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When financial aid like scholarships and grants comes up short, federal student loans can help bridge the gap.

Unsubsidized Direct Loans may be offered to undergraduate and graduate students in a financial aid package.

Subsidized Direct Loans may be offered to undergrads only, and have benefits in terms of who pays the interest during certain periods.

When a college sends an aid offer, the student must indicate which financial aid to accept. Here, we’re looking at Unsubsidized Direct Student Loans and how they can help you pay for college.

What Is an Unsubsidized Student Loan?

The Department of Education provides Federal Direct Unsubsidized Student Loans as one of four options under the William D. Ford Federal Direct Loan Program. (Direct Subsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans are the other types.)

Unsubsidized loans provide undergraduate and graduate-level students with a fixed-rate financing option to help fund their college education.

Unlike Direct Subsidized Loans, unsubsidized student loans are not based on financial need. This means that any student may receive unsubsidized loan funding, as long as it meets the Department of Education’s general eligibility requirements.

How Do Unsubsidized Student Loans Work?

If you’re eligible for Direct Unsubsidized Student Loans, the amount you’re offered for the academic year is determined by your school, based on its cost of attendance minus other financial aid you’ve received (such as scholarships, grants, work-study, and subsidized loans).

You will need to complete entrance counseling to ensure you understand the terms and your obligation to repay the loan. Then you’ll sign a master promissory note stating that you agree to the loan terms.

The government will send the loan funds directly to your school. Your institution will then apply the money toward any unpaid charges on your school account, including tuition, fees, room, and board.

Any remaining money will then be sent to you. For example, if you were approved for $3,800 in unsubsidized loans but only $3,000 was applied to your education costs, the school will send the remaining $800 to you.

The Education Department’s Federal Student Aid office recommends accepting grants and scholarships first, then work-study, then loans. And it advises accepting a subsidized loan before an unsubsidized loan, and an unsubsidized loan before a PLUS loan.

A Matter of Interest

As soon as any student loan is disbursed, it starts accruing interest. For federal student loans and most private student loans, you can defer payments until after your grace period, which is the first six months of leaving school or dropping below half-time status.

Here’s the kicker: With a subsidized student loan, the government pays the interest while you’re in school and during your grace period and any hardship deferment.

With an unsubsidized federal student loan or private student loan, unpaid interest that accrues will be added into your loan’s principal balance when you start repayment.

Pros and Cons of Unsubsidized Student Loans

Although unsubsidized student loans offer many benefits, there are also some downsides to know.

Applying for Unsubsidized Student Loans

Applying for federal financial aid starts with the FAFSA^® — the Free Application for Federal Student Aid. Students seeking aid complete the FAFSA each year.

Where to Apply

Applying for the FAFSA can be done at studentaid.gov, or you can print out a paper FAFSA and mail it.

Based on the information you included in your FAFSA, each school that you listed will determine your financial aid offer, including whether you’re eligible for an unsubsidized loan.

Typical Application Requirements

You must have an enrollment status of at least half-time to be eligible for a Direct Loan. You must also be enrolled in a degree- or certificate-granting program at a school that participates in the Direct Loan Program.

The Department of Education has general requirements to be eligible for federal aid. Applicants must:

•   Be a U.S. citizen or eligible noncitizen

•   Have a Social Security number

•   Prove that they qualify for a college education

•   Maintain satisfactory academic progress

•   Sign a certification statement

In the certification statement, you’ll need to confirm that you aren’t currently in default on a federal student loan and don’t owe money on a federal grant, and affirm that you’ll only use aid funds toward educational costs.

How Long Will You Have to Wait?

After submitting your FAFSA, it can take the Department of Education three to five days to process your application. If you submitted your FAFSA by mail, processing can take up to 10 days.

Once you’ve told your school which financial aid you want to accept, loan disbursement timelines vary. Generally, first-time borrowers have up to a 30-day waiting period before they receive their funds. Other borrowers may receive funding up to 10 days before the start of the semester.

How Much Can You Borrow?

There are annual limits to how much in combined subsidized and unsubsidized loans you can borrow. These limits are defined based on the year you are in school and whether you’re a dependent or independent student.

Here’s an overview of combined subsidized and unsubsidized loan limits per year for undergraduate students:

Graduate students are automatically considered independent and have an annual limit of $20,500 for unsubsidized loans (they cannot receive subsidized loans).

There are also student loan maximum lifetime amounts.

