Interest capitalization occurs when unpaid interest on your loan is added to your principal balance when the loan enters full repayment. This new balance is then used to calculate your daily interest and monthly payment. Below is an example of how capitalization works for each of our available repayment plans.
When Does Interest Capitalization Occur?
Interest capitalization happens when:
- Your grace period ends.
- You exit a forbearance or deferment.
- You have a date of separation (generally caused by being enrolled less than half-time).
When one of these occurs, any unpaid interest on your loan may be added to your principal balance. Your loan will then begin to accrue simple daily interest based on this new balance.
What Can I Do to Stop Interest From Capitalizing?
You can prevent interest capitalization by paying any accrued interest before the capitalization date on your loan. Doing so can help reduce your overall loan cost. Each month, we will send you a loan statement showing the amount of accrued interest on your loan. Paying that interest in full before the capitalization date keeps it from being added to your principal.