What Is Student Loan Interest

Student loan interest is the cost of borrowing for education. It is applied to your balance each period—usually monthly—based on your interest rate. Federal and most private loans use a fixed rate set at disbursement; some private loans use a variable rate. Use the Student Loan Calculator to see how your rate and term affect your monthly payment and total interest.

How Interest Is Applied

Each month the lender multiplies your outstanding balance by the monthly rate (annual rate divided by 12). That interest is added to the balance (or paid separately depending on the loan type). Your payment is applied to principal and interest. In standard repayment, the payment is fixed so that the loan is paid off by the end of the term. Early in the term most of the payment goes to interest; later, more goes to principal.

Capitalization

Unpaid interest can capitalize—be added to principal—at certain events (e.g. end of grace, leaving school). Once capitalized, interest accrues on the new higher balance. The calculator assumes repayment on the current balance; for exact numbers during grace or after capitalization, use your actual balance and term.

Practical Takeaway

Use the Student Loan Calculator to see your projected payment and total interest. For how repayment works, see how student loan repayment works and federal vs private student loans.