student_loan Archives

Dec

2025

A female student in a letterman jacket and glasses studies intensely with a tablet, perhaps trying to figure out how her student loan interest works while in school.

How Does Student Loan Interest Work While You’re in School?

By Janet Siroto | Student Loans, student_loan | No Comments

Table of Contents

Understanding How Federal Student Loan Interest Works
Understanding How Private Student Loan Interest Works
Can You Minimize Student Loan Interest Accrual While in School?
The Takeaway

While in school, most student loans accrue interest. The main exception to this rule is for those who hold federal Direct Subsidized Loans. While a student is taking classes, the interest on these loans is covered by the U.S. government.

It can be important to understand exactly what type of student loan you have to make sure you understand the terms of the loan and when interest accrues. This, as you might guess, impacts how much you will be paying back.

Read on for a guide to how student loan interest works while you are still in school.

Key Points

• Interest generally accrues during school, except for federal Direct Subsidized Loans, where the government pays the interest while you’re enrolled.

• Unsubsidized federal loans still charge interest, even in school, and that accrued interest can be capitalized (added to your principal).

• PLUS Loans accrue immediately, with interest beginning as soon as the loan is disbursed and continuing during enrollment.

• Private loans usually accrue interest in school, and many lenders will capitalize that interest if you defer payments until after graduation.

• Making interest-only payments during school helps, because it limits capitalization and reduces the total cost of the loan.

Understanding How Federal Student Loan Interest Works

Some federal student loans accrue interest while you’re in school, but others do not. To understand how your interest works, it’s essential to know exactly what type of student loan you have. Each loan type follows its own rules for when interest begins accruing and how it’s handled during enrollment.

Subsidized vs. Unsubsidized Loans

Federal student loans may be subsidized or unsubsidized. The accrued interest on Direct Subsidized Loans is covered by the government while a student is enrolled at least half-time. Direct Subsidized Loans are only available to undergraduate students.

For Direct Unsubsidized Loans, students are responsible for paying the interest that accrues on their student loans. Interest begins accruing as soon as the loan is disbursed, or paid out to the borrower.

You won’t be required to make payments while in-school, but be aware that if you don’t, you may graduate with a higher balance than when you started. That’s because the accrued interest is capitalized on the original balance of the loan. Direct Unsubsidized Loans are available to undergraduate and graduate students.

Direct PLUS Loans are available for graduate students (Grad PLUS Loans) or their parents (Parent PLUS Loans). The interest on these loans begins accruing when the loan is disbursed and continues accruing while the student is enrolled in school. Keep in mind that as of July 1, 2026, Grad PLUS Loans will no longer be available (Parent PLUS Loans will still be available, however).

How Does the Grace Period Impact Interest Accrual?

Both Direct Unsubsidized and Subsidized Loans have a six-month grace period after the borrower graduates. On subsidized loans, the borrower is not responsible for paying interest during the grace period. On an unsubsidized loan, interest continues to accrue during the six-month grace period.

Direct PLUS Loans do not have a grace period. Graduate students do receive an automatic deferment after graduation and interest does accrue during this time period.

How Does Capitalized Interest Work?

While payments are not required on most federal student loans while the student is enrolled in school, students with Direct Unsubsidized or PLUS Loans have the option of making interest-only payments. This can be helpful because, as mentioned previously, after the grace period and at the end of periods of deferment or forbearance, the accrued interest is capitalized on the loan.

Capitalized interest on student loans occurs when the accrued interest is added to the principal balance of the loan (the amount that was originally borrowed). This becomes the new balance of the loan, and interest will continue to accrue based on that new balance.

Think of all that accumulating interest like a snowball rolling down a mountain. You might be able to stay ahead of it for a while, but it also might catch up with you.

Interest Accrual During Deferment and Forbearance

During student loan deferment, interest accrual depends on the type of student loan you hold. Federal Direct Subsidized Loans typically do not accrue interest during approved deferment periods, as the government covers these costs. However, unsubsidized loans, PLUS Loans, and most private loans continue accruing interest even while payments are paused. If this unpaid interest is not addressed, it may capitalize once deferment ends, increasing your overall loan balance and the amount you’ll pay over time.

Forbearance, on the other hand, almost always results in interest accruing regardless of loan type. Whether you have subsidized, unsubsidized, or private loans, interest continues to build during a forbearance period. Interest typically does not capitalize at the end of a forbearance, though.

Understanding How Private Student Loan Interest Works

When thinking about private vs. federal student loans, know that private loans are not subject to the same rules as federal student loans. They’re offered by private companies, and each lender will likely have its own terms and conditions.

The majority of private student loans will start to accrue interest while the student is enrolled in school. Some lenders may allow borrowers to defer payments until after they graduate. In this case, the accrued interest from when the borrower was in school will likely be capitalized on the loan. To be sure of the terms on your loan, review the loan agreement or check in with the lender directly.

Keep in mind that, as mentioned, private student loans don’t always offer the same benefits or borrower protections (things like income-driven repayment options) that federal loans do. Because of this, they are generally considered after all other sources of financing, including federal student loans, have been exhausted.

This table provides an overview of how interest accrues on the various types of loans discussed in this article.

Type of Loan	Does Interest Accrue While In School?	Grace Period and Interest
Federal Direct Subsidized Loans	Interest does not accrue while the borrower is enrolled in school at least half-time	Interest does not accrue during the six month grace period
Federal Direct Unsubsidized Loans	Interest accrues while the borrower is in school	Interest does accrue during the six month grace period
Federal Direct PLUS Loans	Interest accrues while the borrower is in school	Do not have a grace period
Private Student Loans	Varies by lender; it is likely that interest will accrue	Varies by lender; some lenders may offer a grace period and interest may accrue

Recommended: How to Calculate Student Loan Interest

Can You Minimize Student Loan Interest Accrual While in School?

One way to limit accrued interest is to limit what you borrow in the first place. When it comes to student loans, aim to borrow only what you really need. Perhaps get a part-time job to help cover some of your expenses, make interest-only payments on your loans, and/or consider refinancing your loans after you graduate.

Work-Study or a Part-Time Job

Work-study, for those eligible, or a part-time job can help you take out less in student loans. You can use the money earned to help pay for tuition, books, and living expenses. Minimizing your total student loan amount is one of the best ways to minimize student loan interest accrual. The less you owe in loans, the less you’ll pay in interest.

