Yes, interest does accrue during forbearance on nearly every kind of loan, including federal and private student loans, mortgages, auto loans, and credit cards. Your lender pauses or reduces the payment; the interest clock keeps running. What that actually costs you depends on your loan type and, just as importantly, on what happens to the built-up interest once payments start again.
How Interest Builds While Your Payments Are Paused
Forbearance is an agreement not to collect your normal payment for a set stretch of time. It is not a pause on the interest baked into your loan contract. Most consumer loans use simple interest: the lender divides your annual rate by 365 (or sometimes 360, depending on the contract), multiplies by your current principal, and adds that daily charge to what you owe.
The numbers add up quickly. Six months of forbearance on a $30,000 loan at 7% produces roughly $1,050 in interest with no payments made against it. On larger balances, or across longer pauses, the totals scale accordingly.
The real cost often shows up after payments resume. On some loans, the accumulated interest gets added to your principal — a process called capitalization — so you then pay interest on interest going forward. On others, it moves to a separate ledger or a non-interest-bearing balance. That distinction is where the rules split by loan type.
Federal Student Loans
Interest accrues on every type of federal student loan during forbearance, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.1Consumer Financial Protection Bureau. What Is Student Loan Forbearance? A common misunderstanding: the government’s interest subsidy on Direct Subsidized Loans applies during qualifying deferment, not forbearance.2Office of the Law Revision Counsel. 20 USC 1087e – Terms and Conditions of Loans In forbearance, you owe the interest on every federal loan you hold. If you qualify for deferment through school enrollment, unemployment, or economic hardship, that is almost always the better path for subsidized loan holders.
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 or professional Direct Unsubsidized Loans, and 8.94% for Direct PLUS Loans.3Federal Student Aid Partners. Interest Rates for Direct Loans First Disbursed Between July 1, 2025, and June 30, 2026 Divide your rate by 365 and multiply by your current balance to estimate your daily accrual.
One meaningful protection kicked in on July 1, 2023: the Department of Education stopped capitalizing interest in situations not required by statute, including when a borrower exits forbearance on a Direct Loan.4GovInfo. Federal Register Vol. 89, No. 75 – April 17, 2024 The unpaid interest still exists and still accrues, but it sits separately from your principal, so it does not itself start earning interest.
That change applies only to Direct Loans held by the Department. Older Federal Family Education Loan (FFEL) Program loans not held by the Department may still capitalize interest when forbearance ends, and 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
Private Student Loans
Private student loans carry none of the federal protections. Whether forbearance is available, how long it can last, whether it costs a fee, and what happens to interest afterward are all set by your loan contract.6Consumer Financial Protection Bureau. Is Forbearance or Deferment Available for Private Student Loans? Interest typically continues to accrue, and most private lenders capitalize it when payments resume. Before agreeing to anything, ask specifically whether interest will capitalize and whether the lender charges a fee for the arrangement.
Mortgage Forbearance
During mortgage forbearance, interest accrues at the rate in your original loan documents, and your servicer tracks the unpaid amount daily. The good news for most borrowers is that the built-up interest usually is not demanded in a lump sum when the pause ends.
Under Fannie Mae and Freddie Mac guidelines, a payment deferral moves missed payments — principal and interest together — to the end of the loan term as a non-interest-bearing balance.7Fannie Mae. Servicing – Elevated Loss Mitigation That deferred amount becomes due only when the loan matures, you sell, or you refinance. Your regular monthly payment resumes at its prior amount. And under federal loss mitigation rules, for borrowers who accept certain post-forbearance options, deferred amounts do not accrue additional interest and existing late charges must be waived.8eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures
If your mortgage is FHA-insured, the resolution can be even more favorable. Past-due amounts can be placed into a standalone partial claim, an interest-free subordinate lien against the property, and you repay it only when you sell, refinance, reach the end of the loan term, or the mortgage insurance terminates.9U.S. Department of Housing and Urban Development. FHA’s Loss Mitigation Program FHA also offers combination options that pair a loan modification with a partial claim.
One cost borrowers often miss: escrow. Your servicer still has to pay property taxes and homeowners insurance during forbearance, which creates a shortage. For loans moving to a payment deferral, amounts the servicer advanced during forbearance can be folded into the non-interest-bearing deferred balance.10Freddie Mac. Managing Escrow During a COVID-19 Related Hardship Quick Reference Guide Any escrow shortage that develops after the deferral is settled cannot be rolled in, and your servicer will typically spread it across up to 60 months of slightly higher payments.
