Loan Interest Capitalization Calculator
See how much unpaid student-loan interest capitalizes onto your principal — and how much extra interest that larger balance costs you every year afterward.
How it works
Accrued interest = principal × rate × months ÷ 12 · New principal = principal + accrued · Added annual interest = accrued × rate
Capitalization is when unpaid interest — accrued during deferment, forbearance or a grace period — is added to your principal balance. From that point you pay interest on the interest, so the loan quietly grows even if you never borrow another dollar. The lasting cost is the added interest the larger balance generates every year afterward, which is why paying at least the interest during a pause, when possible, prevents the balance from ballooning.
Worked example
A $30,000 balance at 6.5% accrues 30,000 × 0.065 × (12 ÷ 12) = $1,950 of interest over a one-year forbearance. Capitalizing it raises the principal to $31,950, and that extra $1,950 alone now generates about $127 of new interest each year.
Frequently asked questions
When does student-loan interest capitalize?
Common triggers are the end of a grace period, exiting deferment or forbearance, leaving certain income-driven plans, or loan consolidation. On many loans interest still accrues during these periods even when no payment is due.
How do I avoid capitalization?
Pay at least the accruing interest during any period when payments are paused. Even small interest-only payments keep the principal from growing and stop future interest from compounding on it.
Is this simple or compound interest?
The accrual shown here is simple interest over the unpaid period. The harm of capitalization is that once that interest is folded into principal, all future interest is charged on the larger balance.
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Educational estimate only. Financial-aid, loan and tuition rules change and vary by school, state and program — confirm figures with your school and loan servicer.