What is capitalization of interest in the Direct Loan and FFEL Programs?
A1. In both the FFEL and Direct Loan programs interest that has accrued on a loan, including interest accrued during the in-school and grace periods for unsubsidized loans, may be periodically added to the amount borrowed. This “capitalization” of interest results in an increased outstanding principal balance upon which additional interest is calculated. Q2. Is capitalized interest that becomes part of the outstanding principal balance of a loan considered when determining whether a borrower is approaching or has exceeded an aggregate loan maximum? A2. No. When calculating whether a borrower has reached his or her aggregate loan limit in either the FFELP or Direct Loan Program, only the outstanding principal balance that results from loans made and disbursed should be considered. Any portion of a loan’s outstanding principal balance that is the result of the capitalization of interest should be excluded when calculating remaining aggregate eligibility. Q3. Is capitalized interest inclu
