Home |Student Loan | Will my accrued interest capitalize and be added to my principal if I switch from the IBR plan to the SAVE plan? Is it advisable to stay on the IBR plan to avoid this potential capitalization of interest?

Will my accrued interest capitalize and be added to my principal if I switch from the IBR plan to the SAVE plan? Is it advisable to stay on the IBR plan to avoid this potential capitalization of interest?

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Abbey Johnson, Helping with Student Loan Documentation
Answered on September 28,2023

Yes, your unpaid interest will be capitalized and added to your principal balance when you switch to SAVE. 

That is written into the statutes for IBR see Income-driven Repayment Plans Questions

Under the IBR Plan, interest not covered by your monthly payment that you’re responsible for paying will continue to accumulate and will be capitalized (added to your loan principal balance) if you no longer qualify to make payments based on income, or if you leave the IBR plan.

And additionally Income Driven Repayment Plan

In addition to the consequences described above, if you don’t recertify your income by the annual deadline under the IBR plan, any unpaid interest will be capitalized (added to the principal balance of your loans). This will increase the total cost of your loans over time, because you will then pay interest on the increased loan principal balance.

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Ultimate Guide on SAVE Plan - Payment Calculation, Interest, Forgiveness

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