Yes, interest does accrue during forbearance on nearly every kind of consumer loan, including federal and private student loans, mortgages, auto loans, and credit cards. Your servicer pauses or reduces the payment you owe, but the interest clock in your loan contract keeps running, and your balance grows each day. What that actually costs you depends on your loan type and, more importantly, on what happens to the accumulated interest once the pause ends.
How Interest Builds While Payments Are Paused
Forbearance is an agreement to skip or shrink your payments for a set time. It is not an agreement to stop interest. Most consumer loans use simple interest: the lender divides your annual rate by 365 (some contracts use 360), multiplies by your current principal, and charges that amount each day. Miss six months of payments on a $30,000 loan at 7%, and roughly $1,050 in interest piles up before you make another payment.
That daily accrual is only half the story. The bigger question is what your lender does with the unpaid interest when forbearance ends. Some loans add it to your principal, so you start paying interest on interest. Others park it in a separate non-interest-bearing balance. A few, under specific loss mitigation programs, waive it entirely. The rules differ sharply by loan type, so the specifics matter.
Federal Student Loans
Interest accrues on every type of federal student loan during forbearance, including Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans.1Consumer Financial Protection Bureau. What Is Student Loan Forbearance? The interest subsidy that covers Subsidized loans applies only during deferment. In forbearance, you owe the interest on all of it.
For loans first disbursed between July 1, 2025, and June 30, 2026, the fixed rates are 6.39% for undergraduate Direct Subsidized and Unsubsidized loans, 7.94% for graduate Direct Unsubsidized loans, and 8.94% for Direct PLUS loans.2Federal Student Aid Partners. Interest Rates for Direct Loans First Disbursed Between July 1, 2025, and June 30, 2026 Your rate depends on when the loan was first disbursed.
General forbearance can last up to 12 months at a time, with a cumulative cap of three years.3Federal Student Aid. Loan Forbearance Across three years on a large balance, accrued interest can climb into the thousands.
The Capitalization Rule Changed in 2023
Historically, unpaid interest was added to your principal when a forbearance ended, and future interest was then calculated on the larger balance. That changed on July 1, 2023, when the Department of Education stopped capitalizing interest in situations not required by statute, including at the end of forbearance on Direct Loans.4GovInfo. Federal Register Vol. 89, No. 75 – April 17, 2024 The unpaid interest still exists and is still owed. It just sits in a separate ledger rather than merging into your principal, so you don’t pay interest on that interest going forward.
This protection covers Direct Loans held by the Department of Education. Older Federal Family Education Loan (FFEL) Program loans not owned by the Department may still capitalize interest when forbearance ends.1Consumer Financial Protection Bureau. What Is Student Loan Forbearance? For FFEL loans, the lender must notify you at least once every 180 days during forbearance of the amount that will capitalize and the date it will occur.5eCFR. 34 CFR 682.211 – Forbearance
If You Qualify for Deferment, Take It Instead
If you hold Direct Subsidized loans and qualify for deferment through school enrollment, unemployment, or economic hardship, deferment is almost always cheaper. During a qualifying deferment, the government pays the interest on subsidized loans, and it does not accrue against you.6Office of the Law Revision Counsel. 20 USC 1087e – Terms and Conditions of Loans Forbearance is the fallback when you don’t qualify for deferment.
Private Student Loans
Private student loans carry none of the federal protections. Whether the lender offers forbearance at all, how long it lasts, and what happens to interest afterward are set by your loan contract.7Consumer Financial Protection Bureau. Is Forbearance or Deferment Available for Private Student Loans? Interest almost always accrues during the pause, and most private lenders capitalize that interest when payments resume. Some charge fees for the arrangement. Before you agree, ask the lender in writing whether interest will capitalize and whether any fees apply.
