What is capitalization?

This means that the interest that accrues is added to your principal loan balance, and interest then begins accruing on that new principal balance. You are essentially paying interest on interest. Here are two examples:

Example 1: You borrow a $6,000 Unsubsidized Stafford loan and you pay the interest every month for 4 years.

• Starting balance: $6,000
• Accrued interest: $0
• Balance when you start repayment: $6,000
• Monthly payment: $69.05
• Total interest paid on loan for all time: $2,285.69

Example 2: You borrow a $6,000 Unsubsidized Stafford loan and you defer the interest every month for 4 years.

• Starting balance: $6,000
• Accrued interest: $1,632
• Balance when you start repayment: $7,632
• Monthly payment: $87.83
• Total interest paid on loan for all time: $2,907.48

How much would it cost you to make the monthly interest payment in example 1? About $34/month. If you can manage to save or earn that much money during your four years of college, you could save yourself $621.79 in interest you won't have to pay back from capitalization.

Paying on your Unsubsidized Loan 

You can create an account online at: myfedloan.org or send your payments to:

Department of Education
Fed Loan Servicing
P O Box 530210
Altanta, GA  30353

Make sure if you are sending in your payments you reference your name and account number.

Tax Information

You can go online to myfedloan.org/tax to get more information.

Created: October 06, 2010 @ 09:34 AM
Last Modified: January 03, 2011 @ 02:54 PM