Capitalization occurs after the education is complete. This term refers to the combination of the unpaid accrued interest the loan has received with the total amount of the principal balance. When capitalization occurs, the total amount of the debt will increase.

While capitalization can be discouraging to those looking at repaying their student loans, keep in mind that the interest rate is not a surprise. You know that you will have to pay back the interest. If your lender is willing to defer interest payments until the education is complete, you can begin making payments towards the principal balance while you are still in school. This is a good way to reduce the amount of interest when you are required to begin payments on the loan. Make sure that when you apply for your student loans you find out when the capitalization will occur, so it is not a total surprise.

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