Student loan lingo you need to know.

Loans have a language all their own. As you look to navigate your way out of student debt, understanding these terms can help.

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  APR versus interest rate

  APR versus interest rate

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  • What’s the difference?
  APR, which stands for annual percentage rate, is the interest rate plus any fees your lender may add to the principal loan amount. The interest rate alone is what you’re being charged to borrow money from your lender, expressed as a percentage of the principal loan amount.

  • Which fees are typically included in an APR?
  The most common fee included in an APR is the student loan origination fee. This fee is typically based on a percentage of the total loan amount and gets deducted from the funds you receive before the loan is disbursed. Some lenders—like SoFi—don’t charge any fees.

  • How do interest rates work?
  The interest rate represents the amount your lender is charging you to borrow money. It’s expressed as a percentage of your loan amount (or principal) and doesn’t reflect any fees or other charges that might be connected to your loan.

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  Fixed versus variable rate

  Fixed versus variable rate

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  • What’s the difference?
  True to its name, a fixed interest rate does not change—it remains the same throughout the life of a loan, whereas a variable rate fluctuates with changes in the market.

  • When might a fixed rate make sense?
  If you like the security of knowing exactly what your monthly payment will be over the life of your loan, a fixed-rate loan is a good option. This consistency makes budgeting easier and offers peace of mind in times of economic uncertainty.

  • When might a variable rate make sense?
  A variable-rate loan can benefit borrowers in a declining interest-rate market because their monthly payment will decrease as well. However, when interest rates rise, borrowers who hold a variable-rate loan will find that their monthly payment also increases.

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  Federal versus private loan

  Federal versus private loan

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  • What’s the difference?
  Federal student loans are funded by the government—they can be subsidized or unsubsidized. Private student loans are not associated with the government, so their repayment terms vary from lender to lender. Unlike federal loans, interest rates can be either fixed or variable.

  • How do I know whether my loan is federal or private?
  To figure out whether your student loan is federal or private, visit the National Student Loan Data System (NSLDS). The database is a collection of information on student loans that aggregates data from universities, federal loan programs, and more.

  • What are the benefits of a federal student loan?
  Federal student loans include benefits not typically offered by private lenders, including income-based repayment, public service loan forgiveness, and deferment options.

  • What are the benefits of a private student loan?
  The benefits of a private student loan include higher loan amounts, your choice of fixed or variable interest rates, and a quick application process, among others.

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