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Interest Capitalization Can Increase Your Student Loan Balance

Has your student loan balance jumped up significantly? Are you wondering what happened?  Well, in short, this is probably because of something called interest capitalization.  This is where accumulated interest is added to the principal of a loan, often increasing it significantly.

Why did this happen?  Well, this usually happens in a deferment on an unsubsidized loan or in a forbearance. During this time, the loan continues to accumulate interest during this period of time and then capitalize it once it is over. This means that the interest is added to principal.

In addition to increasing the amount you have to pay back, it also increases the amount of interest that accrues per month because even though the interest rate didn’t go up, the balance it is applied to did. Find out more here!

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