Loans - Interest Payment Options for your Federal Direct Loans
Should you pay interest on your Federal Direct Student Loans while in school?
Direct Unsubsidized Loans and Direct PLUS Loans start to accrue interest from the day the loan disburses to your student account. You have the option to pay the interest that is accruing on these loans while you are enrolled in school or you can defer payment while you are enrolled in school and for a grace period once you are no longer enrolled.
If you choose not to pay the interest while you are in school, the interest is added to your unpaid principal. Interest then begins accruing on the new principal amount. This is called Capitalization of Interest.
Capitalization of interest on your Federal Direct Loans can greatly increase the total amount you pay back on a loan. See the repayment example below to understand how “paying interest on your interest” will affect your monthly
payments AND the total amount of loan that you will be paying back.
|If you make interest payments while in school||If you do NOT pay interest while in school (Capitalized)|
Est Monthly Interest
for 12 Months
(at the maximum rate of 7.9%)
|Principal to be Repaid||$20,500||$22,119|
(Standard Repayment Plan)
|Number of Payments||120||120|
|Total Amount Repaid||$29,716||$32,064|
Note: The calculations used above are estimates. Values may not reflect the actual amount computed by the Direct Loan Servicing Center.
The capitalized amount increases your total loan repayment by $2,348!