How Do Student Loan Interest Rates Work?

Unfortunately, how much you originally borrow in student loans is not how much you’ll repay. Thanks to interest charges, your loan balance can grow over time. Interest can cause you to pay thousands more than you originally borrowed, so it’s important that you understand exactly how much interest you should be paying per month.

For federal subsidized loans, the government covers the cost of interest that accrues while you’re in school and during the six-month period after you graduate. After that, you’re responsible for all interest charges. 

For federal unsubsidized and private student loans, interest starts accruing on your debt as soon as the loan is disbursed. Interest will continue to grow while you’re in school and during your loan grace period—the time before you start having to make payments.

Making payments while you’re still in school and during your grace period can reduce the total you’ll repay over the length of your loan, helping you save money.

While there are repayment plans—such as income-driven repayment plans—that allow you to extend your repayment term, doing so can cause you to pay back more money in interest. Alternatively, you can also consolidate your loan to lessen your monthly payments, though the longer life of the loan could result in you having to pay thousands of dollars more in accrued interest.

Leave a Reply

Your email address will not be published. Required fields are marked *