Q: I just received a statement for tax purposes on my private student loans (yeah, I know Im an idiot should have went for the federal student loans, but hey studentloansforcollege.org was not around when I was in college, ha!), anyway I am currently in forbearance on the private student loans because of a move, and I noticed I had something called “Capitalized Interest” on my loan statements, what is this? and why do i have it?

A:At least you recognize, you should have opted for the federal student loans first. Wont do you much good now, but you are not alone by any means in the “private student loan debt” boat, and maybe your mistake can help some of our readers to not make the mistake of selecting private student loans for college before maxing out ALL other financial aid options.

Now for your question: capitalized interest on student loans can happen for a few reasons, such as using the grace period, deferment, and/or forbearance options on the student loans.

Capitalized interest results in the increase of the principal on the loan and, as a result, an increase in the payments owed after the deferment, forbearance, and/or grace period (for private student loans interest can capitalize during grace and forbearance).

Because this increases the total amount paid on the loan significantly, it is suggested that a student not choose to do this unless it is absolutely necessary.

Tags: bankruptcy / credit / private student loans / student loan debt / student loans

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