This is the most straightforward strategy — and often the most underutilized. If you're in deferment, forbearance, or your grace period, interest is accruing on your unsubsidized loans. Every dollar of that interest that you pay before the capitalization event is a dollar that never gets added to your principal.
The math is simple: Principal × APR ÷ 12 = Monthly Interest
On a $30,000 loan at 6.5% APR, that's about $162.50 per month. Over a 36-month deferment, that's $5,850 in interest — all of which would capitalize if you paid nothing.
You don't need to pay the full amount. Even $50/month during a 36-month deferment reduces the capitalization amount by $1,800 — saving you thousands in future interest.
Set up automatic payments during your grace period or deferment. Even $25/month builds the habit and reduces your future balance. Most servicers let you set this up in 2 minutes.
If you're not sure how much to pay, use our Capitalized Interest Calculator to see exactly how much interest is accruing each month.
If you have good credit and a stable income, refinancing your student loans before interest capitalizes can save you thousands and eliminate the capitalization event entirely.
Here's how it works: When you refinance, a new lender pays off your original loan — including all accrued interest. You start fresh with a new loan at a new interest rate. Since the original loan is paid off, the accrued interest never capitalizes.
If you can lower your interest rate by even 1%, refinancing before capitalization could save you $3,000+ over the life of your loan. And if you're facing a large capitalization event (like $5,850 on a $30,000 loan), refinancing can prevent that balance from ever being added to your principal.
Credible lets you compare prequalified rates from top lenders like SoFi, Earnest, and Laurel Road — without hurting your credit score. See your personalized rates and choose the best offer.
Compare My Rates →Refinancing federal loans into a private loan means you lose federal protections — income-driven repayment, PSLF eligibility, and generous deferment options. Only refinance if you're confident you won't need those safety nets. If you have private loans already, refinancing carries no such risk.
| Lender | Best For | Fixed Rates From | Action |
|---|---|---|---|
| SoFi | Large balances / high earners | 4.99% APR | Check Rate |
| Credible | Comparing multiple lenders at once | Varies by lender | Compare All |
| Earnest | Customizable payment terms | 5.24% APR | Check Rate |
| Laurel Road | Medical / dental professionals | 4.89% APR | Check Rate |
| Discover | No fees / strong customer service | 5.49% APR | Check Rate |
The SAVE plan (formerly REPAYE) is the most borrower-friendly income-driven repayment plan ever created. Under SAVE, the government covers 100% of your unpaid monthly interest — as long as you make your required payment on time.
This is a game-changer for capitalization. If your balance never grows because the government is covering the interest, there's nothing to capitalize. It's the closest thing to a permanent solution for borrowers with federal loans.
The Federal Student Aid Loan Simulator helps you compare repayment plans side by side — including SAVE, PAYE, IBR, and ICR. See your estimated monthly payment, total interest paid, and forgiveness timeline for each plan.
Try the Loan Simulator →You must recertify your income annually to stay on the SAVE plan. Missing your recertification deadline can remove you from the plan and trigger capitalization. Set a calendar reminder 60 days before your deadline.
| Feature | SAVE | PAYE | IBR | ICR |
|---|---|---|---|---|
| Unpaid Interest Covered | ✅ 100% | ❌ | ❌ | ❌ |
| Capitalization Risk | ✅ Very Low | ⚠️ High | ⚠️ High | ⚠️ High |
| Payment Calculation | 10% discretionary | 10% discretionary | 10-15% discretionary | 20% discretionary |
| Forgiveness Timeline | 20-25 years | 20 years | 20-25 years | 25 years |
| Best For | Most borrowers | New borrowers (2014+) | Pre-2014 borrowers | Parent PLUS borrowers |
Not every strategy works for every borrower. Here's how to decide which one fits your situation.
Pay interest during deferment
Best IfYou're in deferment or grace period and have some cash flow — even $25-50/month.
Not IfYou have zero extra income. If you can't afford it, focus on Strategy 2 or 3.
Refinance before capitalization
Best IfYou have good credit (650+), stable income, and a rate above 6%.
Not IfYou're pursuing PSLF, need IDR protections, or have poor credit.
Enroll in the SAVE Plan
Best IfYou have federal loans, variable income, and want permanent protection against capitalization.
Not IfYou have private loans only — SAVE doesn't apply.
You can combine strategies. Many borrowers enroll in SAVE (Strategy 3) for long-term protection while also making small interest payments (Strategy 1) to reduce their balance faster. And if you later decide to refinance (Strategy 2), you can — SAVE doesn't lock you in.
Yes. Paying even a small amount toward accrued interest during deferment prevents it from capitalizing. Every dollar you pay before capitalization is a dollar that won't compound against you. Even $25/month helps.
Yes. When you refinance, you pay off the original loan and start fresh with a new lender. Any accrued interest is paid off as part of the refinance, so it never capitalizes. Plus, you may get a lower interest rate.
Yes. Under the SAVE plan, the government covers 100% of unpaid monthly interest. Your balance doesn't grow, so there's no interest to capitalize. This is the most effective long-term solution for federal loan borrowers.
Once interest is capitalized, it's part of your principal — you can't "un-capitalize" it. But you can still take action: refinance to a lower rate, make extra principal payments, or enroll in SAVE to prevent future capitalization. The best time to act was before capitalization; the second best time is now.
Yes. Many borrowers enroll in SAVE (Strategy 3) for long-term protection, make small interest payments during deferment (Strategy 1), and later refinance (Strategy 2) if their financial situation improves. The strategies are complementary, not mutually exclusive.
The fastest way is refinancing (Strategy 2) if you qualify — it eliminates the capitalization event immediately and lowers your rate. If you don't qualify, enrolling in SAVE (Strategy 3) is the next best option, as it stops future interest from growing.