How to calculate capitalized interest

When you take out a student loan to pay for college, interest charges come with the territory. Consider them the price you pay for borrowing money. You can defer making payments toward the principal balance and interest while you’re in school and during your grace period, but do you know what interest is doing during this time and how it impacts your student loan?

Here's a closer look at how interest and capitalized interest work—and how you can avoid extra costs.

What is capitalized interest?

Let’s first clarify how student loan interest works.

What is capitalized interest on a cd

Interest on a student loan accrues daily, starting the day your money is disbursed to the school. For most student loans, you are responsible for paying back the interest that accrues while you're in school and during your grace period.

The grace period is a window of time when the student is not required to make student loan payments, which is usually six months after graduation for undergraduate loans or dropping below half-time enrollment.

When it’s time to start repaying your student loan, any unpaid interest that accrued is added

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