Make Interest Only Payments

Making student loan payments while in school isn’t likely to be a requirement, but as mentioned earlier, many loans allow borrowers to make interest-only payments while they’re in school. While this won’t eliminate accrued interest, it can reduce the total amount you pay over the life of the loan because the interest won’t capitalize if you’re paying it as it accrues.

Compare and Refinance Loans with Better Terms

Once you begin repaying your student loans, refinancing your student loans can be an effective way to manage interest accrual and reduce overall costs. By comparing lenders and securing a lower interest rate, you may be able to decrease both your monthly payments and the total amount of interest you’ll pay over the life of the loan.

You may also choose to extend the term of your loan, which can decrease your monthly payment. Keep in mind, though, that extending the term will most likely mean you’ll pay more in interest over the life of the loan.

And remember that refinancing federal loans means giving up federal protections and benefits, such as income-driven repayment plans and student loan forgiveness. It can still be a valuable strategy, though, for lowering long-term expenses if the new terms align with your financial goals.

Recommended: Applying for No Interest Student Loans

The Takeaway

Interest on many types of student loans accrues while the student is in school. Federal Direct Subsidized Loans are an exception, as the accrued interest is paid for by the government while the student is enrolled in school and during the grace period.

Generally speaking, interest on other types of student loans, including Direct Unsubsidized and PLUS Loans, begins accruing interest when they are disbursed, and continue accruing interest while the student is enrolled. For private student loans, each lender will likely have its own terms and conditions.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

When does student loan interest start accruing?

Student loan interest typically begins accruing as soon as the loan is disbursed. For federal subsidized loans, the government covers the interest while you’re in school and during certain periods. For unsubsidized federal and most private loans, interest starts accruing immediately, even while you’re still enrolled.

Is it better to pay interest while still in school?

Yes, it’s better to pay interest while still in school because it can save you money in the long run. Paying interest while still in school prevents that interest from capitalizing and adding to your loan balance. Even small payments can reduce overall costs.

How is capitalized interest different from regular interest?

Regular interest accrues on your current loan balance, increasing what you owe over time. Capitalized interest, however, is unpaid interest that gets added to your principal balance. Once it capitalizes, future interest is charged on this higher principal, making your total loan cost grow more quickly.

Do private student loans always accrue interest while in school?

Yes, private student loans almost always accrue interest while you’re in school, regardless of your enrollment status. Unlike some federal loans, private lenders rarely offer subsidized options. Interest typically starts accruing at disbursement, and if you don’t make in-school payments, it will continue to grow and may capitalize later.

What’s the difference between subsidized and unsubsidized interest?

Subsidized loans don’t accrue interest while you’re in school or during deferment — the government pays it for you. Unsubsidized loans accrue interest from the moment they’re disbursed, and you’re responsible for all of it. If unpaid, that interest may capitalize, increasing your total loan balance and long-term cost.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOSL1123004

Dec

2025

A woman in a high school graduation cap looks up thoughtfully, symbolizing college success and opportunity.

Finding & Applying to Scholarships for Grad School

By Kayla McCormack | Student Loans, student_loan | No Comments

Scholarships can be a helpful resource to pay for grad school and are available through many different avenues, including states, organizations, nonprofits, companies, and more.

Grants and scholarships are similar in that they’re both gift aid that typically doesn’t need to be repaid after graduation. The main difference is that scholarships are usually merit-based, while grants are need-based.

Let’s look at some common scholarships and grants for prospective graduate students.

Table of Contents

State Scholarships & Grants
Federal Scholarships & Grants
Private Graduate Scholarships & Grants
Fellowships
How to Qualify for Graduate School Scholarships
Where to Find Scholarships for Graduate Students
When to Apply for Graduate School Scholarships
Factors to Consider When Applying for Graduate School Scholarships
Using Student Loans to Cover Grad School
Alternative Funding for Graduate School
The Takeaway

Key Points

• You can find graduate school scholarships at the state level, the federal level, through your university, through your community, and through your employer.

• Customize each master degree scholarship application to match the specific criteria of the scholarship, such as academic achievements, leadership skills, or field of study.

• Keep track of deadlines and submit applications well in advance. Late submissions are often disqualified automatically.

• Work with academic advisors or mentors to identify the best scholarship opportunities and ensure applications are complete and compelling.

• In addition to graduate scholarships, students can pay for graduate school with cash savings, grants, federal student loans, and private student loans.

State Scholarships & Grants

To find scholarships and grants at the state level, you can try contacting your state’s Education Department for assistance and resources. Scholarships and grants vary state by state, but here are 11 options you may want to consider:

Graduate Tuition Assistance Grant (Colorado)

Provides financial support to graduate students enrolled at participating Colorado public universities. Awards are need-based and subject to fund availability.

Kansas Comprehensive Grant (Kansas)

Offers need-based grants to Kansas residents attending state universities, private colleges, or community colleges for graduate programs.

Massachusetts Gilbert Matching Student Grant (Massachusetts)

Supports financially needy graduate students attending participating colleges in Massachusetts.

Texas Public Education Grant (TPEG) (Texas)

Available to graduate students with demonstrated financial need attending Texas public colleges or universities.

Florida Student Assistance Grant (Florida)

Offers need-based aid to graduate students enrolled in eligible Florida postsecondary institutions.

New York State TAP for Graduate Studies (New York)

Provides financial aid for eligible New York residents pursuing graduate degrees at participating institutions within the state.

Oregon Chafee Education and Training Grant (Oregon)

Supports former foster youth pursuing graduate studies in Oregon with financial need.

North Carolina Education Lottery Scholarship (North Carolina)

Available to graduate students who demonstrate financial need and meet residency requirements.

Georgia Tuition Equalization Grant (Georgia)

Offers financial assistance to graduate students attending private colleges in Georgia, encouraging participation in higher education.

Maine State Grant Program for Graduate Students (Maine)

Provides financial aid to graduate students with financial need attending eligible institutions in or out of Maine.

California Graduate Equity Fellowship Program (California)

Provides financial support to economically or educationally disadvantaged graduate students at participating California State University (CSU) campuses.

Federal Scholarships & Grants

To apply for federal grants and scholarships, students will need to fill out the Free Application for Federal Student Aid, or FAFSA®, each year. There are several types of federal grants available, including:

Teacher Education Assistance for College and Higher Education (TEACH) Grants

Teacher Education Assistance for College and Higher Education (TEACH) Grants provide up to $4,000 per year for students preparing to become teachers in high-need fields. In exchange, recipients must agree to teach for four years at an eligible low-income school.

