What Is Capitalized Interest On My Student Loan

Q: I just received a statement for tax purposes on my private student loans. I am currently in forbearance on the private student loans, and I noticed I had something called “capitalized interest” on my loan statements. What is capitalized interest and why do I have it?

A: If you have read in your student loan terms or have heard your student loan lenders speak about the term “capitalized interest”, you are likely going to want to find out if the lender will capitalize the interest on your student loans, under what terms, and if they do this multiple times throughout the year.

Capitalized interest on student loans can happen for a few reasons, such as using the grace period, deferment, or forbearance options on the student loans. Some student loan lenders will take the interest that accrues on the student loans while you are in college or in a deferment period and then add it to the principal, or the original borrowed amount of the loan (this is capitalization). Usually this only applies to unsubsidized federal student loans and private student loans. What capitalization does, is it increases the amount owed on the principal of the loan, which can increase the monthly payment amount of your student loan after the deferment, forbearance, and/or grace period is over (for private student loans interest will always likely capitalize during deferment or forbearance). Since using a forbearance or deferment can increases the total amount paid on the loan significantly, it is suggested to not utilize these options unless absolutely necessary.

In addition to capitalizing the interest during the deferment, forbearance, and grace periods, there are some student loan lenders out there that will capitalize interest every 3 or 6 months, while others only once a year. For you as the borrower, the least expensive option is going to be a lender that is capitalizing the loan interest only once.

How To Pay Off Student Loan Debt

If you are like most college graduates, you leave college with some…

Pros And Cons Of Student Loan Deferment

Q: For current college graduates that are still unemployed with student loan…

Can I Use A Home Equity Loan To Pay Off Student Loan Debt

Q: If I could get a home equity loan to pay off…

5 Tips For Repaying Your Student Loans

f you’re like the majority of college graduates, you have most likely…

9 Common Student Loan Forgiveness Programs

Student Loan Forgiveness Programs are federal programs that qualified applicants may apply…

The Difference Between Loan Default And Delinquency

When it comes to student loan debt, many questions automatically arise. Default…

Need A More Affordable Repayment Plan For Student Loans

If you need a more affordable repayment plan for your federal student…

Income-Based Repayments For Student Loans

The Income-Based Repayment option for student loans is a federal government program…

Student Loan Debt
The Difference Between Loan Default And Delinquency

When it comes to student loan debt, many questions automatically arise. Default…

Student Loan Debt
10 Real Options For Reducing Student Loan Debt

Reducing student loan debt requires a combination of strategic planning, financial discipline,…

Student Loan Debt
Should I Pay Off Private Or Federal Student Loans First

Q: If I have both private and federal student loans, and have…

Student Loan Debt
When Do I Pay Back My Student Loans

Q: When do I pay back my student loans, and will I…

Student Loan Debt

Questions For CollegeWhale

Have a college financial aid question? CollegeWhale.com is full on answers! Type your question in the search box to get started.

Sign Up To Win Scholarships

Sign up for The CollegeWhale.com Weekly Scholarship Round-Up, and let us bring the scholarships to you! Get a list of new available college scholarships delivered to your inbox each week.

sign upsign up