Most student loans use the simple daily interest formula, meaning the interest on your loan is being calculated on your principal balance and not on any unpaid outstanding interest. Once your loan enters repayment, any outstanding interest is capitalized (added no credit check payday loans Ooltewah TN to the principal balance) which mean your principal balance will increase. Your new, higher, outstanding principal balance will now be used to calculate your interest charges on your loan.
Pay Interest During Grace Periods
Paying interest during your loan grace period is a great way to prevent it from capitalizing, especially for federal student loans. With federal student loans, students have a six month grace period after leaving college, graduation, or falling below part-time enrollment before their loans come due.