Fulbright Grants

The U.S. Education Department provides Fulbright Grants for graduate students to study and research in designated countries abroad.

When you visit the Fulbright website, click on your country of interest to view the details. For example, in Germany, there are 70 study/research grants available, the program lasts for 10 months, and its recommended participants speak German at the beginner level. In Iceland, there are only seven grants available, the program lasts nine months, and there is no foreign language requirement.

Finding Additional Federal Grants

To find additional federal grants for graduate school, take a look at Grants.gov or the U.S. Department of Labor’s database. On these sites, students can specify their search by things like their program, field of study, or other qualifiers.

National Science Foundation (NSF) Graduate Research Fellowship

The National Science Foundation (NSF) Graduate Research Fellowship Program (GRFP) provides generous funding to outstanding graduate students pursuing research-based master’s or doctoral degrees in STEM fields. Fellows receive a multi-year stipend and cost-of-education allowance, giving them financial support and research flexibility early in their careers.

Private Graduate Scholarships & Grants

When it comes to paying for grad school, there are plenty of organizations, companies, and nonprofits that offer scholarship opportunities. The scholarships could be merit-based, need-based, or simply granted based on your affiliation or application. Some scholarships are on the smaller side, others much larger, but any amount of aid can help. You may want to consider these elements while you’re on the hunt for private scholarships for graduate school:

Your College or University

Your school might offer merit-based scholarships or grants for college. To see what your school offers, connect with the office of financial aid to see if you qualify for any scholarships from the school and what additional steps you may need to take to apply.

Your Course of Study

You may be able to find scholarships related to your field of study. To find scholarships in your area of study, search national foundations or companies that might provide a scholarship. This might be especially helpful in STEM fields and other careers where there’s a high need for employees in the workforce.

Recommended: Scholarships for STEM Students

Your Neighborhood

Another way to find scholarships as a grad student is to see if your religious organization, local civic group, or other community organizations you belong to offer scholarships. You could reach out to see what may be available and perhaps complete the necessary applications.

Your Background

Based on your ethnicity or cultural heritage, you may be able to qualify for several scholarships or grants. Reach out to national foundations or local community groups to see what they offer.

Some specific private scholarships and grants include:

Greek Life Scholarships

Contrary to what society may think, enrolling in a fraternity, sorority, or other Greek organization has more benefits than the wild parties. Many Greek organizations reward their high-achieving members and alumni who pursue master’s degrees.

For example, members of Alpha Chi Rho could receive up to $3,000 for their graduate studies.

The Harry S. Truman Scholarship

The Truman Scholarship is for students who want to make a difference in society. If you’re pursuing a degree, such as Master of Public Administration, Master of Education, or Master of Social Work, and you have significant community service experience, you could qualify for the Truman Scholarship.

To apply, you must be pursuing any major that could lead to a career in public service and interested in a graduate degree. Between 55 and 65 students receive the Truman Scholarship per year, each receiving up to $30,000.

Government Finance Officers Association (GFOA) Scholarships

GFOA Scholarships are for graduate students intending to pursue a career in state or local finance. The association offers 11 scholarships ranging from $5,000 to $30,000.
The four kinds of graduate school scholarships are as follows:

• The Goldberg-Miller Public Finance Scholarship for full-time students. Award amount is $30,000.

• The Frank L. Greathouse Government Accounting Scholarship for full-time accounting students. Award amount is $10,000.

• The Clark Burrus Public Service Academic Scholarship for minority students studying for a career in state or local government finance. Award amount is $10,000.

• The Betty Jo Harker Professional Development Scholarship for part-time graduate students. Award amount is $10,000.

NCAA Postgraduate Scholarship

The NCAA Postgraduate Scholarship is for athletes who have attended an NCAA member institution for their undergraduate studies. Students must be in their final year of undergraduate athletics to apply.

The distribution of graduate school scholarships is unique. Three times per year (autumn, winter, spring), the NCAA gives scholarships to 21 men and 21 women per each sports season, for a total of 126 scholarships per year. This timeline splits up candidates based on the sport they play. Each scholarship is $10,000.

American Association of University Women

The American Association of University Women (AAUW) Fellowships and Grants program provides substantial financial support to women pursuing graduate study, research, and professional development across a wide range of fields. These awards help recipients cover tuition, living expenses, and project costs, with specific programs dedicated to career changers, international scholars, and women advancing in male-dominated disciplines.

The Career Development Grant recipients will receive up to $8,000 for graduate school.

The Geological Society of America Grant

If you’re going into geological research, joining the Geological Society of America (GSA) and applying for their Graduate Student Research Grant may open up some opportunities. The GSA awarded 354 students money in 2025, with roughly 52% of students that applied receiving aid. The average grant amount was $2,688.

These are only a few avenues to consider when looking for private graduate school scholarships. Databases and search engines can help, but don’t be afraid to get creative.

Fellowships

Unlike a grant or scholarship, graduate fellowships are money typically tied to an opportunity. Those who get a fellowship likely have to meet requirements to study, research, or work in a field for a short period. Not only will fellowships help students pay for graduate school, but they can also be a valuable opportunity to gain relevant experience.

Finding a fellowship will be specific to your field of study. One place to start your search process is by talking to your academic department for assistance or finding a nonprofit institution specializing in your field of study. Applicants should be aware that fellowships typically require a fairly rigorous application process.

The Paul & Daisy Soros Fellowships for New Americans

The Paul & Daisy Soros Fellowships for New Americans is a prestigious program that supports immigrants and children of immigrants pursuing graduate education in the United States. Each year, the fellowship provides generous funding for tuition and living expenses, empowering recipients to fully focus on their academic and professional goals.

Since 1998, the program has awarded over $80 million to 805 Fellows from 103 countries, supporting graduate studies in a wide range of fields — from screenwriting and painting to medicine and neuroscience.

How to Qualify for Graduate School Scholarships

Qualifying for graduate school scholarships involves careful planning and preparation. Below are tips to help you qualify:

• Start by researching types of scholarships specific to your field of study, location, or demographics.

• Maintain a strong academic record, as many scholarships prioritize academic excellence.

