[read time: 5 minutes]
I’ve mentioned before that I’m not a financial expert, right? I’m always eager to learn and consider myself relatively financially literate, but adding student loan repayment to my plate has made me realize just how much more I have to learn. The tale I’m about to share will make that abundantly clear.
Before seriously beginning my student loan repayment journey this month, I had autopay set up for 3 of my 8 loans. Aidvantage offered a 0.25% interest rate deduction, and I thought, why not? If I’m already going to be making minimum payments every month, it wouldn’t hurt to save a little on interest.
At the time (December 2024), only three loans were eligible for the deduction, but now all eight are, and autopay is set to begin for all my loans next month—April 2025. Yay for automation and a very tiny discount!
Now, back to the story. I was so proud of myself for setting up autopay that I didn’t even think to check the backend of my student loan dashboard (backend meaning the loan details and account history). I just set up the payments, factored them into our monthly budget, and more or less forgot about them.
Fast forward three months to March 2025, when I decided to get serious about my student loan repayment… and yikes. Three of my loans are unsubsidized, while the other five are Direct Grad PLUS loans, meaning they accrued interest while I was still in school.
I knew that. What I didn’t know is what happens to unpaid interest. Spoiler: it capitalizes.
I’ll walk you through the “educational lesson” I gave myself when I first saw the capitalized interest charge on my account. The information below comes directly from the Federal Student Aid office’s website.
- Interest Capitalizes: “When your unpaid interest capitalizes, it increases the outstanding principal amount due on your loan. Then your interest is recalculated based on that higher principal balance, increasing the overall cost of your loan.”
- When Interest Capitalizes: “Unpaid interest capitalizes only under certain conditions.”
- “after a deferment on an unsubsidized loan;
- or if you are repaying your loans under the income-based repayment (IBR) plan and no longer qualify to make payments based on income or leave the IBR plan.”
- When Interest Capitalizes: “Unpaid interest capitalizes only under certain conditions.”
- In-school Deferment: “During an in-school deferment, you don’t have to make monthly payments on your federal student loans.” -Federal Student Aid office
- Graduate school specific: “You’ll receive an automatic deferment while you’re enrolled in school at least half time, and for an additional six months after you graduate, leave school, or drop below half-time enrollment. You don’t have to start making payments until after this deferment period ends.
Armed with this new knowledge, I quickly realized what had happened. The six-month deferment after graduation ended in December, meaning all the unpaid interest I had accumulated over 3.5 years of school + the six-month deferment window was added to my principal.
This was something I probably could have avoided with better oversight of my loans, but it happened—and all I can do now is move forward. Oof. I really should have had that educational lesson sooner!
For me, moving forward means educating myself further—diving into the details of each loan and figuring out what I need to do to avoid this happening again. Using the loan details feature on Aidvantage, I started building a new spreadsheet that tracks my loan interest. More specifically, it tracks any unpaid interest against my monthly payments to ensure all accrued interest is being covered.
As you can see, after my March autopay went through and minimum payments were made (including an extra $600 to Loan 1-01), three loans still have unpaid interest that needs to be paid. With all of our expenses budgeted and two more paychecks coming in March, I’m confident I can knock out the unpaid interest and head into April actually making progress on my principal. You can also see how much of my payments are now going toward principal—which is awesome!
You know that saying, ignorance is bliss? Yeah… not when it comes to student loans. Thanks to my spreadsheet, I also learned that my eight loans accrue interest at a rate of $27.78 per day. That little fact alone made my head spin.
While I wish I could live in a blissful state of ignorance, I know that this knowledge is powerful. It fuels my determination to make larger payments toward my principal and ensure all interest is paid—which, in turn, reduces future interest accrual.
If I’ve learned anything so far, it’s that this journey comes with highs and lows.
- Not paying enough attention to my loans and having $5,500 in interest capitalize? Definitely a low.
- Realizing I can get back on track? A high!
- Knowing I can keep learning and improving my approach to student loan repayment? Another high!
For anyone out there going through a similar low—just know that you can get out of it. You can take control of your finances, pay off your debt, and build a life you love. Let’s do it together!
[featured image: Iceberg Vectors by Vecteezy]
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I’d love to hear from you! What methods do you use to ensure that your interest is being paid each month?
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