How often is student loan interest compounded?

[beebee0]

Sorry if this has been asked before, but does anyone know how often the interest is compounded for Federal Sub. and Unsub. loans and Grad PLUS loans? Is it daily (like they do in banks), or quarterly, or do they use any other methods?

I only found this thread :

"It depends on your lender actually. It is good to ask you lender if and when they capitalize the interest. "

I thought every lender was the same if it's a federal loan?

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[penguin24]

I went on the website for the Direct Loans which cover most of our Sub/UnSub loans and they post this on their website:

Capitalized Interest

The interest that accrues on loan(s), if not paid prior to a specific date, is added to the principal balance. For your education loan(s), 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.
Note: If you are repaying under the Income-Based Repayment (IBR) Plan and have a partial financial hardship when a deferment or forbearance ends, accrued interest (1) will capitalize only after your partial financial hardship ends or you leave the IBR Plan and (2) will not capitalize after your deferment and/or forbearance ends.
Capitalization results in an increased principal balance amount. You will accrue future interest based on the higher principal balance. When you receive a loan through the Direct Loan Program, you are required to pay interest on the money borrowed. The interest is generally considered the cost of borrowing money. Interest accrues daily on your outstanding principal balance.

 

[beebee0]

OK so it is daily once capitalization starts. Thank you for the info

 

[UserNameNeeded]

Interest accrues daily, according to that. It doesn't mean it compounds daily.

 

[rbnsafsadgf]

So, you are collecting interest on the (unsub'd) loans while in school, but the interest is counted separately. Once it is capitalized, that interest is added to the principle of the loan and then you are paying interest on the interest too (and the principle still).

 

[spyderefs]

I emailed my lender a couple weeks ago, it seems like it is capitalized quarterly after the initial capitalization.

"Federal Unsubsidized Stafford Loans: the interest that accrues on these loans during deferment will capitalize at the end of the deferment period if you do not pay it during deferment.

Accrued interest on Grad PLUS Loans will capitalize when the loan enters repayment, which will be the date of the final disbursement.


Interest begins to accrue on education loans from the date they are first disbursed until the date they are paid in full. The federal government pays the interest that accrues on your Federal Subsidized Stafford Loan during school, grace and deferment periods. You are responsible for paying the accrued interest on your unsubsidized Stafford loan during school, grace and deferment periods and on all loans during forbearance and repayment periods.



Any unpaid accrued interest will capitalize (be added to the principal balance) at the end of a grace and deferment period, and quarterly and at the end of a forbearance period."