• Demonstrate leadership, community involvement, and unique skills, which can set you apart from other applicants.

• Craft a compelling personal statement that highlights your achievements, goals, and passion for your field.

• Submit all required materials, such as transcripts, letters of recommendation, and essays, by the deadlines.

• Make sure to apply for multiple scholarships to increase your chances of success, ensuring you meet the specific eligibility criteria for each opportunity.

Academic Achievement and Professional Goals

Graduate school scholarships often prioritize students who demonstrate strong academic achievement and clear professional goals. High GPAs, test scores, and a record of academic excellence can make applicants more competitive, while well-defined career objectives show scholarship committees that you have a purposeful plan for applying your education.

Recommended: What Is a Pell Grant?

Where to Find Scholarships for Graduate Students

When looking for scholarships for grad school, filling out the FAFSA is the first step. Just like undergraduates, the FAFSA is required for graduate students interested in federal student aid, including scholarships, grants, and student loans. Some schools may also use the FAFSA to determine aid awards.

Community organizations can be another source of scholarships. Some career or professional organizations may also offer scholarships.

Scholarship Databases and University Financial Aid Offices

From there, you can check in with your school’s financial aid office. They may have more information on the scholarship opportunities and requirements available at your school.

Scholarship databases compile thousands of scholarships in one place, allowing students to filter by field of study, eligibility, and award amount. SoFi’s scholarship search tool, for example, helps students quickly identify relevant scholarships, making it easier to find both school-specific and external awards that align with their academic and professional goals.

When to Apply for Graduate School Scholarships

Fill out the FAFSA as early as possible. Some aid may be awarded on a first come, first served basis, so completing the application early could potentially improve your chances of qualifying for some aid.

For private scholarships, be sure to track all relevant deadlines. Each scholarship may have its own deadline, so it may help to put together a spreadsheet so you can see a high level overview of important deadlines and application requirements.

Application Timing for Fall vs. Spring Admissions

Application timing can significantly impact your chances of receiving graduate school scholarships, depending on whether you’re applying for fall or spring admissions. Many scholarship deadlines align with fall entry, so students aiming for a spring start may have fewer opportunities or tighter timelines. Planning ahead and submitting materials early ensures you meet all deadlines and remain competitive for available funding, regardless of your intended start term.

Recommended: FAFSA Guide

Factors to Consider When Applying for Graduate School Scholarships

Applying for scholarships is a time commitment, but it may be time well spent if you can secure money to help pay for your graduate school program. Consider the following factors when applying to graduate school scholarships:

Eligibility Requirements

Review eligibility requirements closely. Do you need to be enrolled in a specific school or program of study? Be sure you understand and meet the eligibility requirements so you don’t waste time applying for grad school scholarships you aren’t actually eligible for.

Application Requirements

Some applications may require an essay and letters of recommendation. Think carefully about who you want to ask to write a letter of recommendation on your behalf. Be mindful of deadlines and ask with enough advance notice to give them enough time to write a letter.

Deadlines

Each scholarship may have its own deadlines. Track these closely. Many scholarships won’t accept late submissions.

Some scholarships may go unclaimed when the school year starts. Consider checking in with your financial aid office to see if there are any unclaimed scholarship funds available. For more information on appealing for these awards, take a look at SoFi’s guide to unclaimed scholarships.

Renewal Terms and Conditions

Many scholarships are only awarded for one year or require recipients to meet specific criteria to maintain funding, so it’s important to read the renewal terms and conditions of the scholarships you receive. Students may need to maintain a minimum GPA, be enrolled full-time, or continue in a particular field of study. Understanding these requirements upfront helps students plan academically and financially, avoid losing their award unexpectedly, and ensures long-term support throughout their graduate program.

Using Student Loans to Cover Grad School

Scholarships and grants aren’t the only options for paying for graduate school. You may also choose to take out graduate student loans.

Consider focusing on scholarships and grants before student loans, as those don’t need to be repaid. Student loans, on the other hand, will have to be paid back. If you’re applying for graduate federal or private loans, it’s worth noting that you can borrow more as a graduate student, but you might be looking at higher interest rates.

If you don’t receive enough financial aid through federal loans, you can consider private student loans. Rather than being provided by the government, these loans come from private businesses, banks, and online lenders. Students should focus on private student loans as a last resort, as private student loans lack the borrower protections afforded to federal student loans.

Alternative Funding for Graduate School

Other than taking on student loans, there are several alternatives to funding your graduate degree. If you’re able to work while attending school, you can save and budget to cover a portion or all of your tuition.

Employer Tuition Assistance

If you are working, you can speak with your employer to see if they offer a tuition reimbursement program. Employee tuition reimbursement might require you to stay at the company for a number of years or pursue a specific degree. Program requirements will vary by company.

Graduate Assistantships and Teaching Roles

Graduate assistantships and teaching roles offer graduate students a valuable way to fund their education while gaining professional experience. In exchange for assisting with research, teaching undergraduate courses, or supporting academic departments, students often receive tuition waivers, stipends, or both. Speak with your particular university for specific details.

The Takeaway

There are a wide array of grants and scholarships available for students pursuing graduate school. These include those offered by federal and state governments, individual schools, and other interest groups like nonprofit organizations. To find grants and scholarships, students can review online databases, speak with the financial aid office at their school, and fill out the FAFSA each year.

In addition to scholarships, students can pay for graduate school with cash savings, grants, and federal and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How do I get a full scholarship to graduate school?

It’s possible to get a scholarship that will pay for all of your graduate school costs. It can be very competitive to qualify for full-ride scholarships, so it may help to complete an application and make sure you meet all the requirements. If an essay is required, be sure to allocate enough time for writing and editing so that you are submitting a strong application. Some schools may offer full-ride scholarships to the top students.

Do master’s programs give scholarships?

Yes, many master’s programs offer scholarships to help offset tuition costs. These can include merit-based awards, need-based scholarships, and funding for specific fields of study. Additionally, universities, private organizations, and government programs often provide scholarships tailored to graduate students pursuing advanced degrees in various disciplines.

Are scholarships available for graduate school?

Yes, scholarships are available for graduate school. Fill out the Free Application for Federal Student Aid if you are interested in federal scholarships or grants. Check in with your school’s financial aid office for more resources.

Can I apply for scholarships if I’m already enrolled in grad school?

