What is loan capitalization and why did my student loan balance suddenly jump?

Capitalization is when unpaid, accrued interest gets added to your principal balance, so you then pay interest on that larger amount. It typically happens after periods when interest built up but you were not paying it down, such as leaving a deferment, exiting the grace period, or in the past when switching repayment plans. Once capitalized, that interest becomes principal permanently, quietly increasing the total you repay. To limit the damage, pay at least the accruing interest during school, deferments, or forbearances if you can, so there is nothing to capitalize. The Department of Education has reduced the number of events that trigger capitalization on federal loans, but it can still occur, so watch your balance after any status change.