The next day, the daily rate accrues on a new principal balance that accounts for the interest from the previous day on top of the old principal amount. (studentloans.net)
This is because the new principal balance is higher, and interest charges after capitalization are calculated based on the new principal balance. (sapling.com)
When repayment begins, the $ 867 of interest is added to the principal of $ 3,000, making the new principal balance $ 3,867. (sapling.com)