Yes. Many scholarships allow applications from students already enrolled in graduate programs. Schools, professional organizations, and private foundations often offer awards for current students to help cover ongoing tuition, fees, or living expenses. Always check eligibility requirements, as some scholarships target specific years, fields, or academic progress.

How can you find scholarships for graduate students?

Graduate students can find scholarships by checking their university’s financial aid office, searching online scholarship databases, and exploring awards from professional associations in their field. Local nonprofits, employers, and community organizations also offer funding.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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SOISL-Q425-046

Dec

2025

How to Leverage Home Equity to Pay Off Student Debt

By Becca Stanek | Family Finances, Home Ownership, Student Loans, student_loan | No Comments

If you’re finding your student loan debt difficult to manage, one option for tackling it is to leverage your home equity. It’s possible to do this through the student loan cash-out refinance program offered by Fannie Mae or through a general cash-out refinance.

Either option would allow you to use the excess value of your home to pay off student loan debt directly. Plus, because you would be consolidating your student loan debt into your mortgage, you’d have to make just one payment each month. You might also secure a lower interest rate than you had on your student loans.

Still, there are major downsides to consider before paying off student loans with home equity. For one, the student loan debt won’t actually go away — you’ll still owe that money. Additionally, you could lose access to student loan benefits and protections. And, if you aren’t able to stay on top of monthly payments, your home is on the line.

Key Points

• Leveraging home equity can consolidate student loans into a mortgage, potentially lowering interest rates and simplifying payments.

• Options include a student loan cash-out refinance or a home equity line of credit (HELOC).

• Risks involve losing student loan benefits, potential foreclosure, and debt becoming part of the mortgage.

• Consider credit score requirements and gather necessary documents before applying for refinancing.

• Weigh pros and cons, including interest rates, loan terms, and potential fees, before deciding.

Using a Student Loan Cash-Out Refinance to Pay Off Student Loans

With a cash-out refinance, you take out a new mortgage for an amount that exceeds what you currently owe. You then get the difference in cash, which you could then use to pay off your student loan debt.

One option for doing this is through Fannie Mae’s Student Loan Cash-out Refinance program, which is specifically designed to allow homeowners to use their home equity to pay off student loans. To qualify, borrowers must use the funds from the cash-out refinance to fully pay off at least one of their student loans. Additionally, it’s stipulated that this loan must belong to the individual who applied for the refinance.

For borrowers who don’t qualify for the Fannie Mae program, or who want to use their cash for costs other than student loan repayment, it’s also possible to get a general cash-out refinance through another lender.

Whether you go with Fannie Mae or another lender, there are typically certain requirements that a borrower must meet to qualify for a cash-out refinance. Generally, there are stipulations for credit score, debt-to-income ratio, and the amount of equity in the home after closing. As such, it’s helpful to determine before applying how much equity you have in your home.

Recommended: First-Time Homebuyer Guide

Should I Tap Into My Home Equity to Pay Off Student Loans?

Using the equity you’ve earned in your home to pay off your student loans may sound like an easy fix. But before you commit to refinancing, you’ll want to weigh the decision carefully. While it may make sense for some, a student loan cash-out refinance won’t work for everyone. Here are a few pros and cons to consider as you make your decision.

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Benefits of Paying Off Student Loans with Home Equity

Like most financial decisions, paying off your student loans with the equity you’ve earned on your home is a multifaceted decision. Here are some of the ways you could find it beneficial:

• You may be able to get a better rate. Securing a lower interest rate is potentially the most appealing reason to use the equity in your home to pay off student loans. As part of your decision-making process, consider reviewing mortgage options at a few different lenders. While reviewing rate quotes from each lender, do the math to determine if paying off student loans with home equity will truly reduce the amount of money you spend in interest. If there are any fees or prepayment penalties, make sure to factor those in. Keep in mind this isn’t the only way to get a better rate either — another option to explore is student loan refinancing.

• You may get more time to pay off your loan. When making your decision, also take into account the length of the mortgage term. The standard repayment plan for student loans is a 10-year term, unless you have already consolidated them, in which case you could have a term of up to 25 years. With a mortgage, term lengths can be as long as 30 years. Just keep in mind that while repaying your debt over a longer time period could lower monthly payments, it may also mean you pay more in interest over the life of the loan.

• You can streamline your payments. Another benefit is reducing the number of monthly payments you need to keep track of. Instead of paying your mortgage and each of your student loans, those bills will get consolidated into a single payment. Streamlining your payments could help you stay on top of your payments and make your finances a little bit easier to manage.

Recommended: Home Affordability Calculator

Downsides of Paying Off Student Loans with Home Equity

There are a few potential negatives that could impact your decision to pay off student loans with your home equity:

• You risk foreclosure. Using your home equity to pay off your student loans could potentially put your home at risk. That’s because you’re combining your student loans and mortgage into one debt, now all tied to your home. That means if you run into any financial issues in the future and are unable to make payments, in severe cases, such as loan default, your home could be foreclosed on.

• Your student debt won’t really disappear. When you use your home equity to pay off your student loans, you’ll still owe that debt. Only now, it’s part of your mortgage.

• You’ll lose access to student loan benefits and protections. When you do a student loan cash-out refinance, you’ll no longer be eligible for borrower protections that are afforded to borrowers who have federal loans. These benefits include deferment or forbearance, as well as income-driven repayment plans. If you’re pursuing student loan forgiveness through one of the programs available to federal borrowers, such as Public Service Loan Forgiveness, consolidating your student loan debt with your mortgage would eliminate you from the program. As such, it may not make sense to use the equity in your home to pay off your student loans if you’re currently taking advantage of any of these options.

• You could owe more than your home is worth. As you weigh your options, consider comparing the available equity in your home to the amount you owe in student loans. In some cases, you may owe more in student loan debt than you have available to use in home equity under the various loan guidelines. If you end up owing more than what your home is worth, that could make it tough to sell your home, as you’d need to add your own funds to repay your loan balance.

When It’s Time to Leverage Your Home Equity

Cashing in on your home equity isn’t as easy as withdrawing money from your checking account, but it’s also not as difficult as you might think. A good first step is to contact a mortgage lender, who will order an appraisal of your home and help you to get started on the paperwork.

