Interest Capitalization

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shumpshump
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Interest Capitalization

Postby shumpshump » Wed May 23, 2012 4:54 pm

I know that interest is not capitalized when you're in school but after the grace period ends after graduation and the interest is first capitalized into the principal, how often does it capitalize after that? Is it daily/monthly/quarterly? Thanks.

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20130312
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Re: Interest Capitalization

Postby 20130312 » Wed May 23, 2012 4:59 pm

shumpshump wrote:I know that interest is not capitalized when you're in school but after the grace period ends after graduation and the interest is first capitalized into the principal, how often does it capitalize after that? Is it daily/monthly/quarterly? Thanks.


US DOE wrote:This occurs at the end of a deferment, forbearance or grace period on unsubsidized loans, and at the end of a forbearance period on a subsidized loan and increases the total amount you will repay over the life of your loan.

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20130312
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Re: Interest Capitalization

Postby 20130312 » Wed May 23, 2012 4:59 pm

I think what you meant is how often does it accrue, and the answer to that question is daily.

SpiteFence
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Re: Interest Capitalization

Postby SpiteFence » Wed May 23, 2012 5:05 pm

It accrues daily and capitalizes monthly on a standard repayment plan. I believe its set up so that if you make standard payments no accrued interest will be capitalized after you enter repayment. If you use IBR and have a partial financial hardship, interest still accrues but it does not capitalize until your partial financial hardship ends.

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shumpshump
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Re: Interest Capitalization

Postby shumpshump » Wed May 23, 2012 5:06 pm

InGoodFaith wrote:I think what you meant is how often does it accrue, and the answer to that question is daily.


Maybe I'm misunderstanding what "accrue" means, but here's what I'm trying to figure out:

Assume $100 loan on Day 0 with a 10% DAILY interest rate...which one is correct?

Daily Capitalization
Day 1 - $110
Day 2 - $121

Non-Daily Capitalization
Day 1 - $110
Day 2 - $120

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shumpshump
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Re: Interest Capitalization

Postby shumpshump » Wed May 23, 2012 5:08 pm

SpiteFence wrote:It accrues daily and capitalizes monthly on a standard repayment plan. I believe its set up so that if you make standard payments no accrued interest will be capitalized after you enter repayment. If you use IBR and have a partial financial hardship, interest still accrues but it does not capitalize until your partial financial hardship ends.


Thanks for the response. Do you know the monthly capitalization from experience or do you have a link where I can read about it? I'm having no luck searching for it.

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20130312
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Re: Interest Capitalization

Postby 20130312 » Wed May 23, 2012 5:11 pm

shumpshump wrote:
InGoodFaith wrote:I think what you meant is how often does it accrue, and the answer to that question is daily.


Maybe I'm misunderstanding what "accrue" means, but here's what I'm trying to figure out:

Assume $100 loan on Day 0 with a 10% DAILY interest rate...which one is correct?

Daily Capitalization
Day 1 - $110
Day 2 - $121

Non-Daily Capitalization
Day 1 - $110
Day 2 - $120


First off, there is a difference between an interest rate that is daily and interest accruing daily. Your loans will have a yearly APY that accrues every day. So if your loan's interest rate is 10%, then your daily accrual rate would be .10/365. Multiply your principal by that to get how many dollars are accruing daily.

Interest doesn't capitalize monthly. Maybe if you miss a payment they have the option to capitalize or something, but it is definitely not a regular thing. Once you enter repayment, your loan should never capitalize interest again (unless you go into deferment for whatever reason).

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shumpshump
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Re: Interest Capitalization

Postby shumpshump » Wed May 23, 2012 5:13 pm

InGoodFaith wrote:
shumpshump wrote:
InGoodFaith wrote:I think what you meant is how often does it accrue, and the answer to that question is daily.


Maybe I'm misunderstanding what "accrue" means, but here's what I'm trying to figure out:

Assume $100 loan on Day 0 with a 10% DAILY interest rate...which one is correct?

Daily Capitalization
Day 1 - $110
Day 2 - $121

Non-Daily Capitalization
Day 1 - $110
Day 2 - $120


First off, there is a difference between an interest rate that is daily and interest accruing daily. Your loans will have a yearly APY that accrues every day. So if your loan's interest rate is 10%, then your daily accrual rate would be .10/365. Multiply your principal by that to get how many dollars are accruing daily.

Interest doesn't capitalize monthly. Maybe if you miss a payment they have the option to capitalize or something, but it is definitely not a regular thing. Once you enter repayment, your loan should never capitalize interest again (unless you go into deferment for whatever reason).


Exactly what I was looking for. Thank you for your help.

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Tiago Splitter
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Re: Interest Capitalization

Postby Tiago Splitter » Wed May 23, 2012 7:18 pm

Just IBR it for no interest capitalization.




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