years, over the life of the loan.

Mandatory forbearance

In certain situations, your loan servicer is required to grant you a forbearance if you meet the specific eligibility criteria and provide the necessary documentation. You cannot be denied if you qualify. According to the U.S. Department of Education, mandatory forbearance is available if you are in one of the following situations:

• Medical or Dental Internship/Residency: You are serving in a medical or dental internship or residency program and you meet specific requirements.
• High Student Loan Debt Burden: The total amount you owe each month for all your federal student loans is 20% or more of your total monthly gross income.
• National Service: You are serving in an AmeriCorps position for which you received a national service award.
• Teacher Loan Forgiveness: You are performing teaching service that would qualify you for Teacher Loan Forgiveness.
• Department of Defense Repayment: You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
• National Guard Duty: You have been activated for National Guard duty but do not qualify for a military deferment.

To apply for any type of forbearance, you must contact your loan servicer and submit a formal request. It is critical to continue making your payments until you receive written confirmation that your forbearance has been approved. While this pause provides immediate relief, the accumulating interest can significantly increase your total loan cost, a crucial factor we will explore next.

The interest impact: understanding long-term costs

The most significant long-term difference between deferment and forbearance is the cost of interest. While both provide immediate relief from monthly payments, one can be free while the other adds hundreds or even thousands of dollars to your loan balance. The financial outcome depends entirely on your loan type and the relief option you qualify for.

The subsidized loan advantage in deferment

If you have Subsidized Loans and qualify for deferment, you are in the best possible position. During a deferment, the U.S. Department of Education pays the interest that accrues on these specific loans. This means a deferment on your Subsidized Loans costs you nothing, and your balance will not increase. It is the most financially beneficial way to pause payments.

When interest always accrues

In all other scenarios—forbearance on any loan type or deferment on Unsubsidized Loans—you are responsible for the interest that accumulates daily. This unpaid interest can then be capitalized, or added to your principal balance, once the pause ends. When this happens, you begin paying interest on a new, higher balance, which increases the total cost of your loan over time.

To put this in perspective, here is how much interest could accrue over a six-month pause at the 6.53% undergraduate Direct Loan rate for 2024-2025 as of July 2024:

• On a $10,000 loan: Approximately $326 in interest accrues.
• On a $20,000 loan: Approximately $652 in interest accrues.
• On a $30,000 loan: Approximately $978 in interest accrues.

How to minimize the financial impact

Even if you must use forbearance or defer an Unsubsidized Loan, you can take steps to control the cost. The most effective strategy is to pay the accrued interest each month during the pause, if your budget allows. This prevents capitalization and keeps your principal balance from growing. If you cannot pay all of it, paying any amount helps reduce the total that will eventually be capitalized. Limiting the length of your payment pause to only what is absolutely necessary will also help keep long-term costs down.

While these options are valuable tools, their potential costs make it essential to consider all alternatives. Other relief programs may allow you to lower your monthly payment instead of stopping it completely, which could be a more sustainable solution for your financial health.

Alternative relief options: beyond forbearance and deferment

Instead of stopping payments entirely, you may find a more manageable and cost-effective solution by lowering them. Pausing payments should generally be a last resort, as interest often continues to grow. Before choosing forbearance or deferment, explore these alternatives with your loan servicer to see if one is a better fit for your long-term financial health.

Income-driven repayment (IDR) plans

For many borrowers, an income-driven repayment (IDR) plan is the best first step when facing financial hardship. These plans cap your monthly payment at a percentage of your discretionary income. If your income is low enough, your monthly payment could be $0. This provides the same immediate relief as a payment pause, but it allows you to continue making progress toward loan forgiveness programs like Public Service Loan Forgiveness (PSLF). The SAVE Plan, for example, also prevents your loan balance from growing due to unpaid interest.

Other federal repayment plans

If you don’t qualify for an IDR plan or need a different structure, consider these options:

• Graduated Repayment Plan: Payments start low and increase every two years. This is a good option if you expect your income to rise steadily over time.
• Extended Repayment Plan: According to StudentAid.gov, if you have more than $30,000 in federal student loans, you can extend your repayment term to 25 years, which will lower your monthly payment. However, you will pay more in interest over the life of the loan.

Direct consolidation loan

A Direct Consolidation Loan allows you to combine multiple federal education loans into a single loan with one monthly payment. While it doesn’t necessarily lower your interest rate, it can simplify your finances and give you access to repayment plans you might not otherwise qualify for.

Private student loan refinancing

If you have strong credit and a stable income, you might consider refinancing your student loans with a private lender. This could secure a lower interest rate, reducing your monthly payment and total interest paid. However, refinancing federal loans into a private loan means you permanently lose access to federal benefits like IDR plans and loan forgiveness programs. If you have private student loans, refinancing is a primary tool for managing payments. Compare rates from 8+ lenders to see if you could save.