This is also a good time to explore another way to leverage home equity to pay bills: a home equity line of credit (HELOC). When you take out a HELOC, you can borrow (and pay interest on) only as much as you need at a given time, up to a preapproved credit limit. A HELOC monthly payment calculator can be a useful tool as it will help you understand what monthly payments might look like if you follow this path. If you have a great rate on your existing mortgage and don’t want to refinance into a higher rate, a HELOC might be a good alternative.

It could also be a good idea to check your credit score. To secure a cash-out refinance, many lenders will likely require a credit score of 620 or higher. That being said, the minimum score required depends on many factors, such as credit, income, equity, and more. If you don’t meet the minimum FICO score requirement for your chosen program, you might want to try to improve your credit score before applying.

At the very least, you’ll likely need to gather necessary documents so you have them handy. Get together your latest tax filings, pay stubs, and bank statements. Lenders use those documents to evaluate whether you have the savings and cash flow to pay back a fatter mortgage, and they may ask for when you apply to refinance.

The Takeaway

When used responsibly, home equity can be a useful tool in helping to improve your overall financial situation — including using home equity to pay off student loans. While there could be upsides, such as streamlining payments and securing a better rate, it’s important to also weigh the drawbacks, like losing access to student loan protections and putting your home on the line. Depending on how much you owe on your student loans, a cash-out refi or a home equity line of credit (HELOC) might be a good way to settle some or all of your student loan debt and even consolidate multiple loans into one payment.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

Is it smart to use home equity to consolidate debt?

It can be. If you can obtain a lower interest rate on a home equity loan, home equity line of credit (HELOC), or even a cash-out refinance, it could make sense to consolidate debt this way. And if you have multiple types of debt (student loan debt, credit card debt, for example), it might simplify things to have one monthly payment. But it does mean you would lose access to student loan forgiveness and forbearance benefits, and securing debt with your home does involve risk.

Is it a good idea to take out a home equity loan to pay for college?

While you can pay for college with a home equity loan, it might be better to find a student loan for that expense because if you are unable to make payments on your home equity loan, your property could be at risk.

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You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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SOHL-Q424-143

Dec

2025

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What Is the Cost of Attendance in College?

By Kayla McCormack | Going to College, Student Loans, student_loan | Comments Off

Table of Contents

The Cost of Attendance for College
The Difference Between Cost of Attendance and Tuition
What Is the Average College Cost of Attendance?
What Does Cost of Attendance Include?
Finding a School’s Cost of Attendance
College Cost of Attendance List
Can I Borrow More Than the Cost of Attendance?
Cost of Attendance and Net Price
Paying for College
The Takeaway
FAQ

College cost of attendance is an estimate of the total cost of attending college for one academic year. It includes the cost of fall and spring tuition, books, supplies, room and board, transportation, loan fees, and other miscellaneous expenses.

Here’s how to calculate the cost of attendance, why it matters, and how it can affect financing an education.

Key Points

• The cost of attendance (COA) estimates total expenses for one academic year, including tuition, fees, room, board, books, and supplies.

• COA is broader than tuition, encompassing additional costs like transportation and personal expenses.

• Average COA for public four-year colleges is $30,990 (in state) and $50,920 (out of state); private colleges average $65,470.

• Net price, the actual cost after grants and scholarships, is typically lower than the COA.

• Filling out the FAFSA® is key for accessing federal aid, including grants, scholarships, work-study, and federal loans.

The Cost of Attendance for College

The cost of attendance (COA) for college is an estimate of the total cost of attending a college for one year, and is often referred to as the “sticker price.” It includes both direct expenses (those billed by the university like tuition, fees, and on-campus housing) and indirect expenses (those not billed by the school such as books, supplies, transportation, and personal expenses).

Cost of attendance is used to help colleges determine the amount of financial aid a student is eligible for, including grants, scholarships, and federal student loans.

💡 Quick Tip: You can fund your education with a competitive-rate, no-fees-required private student loan that covers up to 100% of school-certified costs.

The Difference Between Cost of Attendance and Tuition

Tuition covers the actual cost of academic instruction. COA, on the other hand, includes other expenses the student will likely incur while attending college. COA includes things like room and board, books and supplies, and transportation costs.

Schools are required to publish the COA on their website so the information is readily accessible to students. Schools also generally publish more than one COA. For example, state universities may list a COA for in-state vs. out-of-state students. Most colleges will provide multiple COAs based on different student scenarios, such as living on or off campus.

The COA is calculated by financial aid offices using previous student spending, surveys, and local cost data. Your actual costs may be different than the COA.

What Is the Average College Cost of Attendance?

According to the College Board, the average cost of attendance at public four-year institutions in 2025-2026 was $30,990 for in-state students and $50,920 for out-of-state students. The average cost of attendance at private nonprofit four-year institutions in 2025-2026 was $65,470.

Think of COA as a rough budget for the year. It includes tuition and fees, along with expenses outside the classroom like food, transportation, and supplies.

According to The College Board, the average published cost for tuition and fees for the 2023-24 school year was $11,260 for students at public four-year institutions with in-state tuition and was $41,540 for students at private nonprofit four-year universities.

What Does Cost of Attendance Include?

A college or university’s COA includes:

• Tuition (the amount you owe to attend college for classes and instruction)

• Fees (additional charges to cover the costs of certain services)

• Housing (the cost of living on campus)

• Meal plans (the cost to dine on campus)

• Institutional health insurance (if required)

• Indirect expenses (textbooks, a reasonable amount for a laptop, local transportation, and other personal expenses).

Recommended: Ways to Cut Costs on College Textbooks

Finding a School’s Cost of Attendance

Hunting down a university’s COA is an important first step in calculating the expenses around college and how to pay for it. Since legislation passed in 2011, it’s mandatory for U.S. two-year and four-year institutes to share the COA on their websites. However, that doesn’t mean it’s always easy to find.

One way to look for the COA online is to simply put “[NAME OF SCHOOL] + COST OF ATTENDANCE” into a search engine.

Or anyone can go the old-school route and call a college’s financial aid office to get the information over the phone.

A school will also include its cost of attendance on a student’s financial award letter.

College Cost of Attendance List

The COA for colleges can vary widely depending on a school’s location, whether it is private or public, and other factors. Some programs may have additional fees and costs (like lab fees) which could increase the cost of attendance for certain majors or programs.

The following table provides an overview of the published COA for undergraduate students living on-campus at several schools around the country during the 2025-2026 school year. Costs are for first-year undergraduates and assume the student will be living on campus.

