During Forbearance Interest Will Still Accrue on Your Loans: What to Expect

Forbearance can provide temporary relief, but it's essential to understand what happens to your loans during this time. Interest will still accrue on your loans, even if you're not making payments.

This means your loan balance will continue to grow, and you'll be responsible for paying the accrued interest when forbearance ends. The good news is that forbearance can help prevent default and damage to your credit score.

In most cases, interest will continue to accrue at the same rate as before forbearance. For example, if you have a $10,000 loan with a 6% interest rate, you can expect to owe $600 in interest each year, even during forbearance.

Discover more: Forbearance for Mortgage Loans

Forbearance is a temporary solution to financial difficulties, but it's essential to understand how it works.

You can request forbearance from your loan servicer, but you must apply in advance and receive confirmation before your payments are postponed. For federal student loans, forbearance can be granted for up to 12 months at a time.

During forbearance, interest will still accrue on your loans, and you'll be responsible for paying it back. This is true for both subsidized and unsubsidized loans. The good news is that the interest won't capitalize, meaning it won't be added to your principal balance.

You can choose to pay the interest during the forbearance period, which can help keep your loan balance and monthly payment from increasing. This is a smart move, as it can save you money in the long run.

Here's a comparison of federal and private student loan forbearance:

It's crucial to note that forbearance is not a long-term solution and should be used only when you're experiencing short-term financial difficulties. If you expect repayment difficulties to persist, you may want to explore other options, such as deferment or alternative repayment plans.

Interest will still accrue on your loans during forbearance, even if you're not making payments. This can result in a higher loan balance at the end of the forbearance period.

The interest rate on your loan will continue to apply, and the interest will be calculated on a simple daily basis. For example, if you have a $20,000 loan with a 6.8% interest rate, you can expect to accrue $1,360 in interest over a 12-month forbearance period.

The new loan balance will be the original balance plus the accrued interest, so in this example, your new loan balance would be $21,360. This can increase your monthly loan payment by a significant amount, as seen in the example where the monthly loan payment increased by $15.65 after the forbearance period.

Here's a breakdown of the interest accrual during forbearance:

It's essential to note that the interest that accrues during a forbearance will not capitalize, but it will still be added to your loan balance. This can have long-term consequences for your loan repayment, so it's crucial to consider your options carefully before requesting a forbearance.

You may be eligible for a deferment if you're in school, unemployed, experiencing economic hardship, or in the military, among other reasons.

A deferment can be a better option than a forbearance because the federal government pays the accruing interest on Direct Subsidized loans and subsidized Stafford loans during periods of deferment.

Interest continues to accrue on Direct Unsubsidized loans, unsubsidized Stafford loans, PLUS loans, and those portions of Consolidation loans made up of Direct Unsubsidized loans, unsubsidized Stafford loans, and PLUS loans during periods of deferment.

Generally, a deferment is a better option than a forbearance because it can save you money by not having to pay interest on certain types of loans.

Consider reading: Federal Direct Subsidized Loan Rate

You can apply for forbearance on federal student loans, but you have to apply to your loan servicer, and you can usually do this over the phone.

Forbearance on private student loans varies and is more limited than the federal program. The terms and fees associated with postponing private student loan payments are based upon your contract and applicable laws.

Before you apply for forbearance, it's essential to understand that you're still responsible for the interest accrued during the forbearance period. You can pay the interest during the forbearance period, or your servicer may add it to the balance of your loans when the forbearance ends.

To minimize the impact of interest accrual, consider paying the accruing interest during your forbearance period. This can keep your loan balance and monthly payment from increasing.

If you're granted a forbearance, don't take more time than you need. A longer forbearance means you may have to pay more interest over the life of the loan.

You're responsible for interest that accrues during the forbearance period, regardless of whether you have subsidized or unsubsidized loans.

Here are some key points to keep in mind:

Now that you know how forbearance works and what it means for your loans, it's time to think about your next steps.

You can continue to make regular payments, but keep in mind that your lender may still charge a late fee. For example, if your lender usually charges a $25 late fee, that won't change just because you're in forbearance.

If you're struggling to make payments, you may want to consider seeking help from a credit counselor or financial advisor. They can help you create a budget and come up with a plan to get back on track.

It's also a good idea to review your loan documents and contact your lender to confirm the terms of your forbearance agreement. This will help you understand what you can and can't do during this time.

By taking these next steps, you can stay on top of your loan payments and avoid any potential pitfalls during your forbearance period.