Student Loan Forbearance

A student loan forbearance is a temporary suspension or reduction of payments on a federal student loan, granted by the servicer when a borrower cannot meet the required payment and does not qualify for a deferment. The rule is codified at 34 CFR 685.205 for Direct Loans, with parallel provisions for older Federal Family Education Loan and Perkins Loan portfolios.

Forbearance comes in two forms. General or discretionary forbearance is up to the servicer to grant, usually in periods of up to 12 months at a time, when a borrower cites financial difficulty or other situations the regulation allows. Mandatory forbearance must be granted when a borrower meets specific eligibility conditions, including certain internships or residencies in a medical or dental program, service in a national service position such as AmeriCorps, and Department of Defense student loan repayment programs. Interest accrues under either form.

Interest accrual is the durable difference from deferment. On a deferment of a Direct Subsidized Loan, the government pays the interest during the pause. There is no equivalent interest subsidy on a forbearance: interest accrues on every loan type during forbearance, including subsidized loans, and the accrued interest is owed and added to what the borrower owes. Whether that interest is then capitalized into principal at the end of the forbearance, so that future interest runs on the higher balance, is genuinely unsettled in the current regulations. 34 CFR 685.205(a) still says forborne interest is capitalized, while the operative capitalization section, 34 CFR 685.202(b), was narrowed in 2022 to leave deferment expiry on an unsubsidized loan as its only listed trigger, and the Department has said it no longer capitalizes in this situation. A borrower should confirm the current treatment with the servicer. Either way, a borrower who takes repeated forbearances watches the debt grow while making no payments.

The 2027 cap on general forbearance is one of the more consequential upcoming changes. For federal student loans made on or after July 1, 2027, 20 USC 1087e(f)(8) caps general discretionary forbearance at nine months in any 24-month period. That reaches only the general forbearance provision at 34 CFR 685.205(a)(1) rather than every category of forbearance. Mandatory forbearances such as those tied to medical or dental residency continue to operate on their own eligibility rules, and the administrative forbearances the Department uses to suspend payments in specific programmatic circumstances are unaffected by the cap.

Most forbearances do not count toward the forgiveness clocks, and the exceptions matter. Public Service Loan Forgiveness counts qualifying monthly payments, not months in which no scheduled payment was due, and forbearance months therefore usually do not count. The generalization has real exceptions written into 34 CFR 685.219(c)(2)(v), which lists specific deferments and forbearances that do count toward Public Service Loan Forgiveness, but a Repayment Assistance Plan borrower cannot rely on those exceptions because the paragraph opens by excluding periods enrolled in that plan. For income-driven repayment forgiveness the general answer is the same, with narrower exceptions built into the specific plan rules.

Forbearance is easy to enter and easy to overuse. Because general forbearance is discretionary, a servicer can and often does offer it as a first-line answer to any borrower who calls about not being able to pay. It is administratively simple, it keeps the account out of delinquency and default, and it costs the servicer nothing. What the borrower gives up in exchange is the interest subsidy, the qualifying-payment count on the forgiveness clocks, and the option of enrolling in an income-driven plan that might have produced a required payment of zero or near zero with all of those benefits intact.

A defaulted loan cannot be placed in forbearance. The default must be cured first, and the routes out of default are their own transactions rather than forbearances.

A borrower requests a general forbearance from the servicer and documents the financial or personal reason. The servicer approves the request in periods, up to 12 months at a time on a general forbearance, and the account is placed in an in-forbearance status. No scheduled payment is due for the period. Interest accrues at the loan's ordinary rate and is owed on top of the balance; whether it is capitalized into principal at the end of the forbearance depends on the Department's capitalization rules, which were narrowed in 2022. For a mandatory forbearance the borrower supplies the documentation the regulation requires: the residency program, the national service assignment, the Department of Defense repayment program contract, and the servicer must grant it in periods of up to 12 months as long as the eligibility continues.

A hypothetical illustration. Amir owes $40,000 on Direct Unsubsidized Loans at a fixed rate of 6.5 percent. He requests and is granted a 12-month general forbearance. During the year interest accrues at 6.5 percent of $40,000, or about $2,600, and he owes it on top of the $40,000. If that interest is capitalized into principal, his balance becomes $42,600 and future interest runs on the higher figure: 6.5 percent of $42,600 is about $2,769, or about $169 more that year than if the interest had not been folded in. The Department narrowed automatic capitalization in 2022, so whether the interest capitalizes at the end of a general forbearance turns on current Department rules; the interest is owed to the account either way. What is certain is that a year of forbearance added about $2,600 to Amir's debt while he made no payments, and that paying the interest as it accrues costs less than letting it build.

A second illustration on the 2027 cap. Jordan takes out her first Direct Loan in September 2027 and starts a period of low earnings a year later. Under the new rule her servicer can grant her general discretionary forbearance in a total of nine months out of any 24-month window. Her alternatives at the point the cap binds are enrollment in an income-driven repayment plan, which recognizes her lower income directly and can produce a required payment that reflects it, or a qualifying mandatory forbearance if one applies to her situation. The cap does not reach a mandatory forbearance.

Pros

• Prevents delinquency and default in the short term, so the credit-report effect during the forbearance is different from what happens during a missed payment.
• Available even when no deferment category applies, so it is the safety net after the statutory deferments are exhausted or unavailable.
• Mandatory categories cover situations, such as a medical residency or an AmeriCorps year, in which the borrower has an obligation and little income to service the loan against.
• Administratively straightforward: the servicer can place a loan in general forbearance quickly when a borrower is struggling.

Cons

• Interest accrues on every loan type during forbearance, including on subsidized loans, and is owed on top of the balance, which grows during the pause.
• Most forbearance months do not count toward Public Service Loan Forgiveness or income-driven forgiveness, so a borrower pursuing forgiveness sacrifices calendar time without earning any credit.
• Repeated forbearance is often accepted as a solution when an income-driven plan would have handled the same difficulty with better economics.
• For loans made on or after July 1, 2027, general discretionary forbearance is capped at nine months per 24-month period, so it is not an unlimited stopgap.
• Forbearance cannot cure default. A defaulted borrower must exit default first.