What Does Capitalized Interest Mean And Can You Avoid It?

When you take out a student loan (or any other time type of loan), you have to pay interest. Interest is simply the cost of borrowing money. If the interest is tacked onto your loans, it can become what's called capitalized interest.

With both federal and private student loans, interest begins accruing immediately. Interest doesn’t go away because you aren’t making payments. Instead the interest you owe adds up over time.

Student loan lenders track your loan balance and any unpaid interest you owe. And at certain times, that interest can "capitalize," which will cause you to pay even more in interest charges over time. It's critical to understand how capitalized interest works so that you can manage your student loans effectively. Here's what you need to know.