Auto Loans
Most auto loans use simple interest, so daily interest keeps building on your remaining principal during any lender-granted deferral or extension.11Consumer Financial Protection Bureau. Worried About Making Your Auto Loan Payments? Your Lender May Have Options to Help There is no federal statute governing auto loan forbearance. The terms come entirely from your contract and whatever your lender agrees to.
The practical result matters. Your scheduled payments were sized to pay off the original balance by a fixed date. Extra interest from a deferral throws off that math, so the remaining payments may not fully retire the loan on the original schedule, potentially leaving a balloon payment at the end. For borrowers who take multiple extensions, that final amount can reach thousands of dollars. Before accepting a deferral, ask whether the added interest will be tacked onto the end of the loan or spread across the remaining payments.
Credit Cards
Credit card issuers run hardship programs case by case. Some temporarily reduce your APR, some defer minimum payments, and a few briefly suspend interest. In most arrangements, interest keeps accruing on your balance, often at a reduced rate rather than zero.
Credit card interest compounds, so each month’s interest is added to the balance used for next month’s calculation. Even a lower rate builds faster than simple interest on a comparable balance. If your issuer offers a hardship plan, ask whether it includes an APR reduction and whether any deferred payments will be returned to the balance at the standard rate once the plan ends.
Why Capitalization Is the Hidden Cost
Capitalization adds unpaid interest to your principal so that future interest is calculated on the larger amount. The rules vary sharply by loan:
- Federal Direct Loans: since July 2023, no capitalization at the end of forbearance; unpaid interest is tracked separately from principal.4GovInfo. Federal Register Vol. 89, No. 75 – April 17, 2024
- Older FFEL loans not held by the Department: interest may still capitalize; required lender notices apply.5eCFR. 34 CFR 682.211 – Forbearance
- Conventional Fannie Mae or Freddie Mac mortgages under a payment deferral: missed amounts move to a non-interest-bearing balance rather than capitalizing.7Fannie Mae. Servicing – Elevated Loss Mitigation
- FHA mortgages: past-due amounts can go into an interest-free partial claim lien.9U.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 when payments resume.
A quick illustration. Suppose you have a $200,000 mortgage and build up $5,000 in unpaid interest during forbearance. If that amount capitalizes, your principal becomes $205,000 and all future interest is calculated on the higher figure. Under a payment deferral, your principal stays at $200,000 and the $5,000 is simply owed later, without further growth.
The Tax Side: Some of the Interest Is Deductible
Capitalized interest on a student loan, once repaid through your regular payments, counts as interest for tax purposes in the year you pay it. The IRS treats capitalized interest as unpaid interest that a lender adds to your outstanding principal, and it qualifies for the student loan interest deduction, capped at $2,500 per year or the actual interest paid, whichever is less, and subject to income phase-outs.12Internal Revenue Service. Publication 970 (2025) – Tax Benefits for Education So a portion of the interest cost of forbearance is recovered through lower taxes as you pay it back.
Mortgage interest works differently. It is generally deductible in the year you pay it, not when it accrues. If interest built during forbearance is deferred to the end of your loan, you would not deduct it until you actually pay it. If it is folded into a repayment plan across future payments, the interest portion of each payment is deductible in the year that payment is made.
What to Check Before You Enter Forbearance
Two documents tell you almost everything you need: your original promissory note (or mortgage note) and the forbearance agreement letter from your servicer. Together they cover the interest rate, whether interest will capitalize when the pause ends, and what repayment options are available afterward.
If you don’t have those on hand, mortgage borrowers can submit a formal Request for Information to the servicer under Regulation X, and the servicer must respond within 30 business days.13eCFR. 12 CFR 1024.36 – Requests for Information Ask for the total accrued but unpaid interest, the capitalization terms, and the repayment options at the end of the forbearance period.
For federal student loans, log in at StudentAid.gov to see your accrued interest and servicer contact information.14Federal Student Aid. Loan Forbearance For private student loans, auto loans, and credit cards, contact the servicer directly and request a written breakdown of how interest is being tracked. Getting those numbers before payments resume is the difference between planning and being surprised.