Student Loan Interest

Interest is additional money that you pay to a lender as a cost of borrowing money. Interest is calculated as a percentage of the unpaid principal amount that you borrowed.

Direct Loans are "daily interest" loans. On daily interest loans, interest accrues (adds up) every day.

If your loans are subsidized, you are not responsible for paying the interest that accrues while you’re in school. If your loans are unsubsidized, you’re responsible for all the interest that accrues, even while you’re in school.

Interest rates for federal student loans are set by federal law. The interest rate for a federal student loan varies depending on the loan type and the first disbursement date of the loan.

Current interest rates can be found here   this link will open in a new window .

Log in to your account to view your current interest rates. An interest rate reduction is available during repayment if you apply for and receive confirmation of enrollment of Auto Pay. Additional interest rate reductions may be available if you are an Active Duty Military Service Member.

A daily interest formula determines the amount of interest that accrues (adds up) on your loan each day. This formula consists of multiplying your loan balance by your interest rate and dividing that number by the number of days in a year. This will result in your daily interest accrual. Calculate your daily interest accrual using the following example:

To obtain your monthly interest, take your daily interest accrual multiplied by the number of days between payments. If your next payment is due on March 25 and your last payment was made on February 25, your unpaid interest accrued for the March payment equals $130.20 ($4.65/day * 28 days).

It's your responsibility to pay any interest that accrues (adds up) on your loans. In some cases   this link will open in a new window , unpaid interest can capitalize (be added to your principal balance). Capitalized interest increases your loan principal, can increase your monthly payment amount, and can cause you to pay more throughout the life of your loan.

Once a Loan is Fully Disbursed and During Repayment Status

Unsubsidized loans begin accruing interest once the amount is sent to the school regardless of enrollment status.

Subsidized loans are the exception: While the student is in school at least half time, interest does not accrue on subsidized loans. Once the student falls below half time status and their grace period ends, interest begins accruing on subsidized loans.

On Income-Driven Repayment (IDR) Plans

Unpaid interest still accrues while you repay loans under an IDR plan. In some cases, your monthly IDR payment may be less than the amount of interest that accrues between your payments. When this happens, your payment won’t cover all your accrued interest, so an amount of unpaid interest will add up each month. This unpaid interest will still be your responsibility to pay unless your loan is forgiven under IDR Forgiveness. Interest subsidies are available on some IDR plans. Find out more at StudentAid.gov/IDR  this link will open in a new window.

During Forbearance

Though you are not required to make monthly payments during periods of forbearance, interest will continue to accrue. Payments made during forbearance do not affect the forbearance status, but they will help reduce your unpaid interest balance.

During Deferment for Unsubsidized Loans

Though you are not required to make monthly payments during periods of deferment, interest will continue to accrue on unsubsidized loans. Payments made during deferment do not affect the deferment status, but they will help reduce your unpaid interest balance.

During School and Grace Periods for Unsubsidized Loans

Though you are not required to make monthly payments while you’re in school at least half-time or during your grace period, interest continues to accrue on unsubsidized loans. This includes Parent PLUS and Grad PLUS loans. Payments made during grace period and in school status do not affect the grace or in school status, but they will help reduce your unpaid interest balance.

Between Payments

The amount of interest accrual varies with the number of days between payments. Your monthly interest accrual can be calculated as follows: Daily Interest Accrual x Number of Days Since Last Payment = Monthly Interest Accrual.

When your unpaid interest is capitalized (is added to the principal balance), it increases the outstanding principal amount due on your loan. This causes your interest to be recalculated based on that higher principal balance, increasing the overall cost of your loan. Depending on your repayment plan, capitalization may also cause your monthly payment amount to increase.

Unpaid interest on Direct Loans capitalizes

• after a deferment on an unsubsidized loan; or

• if you are repaying your loans under the income-based repayment (IBR) plan and no longer qualify to make payments based on income or leave the IBR plan.

In this example, you have a $10,000 Direct Unsubsidized Loan with a 6.8% interest rate. On this loan, the amount of interest that accrues (adds up) each day is $1.86.

