Is Student Loan Forbearance Bad? Risks, Costs, and Alternatives

Student loan forbearance isn’t automatically a bad choice, but it’s an expensive one, which is why it’s best treated as a last resort rather than a first move. The question of whether student loan forbearance is bad really comes down to two costs: interest keeps accruing on your balance the entire time you’re not paying, and the months you spend in forbearance generally don’t count toward loan forgiveness. If you have a short-term cash crunch and no better option, forbearance can keep you out of default. If you have alternatives, most of them will cost you less.

The Real Cost: Interest Keeps Running

The biggest downside of forbearance is that interest never pauses. Unlike certain types of deferment, where the government covers interest on subsidized loans, forbearance offers no interest subsidy on any loan type.¹ Interest accrues daily on both subsidized and unsubsidized Direct Loans throughout the forbearance period.²

The federal interest rate for undergraduate Direct Loans disbursed during the 2025–2026 academic year is 6.39%.³ A borrower with a $30,000 balance at that rate would see roughly $160 in interest added every month in forbearance, or close to $1,920 over a full year without making a single payment.

Will That Interest Get Added to Your Principal?

Capitalization is what turns unpaid interest into a bigger problem. When interest capitalizes, it gets rolled into your principal balance, and future interest is then calculated on that larger number. A borrower who enters forbearance with a $20,000 balance and accrues $1,200 in unpaid interest would, after capitalization, owe interest on a $21,200 balance going forward.

Effective July 1, 2023, the Department of Education stopped capitalizing interest in several situations where it has discretion, including when a borrower exits forbearance.⁴ Unpaid interest still sits on your account, but it doesn’t fold into principal. Because this is an administrative policy rather than a statutory change, confirm the current rules with your servicer before counting on the protection.

How to Blunt the Damage

Even inside a forbearance, you can make voluntary payments. Paying just the monthly interest, roughly $160 on a $30,000 loan at current undergraduate rates, keeps your balance from growing. Anything less than that still reduces the total interest that accumulates. The forbearance doesn’t force you to stop paying; it just stops requiring you to.

Forbearance Can Set Back Loan Forgiveness

If you’re working toward federal loan forgiveness, this is where forbearance really hurts.

Public Service Loan Forgiveness

PSLF requires 120 qualifying monthly payments while working full-time for a qualifying employer.⁵ Most forbearance months don’t count. Every month you spend in a general or discretionary forbearance is a month that doesn’t move you toward forgiveness, pushing your timeline past the standard ten years.

A few narrow exceptions do count toward the 120 payments, as long as you were employed full-time at a qualifying employer during those months: AmeriCorps service forbearance, National Guard Duty forbearance, Department of Defense Student Loan Repayment Program forbearance, and administrative forbearances.⁵

If you already have 120 months of qualifying employment but spent some of those months in forbearance instead of paying, you may be able to “buy back” the lost months with a lump-sum payment based on what you would have owed under an income-driven repayment plan at the time.⁶

Income-Driven Repayment Forgiveness

Income-driven repayment plans forgive any remaining balance after 20 or 25 years of qualifying payments, depending on the plan and loan type.⁷ Months in forbearance generally don’t count toward that clock either. Each forbearance month adds a month to a milestone that may already be decades away.

There’s also a tax angle worth knowing. Starting in 2026, any balance forgiven under an income-driven repayment plan is treated as taxable income at the federal level. The temporary tax exclusion enacted under the American Rescue Plan Act expired at the end of 2025.

What Forbearance Doesn’t Hurt: Your Credit

Federal student loans in an approved forbearance are reported to credit bureaus as current, not delinquent.⁸ Forbearance protects you from the credit hit that comes with missed payments or default. It does not erase negative marks reported before the forbearance started.

The indirect risk is your growing balance. Lenders sizing you up for a mortgage or car loan look at your debt-to-income ratio. If your student loan balance climbs during forbearance, that ratio climbs with it, which can make it harder to qualify for new credit even if your credit score itself hasn’t moved.

When Forbearance Is the Right Call

Federal regulations split forbearance into two categories, and the distinction matters. A discretionary or general forbearance is granted at your servicer’s judgment; you’ll usually need to show financial hardship, illness, or another qualifying difficulty, and there’s no guarantee of approval.²

A mandatory forbearance is one your servicer must grant when you meet specific federal criteria. Common qualifying situations include:

Serving in a medical or dental internship or residency.
Serving in AmeriCorps or a similar national service position.
Having total monthly student loan payments that equal or exceed 20% of your total monthly gross income (capped at three years of cumulative eligibility).
Being activated for qualifying National Guard service.

Documentation such as pay stubs, proof of residency enrollment, or a service verification letter is required.²

Each forbearance period lasts up to 12 months, and you’d need to request a renewal to continue.² General forbearance carries a cumulative three-year cap over the life of your loan.⁹ The mandatory debt-burden forbearance has its own separate three-year cumulative limit.

Ask About These Alternatives First

Because of the costs above, other options are usually better if you qualify.

Deferment

Deferment covers reasons like returning to school, economic hardship, or active-duty military service. The key advantage: subsidized loans don’t accrue interest during deferment, because the government covers it for you.¹ Unsubsidized loans still accrue interest during deferment, but the subsidized benefit alone can save hundreds or thousands of dollars.

Income-Driven Repayment

If your income is low relative to your debt, an income-driven repayment plan can cut your monthly payment, sometimes to $0, while keeping you in active repayment.⁷ The critical difference from forbearance: every month on an income-driven plan counts toward forgiveness. A $0 payment on an income-driven plan is still a qualifying payment. A $0 payment during forbearance counts toward nothing.

Some loan servicers have historically steered borrowers toward forbearance when income-driven repayment would have been a better fit, partly because forbearance takes less paperwork. If your servicer suggests forbearance without first discussing income-driven options, ask directly whether you’d qualify for a lower income-driven payment before agreeing.

A Note on Private Student Loans

Everything above is about federal student loans. Private lenders aren’t required to offer forbearance at all, and when they do, the terms come from your loan agreement rather than federal rules. Private lenders can capitalize unpaid interest at whatever frequency the agreement specifies, and unlike the Department of Education, they commonly charge late fees as a percentage of your monthly payment.¹⁰ If your loan has a co-signer, forbearance increases their exposure to the growing balance and can affect any co-signer release timeline the lender offers.¹¹ Read the forbearance section of your loan agreement, and ask your servicer specifically whether interest will capitalize, how your payment will change afterward, and whether the forbearance affects co-signer release.

1
Federal Student Aid. What Is the Difference Between Loan Deferment and Loan Forbearance?
2
eCFR. 34 CFR 685.205 – Forbearance
3
Federal Student Aid Partners. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026
4
Federal Register. Student Debt Relief for the William D. Ford Federal Direct Loan Program
5
eCFR. 34 CFR 685.219 – Public Service Loan Forgiveness Program
6
Federal Student Aid. Public Service Loan Forgiveness Buyback
7
Federal Student Aid. Income-Driven Repayment Plans
8
Consumer Financial Protection Bureau. What Is Student Loan Forbearance?
9
Federal Student Aid. Student Loan Forbearance
10
Edfinancial Services. Payments, Interest, and Fees
11
Consumer Financial Protection Bureau. Co-signed a Private Student Loan? Here Are Tips to Protect Yourself