Rising Use of Payment Pauses Among Federal Student Loan Borrowers
In the third quarter of 2025, over 25% of the more than 40 million federal student loan borrowers utilized deferments or forbearances to temporarily halt their monthly payments. This figure represents more than a twofold increase compared to the same period in 2024, according to higher education analyst Mark Kantrowitz.
Deferments vs. Forbearances: Key Differences
The U.S. Department of Education offers two primary mechanisms for pausing student loan payments: deferments and forbearances. Consumer advocates highlight these options as vital tools to help borrowers avoid default, which can severely damage credit scores and lead to wage garnishments and additional collection costs.
Deferments typically prevent interest from accruing on subsidized Direct Loans, the category encompassing most federal student debt. For instance, borrowers enrolled in certain programs such as vocational rehabilitation, cancer treatment, or unemployment may qualify for deferments that stop interest accumulation. Notably, the Cancer Treatment Deferment waives interest regardless of loan type.
Conversely, forbearances allow payment pauses for any reason but generally require interest to continue accruing on all Direct Loans. Kantrowitz estimates that borrowers with average loan balances and interest rates could see their debt grow by approximately $219 per month during a forbearance period.
Growing Reliance on Economic Hardship Deferment
The number of borrowers using the Economic Hardship Deferment doubled from roughly 50,000 in Q3 2024 to 100,000 in Q3 2025, signaling increased financial distress. This deferment targets borrowers earning below a certain income threshold or those receiving public assistance. However, these deferments have lifetime limits, typically up to three years for unemployment and economic hardship cases.
Limitations and Long-Term Considerations
While deferments and forbearances offer crucial short-term relief, experts caution they are not sustainable long-term solutions. Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program, stresses that extended reliance on these pauses prolongs the debt repayment timeline.
Income-driven repayment (IDR) plans present an alternative by capping monthly payments relative to income, sometimes reducing bills to as little as $10 or zero. Moreover, IDR plans enable borrowers to make progress toward loan forgiveness, a benefit that is paused during deferments or forbearances.
Legislative changes will also alter forbearance limits, reducing the allowable duration to nine months within any 24-month period starting July 1, 2027, down from the current maximum of three years over the loan’s lifetime.
Conclusion
Borrowers struggling with federal student loan payments should consider deferments and forbearances as temporary relief options, weighing the cost implications carefully. Exploring income-driven repayment plans may offer more sustainable pathways to managing and ultimately resolving student debt.
FinOracleAI — Market View
The sharp increase in borrowers pausing payments signals rising financial stress among federal student loan holders, which may weigh on consumer spending and broader economic activity in the near term. While deferments limit interest accrual for some, the growing use of forbearances could lead to higher overall debt burdens, increasing default risks once payment resumes. Policymakers and market participants should monitor legislative changes affecting forbearance limits and the uptake of income-driven repayment plans, which could mitigate long-term credit risks.
Impact: neutral