Say you’re in a deferment for six months. During the deferment, you do not pay the interest as it accrues. In this case, the loan will accrue $340 of unpaid interest. At the end of the deferment, the accrued interest of $340 will capitalize (be added to your principal balance).

You'll then be charged interest on the higher principal balance of $10,340. Based on this increased principal balance, the amount of interest that accrues each day will also increase (to $1.93 per day). This will result in you paying more over the course of repaying your loan balance.

Online:

• Loan Details on my web account

• Student Aid.gov   this link will open in a new window – login with your FSA and explore your account details.

Notifications sent to you, such as:

• Billing Statements

• Interest Statements

• Repayment Schedules and Disclosure

An interest statement provides the amount of interest that has accrued on your account. No action is needed when you receive an interest statement, but the outstanding interest may capitalize if it is not paid. If you choose to pay the interest, your future monthly payments may be reduced, and you may pay less interest throughout the life of your loan.

Payments are applied first toward outstanding interest and the remainder to the principal balance.

Interest rates for federal student loans are set by the government. Rates may vary depending on the type of loan and the date the loan was issued. Loans disbursed after 07/01/2006 have a fixed interest rate that is not subject to change. Loans disbursed between 07/01/1998 and 06/30/2006 have variable rates that are adjusted annually on July 1. The interest rates for consolidation loans are determined by the interest rates of the loans that were included in the consolidation.

Borrowers participating in Auto Pay may be eligible for an interest rate reduction.

Active duty military servicemembers may also qualify for a reduced interest rate under the Servicemembers Civil Relief Act (SCRA). Learn more about military benefits.

Borrowers whose full, on-time monthly payments are less than the interest accrued between the previous due date and the current payment date will have their unpaid interest for that month paid for by the government during certain periods.

You may be eligible for an interest subsidy if you apply for and receive confirmation of enrollment in the Income Based Repayment (IBR), Pay As You Earn (PAYE), or the Repayment Assistance Plan (RAP). Eligibility for interest subsidy is determined by your income, household size, loan type, and outstanding interest.

How the Interest Subsidy Works

If your required monthly payment does not cover all the interest that accrues between your due dates, some or all of the unpaid interest may be subsidized.

Under the PAYE and IBR plans, only interest on subsidized loans may be paid. Under RAP, unsubsidized interest may also be paid.

Under the Repayment Assistance Plan (RAP)

The subsidy covers unpaid interest that accrues between monthly due dates after you enter RAP. This subsidy applies to both subsidized and unsubsidized loans. Any interest that accrued before entering RAP, or during periods of nonrepayment (deferment, forbearance, etc.) is not eligible for subsidy.

As long as you make full, on-time payments and remain continuously enrolled (no breaks such as deferment or forbearance), your total loan balance will not increase beyond what you owed when you entered RAP.

Note: Unlike IBR and PAYE, RAP does not limit the interest subsidy to just your first three years of enrollment.

Additional Considerations

• The above detailed interest subsidy applies only to loans enrolled in RAP and only for months when:

  1. you receive a bill calculated using the RAP formula, and

  2. you (or someone on your behalf) makes the full payment on time.

• If you pay more than your monthly amount due:

  • The extra amount is applied first to accrued interest, then to principal.

  • Paying extra may reduce or eliminate the amount of interest that would otherwise be subsidized.

For more information, visit https://studentaid.gov/announcements-events/big-updates/definitions   this link will open in a new window . More details on how extra payments affect your interest subsidy may be provided in the future.

Variable interest rates are tied to an index and change annually if the index changes. The rates are based on the 91-Day T-Bill and 1-Year Constant Maturity Treasury Yield.

Variable interest rates can be adjusted annually effective July 1.

When variable interest rates change, we are required to ensure that the loan is paid off within the agreed upon time per the Master Promissory Note. The new monthly payment is based off the amount of principal remaining, any outstanding interest accrued, the new interest rate, and the number of months left to pay the loan off.