A certified financial planner notes that with an unsubsidized student loan, the borrower has the choice of whether to make interest payments on the loan while still in college. She advises that making the interest payments rather than postponing them until after graduation is “always to your financial benefit … because otherwise [the interest payments] will capitalize.”
a. What does the financial planner mean when noting that the interest payments will “capitalize”?
b. Why does she believe that making the payments would be to your financial benefit? Are there good reasons some students decide to postpone making the interest payments until after they graduate? Briefly explain.