Mortgages
Mortgage interest continues to accrue during forbearance at the rate on your original note, and your servicer tracks the unpaid amount daily. For conventional loans backed by Fannie Mae or Freddie Mac, an initial forbearance term can last up to six months, with up to six more months of extension. Anything past 12 months cumulative requires the investor’s written approval.8Fannie Mae. Forbearance Plan
The important part for most homeowners is what happens next. You usually will not owe the accrued amount in a lump sum. Under Fannie Mae and Freddie Mac guidelines, a payment deferral moves missed principal and interest to the end of your loan as a non-interest-bearing balance, due when the loan matures, you sell, or you refinance.9Fannie Mae. Servicing – Elevated Loss Mitigation Your regular monthly payment resumes at its old amount. For borrowers who accept certain loss mitigation options, deferred amounts do not accrue additional interest, and the servicer must waive existing late charges.10eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures
If your mortgage is FHA-insured, past-due amounts can be placed into a standalone partial claim, which is an interest-free subordinate lien on your property. You don’t repay it until you sell, refinance, reach the end of your loan term, or the mortgage insurance terminates.11U.S. Department of Housing and Urban Development. FHA’s Loss Mitigation Program FHA also offers combinations that pair a loan modification with a partial claim to reduce your monthly payment.
Auto Loans
Most auto loans use simple interest, so daily accrual continues during any deferral or extension your lender grants.12Consumer Financial Protection Bureau. Worried About Making Your Auto Loan Payments? Your Lender May Have Options to Help No federal statute governs auto forbearance; your contract does.
Your scheduled payments were set to pay off the original balance by a fixed date. Extra interest from a deferral breaks that math. Your remaining payments may no longer be enough to cover the loan by its original end date, leaving a balloon payment due at the end. Multiple extensions can push that final amount into the thousands. Before agreeing to a deferral, ask whether the added interest will be tacked to the end of the loan or spread across your remaining payments.
Credit Cards
Credit card issuers handle hardship on a case-by-case basis. Some reduce your APR temporarily, some defer minimum payments, and a few may briefly suspend interest. In most hardship arrangements, interest still accrues, often at a reduced rate rather than zero. Because credit card interest compounds monthly, even a reduced rate grows faster than simple interest on the same balance. If your issuer offers a plan, ask whether it includes an APR reduction and whether deferred payments will be added back to a balance charged at the full standard rate once the plan ends.
Why Capitalization Is the Number That Matters
Capitalization adds accumulated unpaid interest to your principal, so future interest is calculated on the larger amount. It is the single feature that decides whether forbearance is expensive or manageable. The rules by loan type:
- Federal Direct Loans: no capitalization at the end of forbearance since July 2023. Unpaid interest stays separate from principal.4GovInfo. Federal Register Vol. 89, No. 75 – April 17, 2024
- Older FFEL loans not held by the Department of Education: interest may still capitalize when forbearance ends.5eCFR. 34 CFR 682.211 – Forbearance
- Fannie Mae or Freddie Mac mortgages with a payment deferral: missed interest becomes a non-interest-bearing balance at the end of the loan.9Fannie Mae. Servicing – Elevated Loss Mitigation
- FHA mortgages with a partial claim: past-due amounts go into an interest-free subordinate lien.11U.S. Department of Housing and Urban Development. FHA’s Loss Mitigation Program
- Private student loans and auto loans: capitalization depends on the contract. Most private student lenders do capitalize.
A quick illustration. Say you carry a $200,000 mortgage and rack up $5,000 in accrued interest during forbearance. If that $5,000 capitalizes, your principal becomes $205,000 and every future interest calculation runs against the higher balance. Under a payment deferral instead, the $5,000 moves to a non-interest-bearing balance, your principal stays at $200,000, and the $5,000 sits owed but frozen until sale, refinance, or maturity.
How to Find Out What Forbearance Will Actually Cost You
Two documents tell you what you need: your original promissory note or mortgage note, and the forbearance agreement letter from your servicer. Between them, you’ll find your interest rate, whether interest capitalizes, and the repayment options afterward.
If you can’t locate them, mortgage borrowers can send a formal Request for Information to their servicer under Regulation X. The servicer must respond within 30 business days.13eCFR. 12 CFR 1024.36 – Requests for Information Include your account number and ask specifically for total accrued but unpaid interest, the capitalization terms, and the repayment options available when forbearance ends.
For federal student loans, log in at StudentAid.gov to see accrued interest and your servicer’s contact information. For private student loans, auto loans, and credit cards, call your servicer and request a written breakdown of how interest is being tracked during the forbearance period. Getting those numbers in writing before payments resume is the only reliable way to know what you’ll actually owe.