School	Type	Cost of Attendance
Cornell University (Ithaca, NY)	Private	$96,268
Dartmouth College (Hanover, NH)	Private	$95,490
Rice University (Houston, TX)	Private	$91,562
Vanderbilt (Nashville, TN)	Private	$97,374
University of Chicago (Chicago, IL)	Private	$98,301
California Institute of Technology (Pasadena, CA)	Private	$93,912
Gonzaga University (Spokane, WA)	Private	$79,798
University of California (Los Angeles)	Public	In-state: $43,137 Out-of-state: $80,739
University of North Carolina (Chapel Hill)	Public	In-state: $27,766 Out-of-state: $64,846
University of Massachusetts (Amherst)	Public	In-state: $38,455 Out-of-state: $61,727
University of Oregon (Eugene)	Public	In-state: $38,607 Out-of-state: $68,931
Oklahoma State University (Stillwater)	Public	In-state: $33,700 Out-of-state: $49,220
University of Alabama (Tuscaloosa)	Public	In-state: $34,608 Out-of-state: $58,530
University of Michigan (Ann Arbor)	Public	In-state: $38,548 Out-of-state: $84,164

*2022-2023 school year COA.

Can I Borrow More Than the Cost of Attendance?

No, you typically cannot borrow more than the cost of attendance (COA) because student loans are generally capped at the COA, minus any other financial aid you receive. This limit ensures you don’t borrow more than you need for your educational expenses.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

Cost of Attendance and Net Price

Net price is the actual amount a student is expected to pay after grants and scholarships have been deducted from the cost of attendance. It represents the “real” cost to the student because it subtracts gift aid, which doesn’t need to be repaid, from the total cost.

Colleges typically have a net price calculator on their websites. You enter your information into the calculator and it will show you what students like you currently pay to attend the college. This number isn’t binding but can give you an idea of what types of aid are available at that school. The numbers you get from the net price calculator isn’t binding on the college, but it can give you a good idea of what types of aid you’ll be eligible for at that school.

Paying for College

While net price may be lower than COA, it may still be shockingly high. The question remains, how will you pay for college?

Students often rely on a variety of financing options. A great first step is to fill out the FAFSA®. This is how students can apply for all forms of federal aid, including federal grants, scholarships, work-study, and federal student loans. If your financial aid package isn’t enough to cover the cost of attending your chosen college, there are other funding options to consider. Here are some to keep in mind:

Private Student Loan

Private student loans are available through banks, credit unions, and online lenders. Interest rates and loan terms are generally determined by an applicant’s personal financial factors such as credit score and income. Consider shopping around at a few different lenders to find the best rate and terms for your personal situation.

Applicants without an extensive credit history or a relatively low credit score may find that adding a cosigner to their application can help them qualify for a loan or qualify for more competitive rates and terms.

For those interested in pursuing a graduate degree, there are student loans for graduate programs available, too.

Credit Card

Schools may allow students to pay for their tuition with a credit card. Most schools do charge a fee (often between 2% to 3%) for this convenience, which can offset any rewards you may be earning on your credit card. In addition, credit cards have fairly substantial interest rates. Therefore, paying for tuition with a credit card may not make the most financial sense.

On the other hand, when credit cards are used responsibly, they can be helpful tools to help students establish and build their credit history. Students could use credit cards to pay for books, food, gas, or other transportation costs. Be sure to pay attention to interest rates and pay off your credit card each month to avoid credit card debt.

Personal Savings

If you have been saving for college, using those funds to pay for tuition or other college costs can help you avoid borrowing for college. When you borrow student loans to pay for college, you’ll end up paying interest, which increases the total cost of your education. By paying for some expenses with savings, you may be able to reduce the overall bill.

Scholarships

Often awarded based on merit or other personal criteria (like gender, ethnicity, hobbies, or academic interest), scholarships are available from a variety of sources, including employers, individuals, private companies, nonprofits, communities, religious groups, and professional and social organizations. You can find out about opportunities through your high school guidance office, the financial aid office of your chosen college, and by using an online scholarship search tool.

The Takeaway

The cost of attendance (COA) is a vital metric for anyone planning to attend college. It represents the estimated total yearly cost including both direct costs like tuition and fees, and indirect costs such as housing, books, and personal expenses.

While the COA can seem daunting, it’s important to remember that the “net price” — what you actually pay after grants and scholarships are applied — is often much lower. By thoroughly researching a school’s COA, using net price calculators, and exploring all available funding options, including federal aid, scholarships, savings, and private student loans, you can make informed decisions to cover your education costs responsibly.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What does cost of attendance mean for college?

The cost of attendance (COA) is an estimate for the total cost of attending a college for a single year. The COA includes tuition, room and board, books and supplies, transportation, and other miscellaneous personal costs. The items required for inclusion in the COA are outlined by federal law and each college or university is required to publish the details for the college’s COA on the school website.

What is the difference between cost of attendance and tuition?

A school’s tuition is the price for academic instruction. The cost of attendance includes the cost of tuition in addition to other expenses including room and board, books and supplies, transportation, and more.

How much does college cost per year?

The cost of college can vary based on many factors including your location, whether you attend a private or public university, if you receive in-state vs. out-of-state tuition, and the type of program you are enrolled in. According to the College Board, the average cost of attending a four-year nonprofit private institution was $65,470 during the 2025-26 school year. During the same time period, the average cost for tuition and fees at public four-year institutions with in-state tuition was $30,990.

SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SOISL-Q425-022

Dec

2025

A young woman sitting in a casual dining spot on campus and working on her laptop, a cup of coffee beside her.

Understanding Capitalized Interest on Student Loans

By Carolyn Desalu | Fresh Out of School, Student Loans, student_loan | No Comments

Table of Contents

What Is Capitalized Interest On A Student Loan?
How Does Interest Capitalization Work on Student Loans?
Can You Avoid Student Loan Interest Capitalization?
How Much Does Capitalized Interest Cost?
Ways to Minimize Capitalized Interest
FAQ

Borrowing money to pay for school comes at a cost, in the form of interest. In certain situations, interest that has accrued may be “capitalized” on the loan. Student loan capitalized interest is when the accrued interest is added to the principal, or the initial amount borrowed. This new value is then used to calculate the amount of interest owed each day.

