Capitalized Interest

Here is the math on a 30,000 dollar loan that accrued 2,000 dollars of unpaid interest during a pause. If that interest capitalizes, your new principal is 32,000 dollars, and at 6.5 percent you now accrue about 2,080 dollars of interest a year instead of 1,950. The 2,000 dollars did not just wait for you; it started charging its own rent.

Federal rules since 2023 removed capitalization from most situations, but it still applies where a statute requires it, such as when you leave the Income-Based Repayment (IBR) plan. Before you switch plans or end a deferment, ask your servicer whether any unpaid interest will capitalize, because the answer changes what your payoff really costs.