How to Know if Paying Interest During Student Loan Forbearance is Worth It

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Student loan forbearance

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If you’re struggling to make your student loan payments, you may want to put your loans into deferment or forbearance. Both student loan deferment and student loan forbearance allow you to temporarily stop making payments on your student loans if you meet eligibility requirements — which are different for each of these options. Our complete guide to loan forbearance and this guide to deferment can help you determine if deferment or forbearance is an option for you.

Putting your loans into deferment or forbearance can provide financial relief if your budget is too tight to make student loan payments. However, it’s important to realize that interest can still accrue on your loans during the period when your payments are suspended.

If you’re in forbearance, interest accrues on all of your loans. If you’re in deferment, interest doesn’t accrue on certain subsidized loans, including Direct Subsidized Loans and Perkins Loans, but interest does accrue on unsubsidized loans.

You don’t have to pay this interest while your loans are in deferment and forbearance and the interest is accruing. But, if you don’t, the unpaid interest can be added to the balance of your loans and can make repayment a lot more expensive.

To understand the added costs, let’s take a look at how interest can affect your loan balance and whether you should pay it while you’re in deferment or forbearance.

Interest adds to your student loan debt

Because your student loans in forbearance continue to accrue interest, you have two choices for dealing with the interest that is charged each month.

Option 1: Pay interest while loans are in forbearance

One option is to pay only the interest as it accrues. As you’ll see below, this is the most cost-effective option and can prevent your total loan balance from ballooning when the forbearance period is over.

Unfortunately, this is not an option for everyone. “This is a cash flow issue for most students and families,” according to Fred Amrein, founder and owner of Amrein Financial. “If a family or student borrowed the money, then they most likely do not have the funds to pay the interest.”

If you borrow because you don’t have extra money to pay for school, even if you wanted to pay the interest, you may simply not have funds available to do so. This would leave you no choice but to opt for option two and allow interest to accrue without paying it.

Option 2: Allow interest to accrue without paying it

The other option is to allow the interest to continue accruing without paying it. If you do this, the interest is capitalized — or rolled into your loan’s principal balance — in almost all circumstances; unpaid interest is not capitalized on Perkins Loans, according to the Department of Education.

If you decide not to make payments toward the accruing interest, it will capitalize at the end of your forbearance period. Our student loan deferment calculator can help you determine the amount of interest that will accrue and capitalize during forbearance.

Let’s look at an example of how making interest payments versus allowing interest to capitalize affects the total cost of your debt:

Say you owe $35,000 in student loans at a 5.70% interest rate and are on the 10-year Standard Repayment Plan. You enter forbearance for one year and pay no interest during that time.

In this case, a total of $1,995 in interest would accrue over the year. This would be added to the $35,000 you originally owed. You’d end the forbearance period with a new loan balance of a little over $36,995 (because interest accrues daily), and going forward, you would pay interest on this higher loan balance. Essentially, you’d pay interest on the interest that built up while you were in school.

Now let’s look at this example again, except let’s assume you make interest payments during forbearance. By paying the $1,995 in interest that accrued during one year of forbearance, you’d prevent it from capitalizing. When your forbearance period ended, you’d still owe $35,000, and the payments and interest you’d make over the next decade would be based on a lower initial loan amount.

This calculator from Granite State Management and Resources shows exactly how this would affect your payments and your total interest costs.

student loan debt burden forbearance

By paying $166 a month in interest while your loans are in forbearance, you would end up paying a total of $638 less in interest over the life of the loan. Your monthly payments would also be $22 lower over the 10-year repayment period.

Should you pay interest on student loans in forbearance?

Because student loan forbearance does not stop interest from accruing on loans, it often makes sense to pay the interest while your loans are in forbearance, if it is feasible financially.

“With interest rates being so low, students are not earning much interest on their savings,” said Peter Bielagus, financial author and speaker. “A great way to ‘save’ money is to stop losing it. Making even just a $10 payment here and there on a student loan with a 5 percent interest rate should be viewed as ‘earning’ 5 percent on that $10.”

Despite the substantial savings and the fact paying interest would prevent you from increasing your student loan debt burden in forbearance, there are a couple situations where paying interest during forbearance doesn’t make sense.

One example is when you’re trying to pay other higher interest debt. “If a student owes $10,000 at 5 percent on a student loan and $3,000 at 18 percent on a credit card, it makes more sense to attack the credit card first,” Bielagus said.

Another situation where it doesn’t make sense to pay interest while you’re in forbearance is when you’re not planning on paying back your loans in full. “If the borrower will qualify for Public Service Loan Forgiveness, it makes no sense to make that interest payment,” Amrein said. It wouldn’t make sense to repay the interest because it doesn’t matter if your loan balance is higher at the end of forbearance. The interest that is tacked on just means more debt will be forgiven after you meet the requirements for loan forgiveness.

If you plan to repay your loans based on an Income-Driven Repayment plan, you may assume it doesn’t make sense to pay interest in forbearance since your monthly payment is capped based on your income — so it might not be higher because of the capitalized interest. However, if your total loan balance is higher and you pay off less of it, a larger amount will be forgiven — and you’ll be hit with a bigger tax bill since you are taxed on the forgiven amount.

If you’re in student loan forbearance, what should you do?

If your loans are in forbearance currently or if you’re thinking about putting your loans into forbearance, you’re not alone. In the third quarter of 2017, 2.6 million student loan borrowers with loans through the Direct Loan program were in forbearance, according to the Department of Education. Students with loans in forbearance collectively owed $105.9 billion in student loan debt in 2017 and accounted for 7 percent of all student loan borrowers.

Student loan forbearance

For the millions of students in forbearance, there is no one right answer to whether to pay interest or not. Ultimately, every borrower’s situation is different.

For many in forbearance, if you can afford to make payments and you’re not going to use Public Service Loan Forgiveness, it makes sense to save yourself hundreds of dollars by paying the interest.

Whether you’ve paid interest during forbearance or not, you could potentially save on your loan by refinancing and reducing your interest rate once you begin repaying your loans.

Refinancing may not make sense for everyone, as private loans don’t offer forbearance or deferment; you could be in financial trouble if you can’t pay your loan again in the future. However, if you are confident you can make your loan payments going forward and want to explore your options, there are a number of choices to refinance your student loans and potentially reduce the total interest you must pay over the life of the loan.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit We also have several resources available to help the borrower make a decision at, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.