Stafford Student Loan News

To begin let’s first delineate the difference between a subsidized and unsubsidized loan.  If you received a subsidized loan for school NO interest will accrue while you are in school, sweet!  If however you have an unsubsidized loan than you are not so lucky.  Granted you could elect to make interest only payments if you so choose while in school, but if you don’t than that interest, which capitalizes quarterly, could spiral your student loan debt out of control.  Let’s take a look how.

So what is capitalized interest exactly?  When the interest is not paid, it is capitalized or added to the principle balance, which increases the outstanding principle amount on the loan.  Interest that is capitalized  and, therefore, has been added to the original amount of the loan subsequently accrues interest, adding an additional expense to the loan.

Here is a visual.

Loan amount: $1,000.

Interest per month: $10

Loan balance after 3 months: $1,030

Then that $1,030 loan balance is used as the new benchmark instead of  $1,000.  Now the monthly interest may go up to $10.10.

This was just a very basic visual used to demonstrate the capitalization concept.  Actual balances and interest rate calculations may vary.