How to apply: step-by-step process

Requesting a deferment or forbearance is a formal process that you must complete directly with your federal loan servicer—the company that manages your loan and sends you bills. It’s essential to act as soon as you anticipate trouble making payments, as the process is not instantaneous. You can typically find your servicer’s contact information by logging into your account on the StudentAid.gov website.

Steps to apply for relief

Follow these steps to formally request a payment pause:

1. Identify and Contact Your Servicer: Log in to your Federal Student Aid dashboard to confirm who your loan servicer is. You can then visit their website or call them to begin the request.
2. Complete the Correct Form: Your servicer will direct you to the appropriate deferment or forbearance application form. These are standardized forms available online through your account or on the StudentAid.gov website.
3. Gather Required Documentation: For deferment, you will need to provide proof of your eligibility. This could include pay stubs to demonstrate economic hardship, proof of unemployment benefits, or documentation of your half-time school enrollment. General forbearance may require less documentation, often just a signed form explaining your financial difficulty.
4. Submit and Await Confirmation: You can usually submit your request and documentation through your servicer’s online portal, which is the fastest method, or by mail. Processing can take several weeks, so you must continue making payments until you receive written confirmation that your request has been approved. Once approved, any automatic payments will be paused.
5. Mark Your Calendar: Note the date your forbearance or deferment ends. Set a reminder a few weeks in advance so you are prepared to resume payments without missing one.

With a clear understanding of the application process, you can now weigh all the factors to determine which path is the most responsible choice for your situation.

Making your decision: a practical framework

Choosing the right way to pause payments is a critical financial decision. According to Sandy Baum, education policy expert, “Borrowing is not inherently bad; the question is how much, and under what terms.” The same logic applies here: pausing payments isn’t inherently bad, but the terms of that pause will determine its long-term cost. Use this framework to find the best path for your situation.

Your decision-making checklist

Before contacting your servicer, ask yourself these key questions to clarify your choice:

1. Is a full pause my best option? First, consider if an income-driven repayment (IDR) plan could lower your payment to a manageable amount, potentially even $0. An IDR plan allows you to continue making progress toward loan forgiveness, which is often a better long-term strategy than a temporary pause.
2. Do I qualify for deferment? As detailed earlier, deferment has specific eligibility criteria. If you meet the requirements for any type, especially if you have Subsidized Loans, it is almost always your most cost-effective choice.
3. What will the interest cost me? If you only have Unsubsidized Loans, both deferment and forbearance will result in accrued interest. If you have Subsidized Loans, deferment will save you from paying that interest.
4. Is forbearance my necessary backup plan? If you do not qualify for deferment but still need immediate relief from payments, forbearance is the appropriate safety net to use.

By thoughtfully working through these steps, you can move beyond feeling overwhelmed and confidently select the relief option that protects your financial health today while minimizing costs for the future.

Conclusion: take control of your federal loan payments

Navigating financial hardship is challenging, but you now have the tools to make an informed decision about your federal student loans. The right choice between forbearance and deferment boils down to one critical factor: how interest is handled. By understanding this distinction, you can confidently choose the path that protects your long-term financial health.

Here are the key takeaways to guide your next steps:

• Always check deferment eligibility first. If you have Subsidized Loans and qualify, the government may pay your interest, making it the most cost-effective option.
• Explore alternatives before pausing. An income-driven repayment (IDR) plan could lower your payment to as little as $0 per month while still allowing you to make progress toward loan forgiveness.
• Use forbearance as a flexible backup. When you don’t qualify for deferment, forbearance provides a crucial safety net, but remember that interest will accrue on all loan types.
• Act proactively. Contact your loan servicer as soon as you anticipate difficulty making payments to get the process started.

Your immediate next step is to review your loan types on StudentAid.gov and contact your servicer to discuss your options. Taking control of your payments is a powerful move toward financial stability.

References and resources

• Federal Student Aid Deferment Information: The official source for eligibility criteria and application forms for all deferment types.
• Federal Student Aid Forbearance Information: Official guidance on qualifying for mandatory and general forbearance options.
• Who Is My Loan Servicer?: Log in to your FSA dashboard to find contact information for the company managing your federal loans.
• College Finance Guide to IDR Plans: Explore alternatives like income-driven plans that can lower your monthly bill based on your income.
• Student Loan Interest Calculator: A tool to estimate how much interest will accrue on your loans during a payment pause.
• National Foundation for Credit Counseling (NFCC): Connect with a nonprofit counselor for free or low-cost advice on managing your student debt.