Interest capitalization can dramatically increase how much a borrower owes over time. Students who have subsidized federal student loans don’t have to worry about interest accruing while they are in school or during their grace period after graduation. For other types of federal student loans, however, including unsubsidized loans and PLUS loans, borrowers are responsible for paying the accrued interest.

Read on for more information about capitalized interest on student loans, plus ways that can help reduce its impact.

Key Points

• Capitalized interest occurs when unpaid accrued interest is added to the loan principal, increasing the balance on which future interest is calculated.

• It often happens after grace periods, deferment, forbearance, or leaving/consolidating income-driven repayment plans, making loans more costly long term.

• Subsidized federal loans don’t accrue interest while a borrower is in school or during deferment, but unsubsidized and PLUS loans do, leading to higher balances if unpaid.

• Borrowers can minimize capitalization by making interest-only payments, continuing to seek scholarships/grants, and carefully considering deferment.

• Understanding capitalization is important, as it can significantly increase repayment costs if left unmanaged.

What Is Capitalized Interest On A Student Loan?

When accrued interest is unpaid, it is sometimes added to the principal value of the loan, which is known as capitalized interest. This new loan principal becomes the value that is used to calculate the interest. Because the borrower is now paying interest on top of this new, higher loan balance, future payments will also be higher.

How Does Interest Capitalization Work on Student Loans?

Capitalized interest can happen on student loans in several scenarios. First, it may happen after a borrower graduates from school or after a student loan grace period, and unpaid interest is added to the balance of the loan. Second, it could happen after periods of student loan deferment on Direct loans and the Federal Family Education Loan (FFEL) Program loans managed by the U.S. Department of Education. Private student loans that are in forbearance may also be subject to capitalized interest.

Even though payments are not due during these periods, interest is often calculated and added to the balance of the loan once that period is over. This is the process of capitalization, which will likely increase the student loan balance.

Borrowers utilizing income-driven repayment (IDR) plans may want to pay attention to capitalized interest as well. In these situations, unpaid interest may be capitalized on the loan:

• If an individual voluntarily leaves an income-driven repayment plan, does not recertify their income and family size annually, or does not have a partial financial hardship

• If a deferment period ends

• If a borrower consolidates their loans

In general, unpaid interest is added to the principal of a loan under an IDR plan under the following circumstances:

• During times of forbearance or deferment

• While the borrower is enrolled in school and has an unsubsidized loan

• The borrower has a grace period.

Can You Avoid Student Loan Interest Capitalization?

There are a few ways that borrowers can try to minimize capitalized interest. Once interest is capitalized, there is little a borrower can do about it, so the trick is to avoid scenarios where interest is capitalized in the first place.

How Much Does Capitalized Interest Cost?

The actual cost of capitalized interest varies according to the amount of the principal and interest rate. For instance, if a borrower has $25,000 in student loans with an interest rate of 5.00%, the capitalized interest could be $3,083. This brings the total amount owed to $23,083.

When Does Interest Accrue?

Interest on federal student loans begins to accrue the day the loans are disbursed, and interest accrues daily through the life of the loan. This is likely also the case for many private student loans, but be sure to confirm the terms with the lender before borrowing.

Regardless of whether the student loan is federal or private, the promissory note generally includes all pertinent information on the loan.

Depending on the type of loan(s) a borrower has — subsidized or unsubsidized — they may or may not be responsible for paying for the interest charges accrued while they are enrolled in school and during periods of deferment or forbearance.

Immediately after graduation, most federal loans offer a six-month grace period where borrowers aren’t required to make loan payments. The grace period exists so recent graduates have time to find work. Not all loans have grace periods and even if they do, interest may still accrue during the grace period, but a borrower may not be responsible for paying it during this time.

Understanding Interest During Deferment or Forbearance

Students may be able to temporarily halt their student loan payments with programs such as student loan deferment or forbearance due to economic hardship or job loss, but interest may accrue during these periods.

Borrowers with subsidized loans won’t have to pay interest accrued during periods of deferment because the government covers those interest charges. However, the government pays no interest charges on unsubsidized loans during deferment and does not make interest payments on any loan types during periods of forbearance.

It’s important to understand whether or not the interest will be capitalized on the loan before filing for deferment. This can help borrowers prepare for what lies ahead.

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Ways to Minimize Capitalized Interest

These strategies may help borrowers reduce or avoid capitalized interest on their student loans.

Making Interest-Only Payments

Consider making interest-only payments while in school, during the loan’s grace period, or during periods of deferment or forbearance. If that isn’t in the cards, try to minimize the amount you borrow.

Applying for Scholarships and Grants

Continue to look for scholarships and grant money while enrolled in school and after receiving your financial aid award. Scholarships and grants are free in the sense that they are not required to be repaid.

Think Carefully Before Taking a Deferment

Graduates should be judicious about taking a deferment. While you shouldn’t feel bad about utilizing these programs when needed, it can be a wiser decision to do so only if it’s totally necessary.

If a borrower puts their loans in deferment, they can try making interest-only payments. Even if they’re not able to tackle the principal at this time, making interest payments might minimize the amount of interest that may ultimately be capitalized on the loan.

Repay your way. Find the monthly
payment & rate that fits your budget.

The Takeaway

When the accrued interest on federal student loans is unpaid, it may be added to the principal value of the loan under certain circumstances. This becomes the new principal value of the loan and is used to calculate the interest as it accrues moving forward. This is capitalized interest, which only applies:

• When a borrower withdraws from an IDR plan.

• When a borrower on an IDR plan does not update their income and family size, or doesn’t have a financial hardship.

• After deferment on an unsubsidized loan.

In the long term, capitalized interest can make the cost of borrowing more expensive.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can interest be capitalized on a student loan if it is deferred?

In some cases, yes. If the loan is a federal Direct unsubsidized loan or a Federal Family Education Loan (FFEL), interest can be capitalized on the loan after a deferment.

Why does my loan interest capitalize?

One of the primary reasons student loan interest capitalizes on certain types of loans is that it accounts for periods of unpaid interest, such as when a borrower is in school or in deferment. Because the interest is still accruing during these times, capitalization gives the loan issuer a way to account for that debt by making it part of the principal balance.

How can I avoid capitalized interest?

To avoid capitalized interest, you can make interest-only payments while you’re in school, during the grace period after graduation, and while the loans are in deferment. If you’re on an income-driven repayment plan, be sure to recertify your income every year so you continue to qualify for the plan.

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