About the Capitalized Interest Calculator
This capitalized interest calculator shows what happens to a student loan when interest accrues but is not paid — during school, the six-month grace period, deferment or forbearance. Unpaid interest is added to the principal (capitalized) when repayment begins, so you then pay interest on that interest for the rest of the loan. Enter the amount borrowed, the rate, how long the loan sits unpaid and your repayment term to see the new balance and payment.
It applies to loans where interest accrues from the day the money is disbursed: unsubsidized federal Direct Loans, Grad PLUS and Parent PLUS loans, and private student loans. Subsidized Direct Loans do not accrue interest while you are in school at least half-time or in grace, so for those you would enter zero months. Note that since July 1, 2023 federal Direct Loans no longer capitalize interest when you first enter repayment or leave forbearance; capitalization still happens at the end of a deferment on unsubsidized and PLUS loans, and most private lenders capitalize when repayment begins. If your unpaid interest will not capitalize, treat the result as an upper bound.
You can also enter a small monthly interest payment while in school to see how much capitalization it prevents. The calculator uses simple interest during the unpaid period (as federal loans do) and a single capitalization when repayment starts, followed by a standard fixed-payment repayment plan.
With the default inputs, the interest capitalized is $2,875.50. Change any value above to recalculate instantly.
How to use the capitalized interest calculator
- 1Enter the amount you borrowed and the loan’s interest rate.
- 2Enter how many months the loan will sit unpaid — school, grace period and any deferment.
- 3Optionally enter a monthly amount you plan to pay toward interest while in school.
- 4Choose your repayment term.
- 5Compare the capitalized balance and payment with the “interest paid” scenario to decide whether to pay interest early.
Formula and method
While the loan is in school, grace or deferment, federal student loans accrue simple interest: the daily rate (annual rate ÷ 365.25 on federal loans) times the principal, which works out to about P × r × months ÷ 12. Interest is charged only on the original principal during this period, not on earlier interest.
When repayment starts, any interest you have not paid is capitalized — added to the principal. From then on the lender charges interest on the larger balance P′, and the monthly payment M is calculated with the standard amortization formula over the repayment term. The extra cost of capitalization is everything you pay under this scenario minus what you would pay if all interest had been paid as it accrued.
- P
- Original amount borrowed
- r
- Annual interest rate (decimal)
- m
- Months the loan is unpaid (school + grace + deferment)
- P′
- Balance after capitalization
- i
- Monthly rate during repayment (r ÷ 12)
- n
- Number of monthly payments
Worked examples
$10,000 unsubsidized loan, 4.5 years unpaid
At 6.39%, $10,000 accrues about $53.25 a month, or $2,875.50 over 54 months. That interest capitalizes, so you start repaying $12,875.50 and the 10-year payment is $145.48 instead of $112.99.
Grad loan: $20,500 at 7.94%, 30 months unpaid, 20-year term
A $20,500 graduate loan at 7.94% accrues $135.64 a month; after 30 months $4,069.25 capitalizes. Spread over 20 years the payment on the $24,569.25 balance is about $205 a month.
Paying $30 a month while in school
Paying $30 a month for 54 months covers $1,620 of the $2,875.50 accrued, so only $1,255.50 capitalizes and the payment falls to about $127 a month.
Frequently asked questions
What is capitalized interest on a student loan?+
Capitalized interest is unpaid interest that the lender adds to your principal balance. After it capitalizes you are charged interest on it, so the loan costs more over its life.
When does student loan interest capitalize?+
Since July 1, 2023, federal Direct Loans capitalize unpaid interest only where the law requires it — mainly when a deferment ends on an unsubsidized or PLUS loan and when you leave Income-Based Repayment. It no longer capitalizes when you first enter repayment, after forbearance or on default. Private lenders set their own rules and commonly capitalize when repayment starts.
Do subsidized loans accrue interest in school?+
No. For Direct Subsidized Loans the government pays the interest while you are enrolled at least half-time, during the grace period and during deferment, so there is nothing to capitalize.
Is it worth paying interest while in school?+
Paying the accruing interest keeps your balance at the original amount and avoids paying interest on interest. Even partial payments help, and the savings are largest on high-rate loans with long deferments.
How is daily student loan interest calculated?+
Federal servicers use a simple daily interest formula: outstanding principal × annual rate ÷ 365.25 × days since the last payment. This calculator shows the daily figure using a 365-day year.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.