Hello Heather,

I have a question on capitalized interest. The rule is:

“Under IBR, unpaid interest is capitalized (added to your loan principal balance) only if you are determined to no longer have a “partial financial hardship”, or if you choose to leave the IBR Plan.

What I am not clear on is - if you no longer have a partial financial hardship or if you leave IBR, are you responsible for the interest that capitalized when you did have a partial financial hardship?  Does that get carried forward? Or does the interest just begin to capitalize when you no longer have a partial financial hardship or if you change plans?

Also, do you know how much you would have to earn to longer have “partial financial hardship”?

Many thanks! I really appreciate what you are doing for us. I’ve been looking for a site like this for ages and found you on IBRinfo.org

GP

So interest “accrues” or adds up, all the time.  Some of it is paid by you when you make your IBR payment (except maybe not you if you’re paying $0!)  If your IBR payment amount does not cover the full amount of interest that accrues on your loans each month, the government will pay any unpaid, accrued interest on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under IBR.

What happens to the accrued interest that isn’t paid by you or the government?  While you still are in IBR and have a Partial Financial Hardship, It hangs out in a kind of limbo and can continue to get bigger as more interest accrues.  Capitalization (or adding that unpaid accrued interest to the principal balance of the loan) does not occur unless you no longer have a Partial Financial Hardship or you choose to leave IBR.  Capitalization is bad, because then you begin to be charged interest on interest.  Not something you want to do.

At some point, all the accrued interest and principal has to either get repaid or forgiven.  Maybe it’s repaid by you over time or you loan forgiveness.  Hope that makes sense.

You are very welcome.  Help me out please by passing along the info through your social media channels.

Yours,
Heather

Having trouble uploading the PFH chart for you.  Have to try another route.  Will do shortly.