Subsidized vs Unsubsidized Student Loans

Another type of loan available through the Direct Loan Program is a subsidized loan. Here’s a quick comparison of subsidized vs. unsubsidized loans.

Alternatives to Unsubsidized Student Loans

Unsubsidized student loans are just one type of financial support students can consider for their education. Here are some alternatives.

Subsidized Loans

Direct Subsidized Loans are fixed-rate loans available to undergraduate students. As discussed, borrowers are only responsible for the interest charges that accrue while the loan is actively in repayment.

Scholarships and Grants

In addition to accessing potential scholarships, grants, and loans through the FAFSA, students can seek financial aid from other entities.

Scholarships and grants for college may be found through your state or city. Businesses, nonprofits, community groups, and professional associations often sponsor scholarships or grants, too. The opportunities may be based on need or merit.

Private Student Loans

Private lenders like banks, credit unions, and other financial institutions offer private student loans. Some schools and states also have their own student loan programs.

Private student loan lenders require borrowers, or cosigners, to meet certain credit thresholds, and some offer fixed or variable interest rates. Many lenders offer pre-qualification without a hard credit inquiry.

Private student loans can be a convenient financing option for students who are either ineligible for federal aid or have maxed out their federal student loan options. One need-to-know: Private student loans are not eligible for federal programs like Public Service Loan Forgiveness and income-driven repayment.

SoFi Private Student Loan Rates

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What are unsubsidized loan eligibility requirements?

To be eligible for a Direct Unsubsidized Loan, undergraduate and graduate students must be enrolled at least half-time at a qualifying school. They must also meet the basic eligibility requirements for federal aid, including being a U.S. citizen or eligible noncitizen, having a Social Security number, and completing the FAFSA.

How long does it take to receive a Direct Unsubsidized Loan?

Loan disbursement for first-time borrowers can take up to 30 days after the first day of enrollment. For others, disbursement takes place within 10 days before classes start.

What is the maximum amount of unsubsidized loans you can borrow?

Dependent students can borrow a maximum of $5,500 and $6,500 per year during their first and second academic years, respectively. Students in their third year of school and beyond can borrow an annual maximum of $7,500. The aggregate loan limit for dependent students is $31,000 in combined subsidized and unsubsidized loans.

Graduate or professional students may receive up to $20,500 per year in unsubsidized loans. Their aggregate loan limit is $138,500 (which includes all federal student loans received for undergraduate study).

Photo credit: iStock/LPETTET

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIS-Q224-1902912-V1

Pursuing a nursing program can lead to a rewarding career, but as the cost of higher education grows, paying for nursing school might just cause your blood pressure to rise.

Financial aid, including nursing student loans, can help fill the gap between money on hand and education costs, but it’s good to think about your future pay compared with the debt you’re willing to take on.

Keep reading to learn more on nursing school loans, the different types of student loans available, and alternative ways to pay for nursing school.

What Are Nursing School Loans?

Nursing school student loans are a type of financial aid available to eligible college students who are enrolled in a program for licensed practical or vocational nurses, registered nurses, nurse practitioners, or nurse anesthetists.

Depending on the loan program, federal student loans for nursing degrees can either be need-based or not. Another option to fill in gaps in need: private student loans.

Unlike grants and scholarships, nursing school loans must be repaid, though special programs like the Nurse Corps Loan Repayment Program and National Health Service Corps Loan Repayment Program offer loan forgiveness.

Most loan programs, federal and private, have a grace period during school and after graduation before repayment must begin.

Types of Loans Available for Nursing School Students

The Department of Education provides options for federal nursing student loans under the William D. Ford Federal Direct Loan Program.

Eligible borrowers can also explore private student loans for additional funding, if needed.

If you do borrow, you’ll be in good company. Take a guess at how many people have student loans. The answer is about 45 million Americans; the vast majority have federal student loans.

And the cost of nursing school? It varies by institution and length of study. Getting a Bachelor of Science in Nursing generally costs the same as most bachelor’s degrees.

Direct Subsidized Loans

A Federal Direct Subsidized Loan is available to undergraduate students who are enrolled at least half-time at a participating school. Students are required to demonstrate financial need to qualify.

If a nursing student qualifies for a Direct Subsidized Loan, the school determines how much they can receive for that academic year. The government pays the interest that accrues on the loan while the student is enrolled at least half-time, during a six-month grace period after leaving school, and during any deferment granted for economic hardship, cancer treatment, or a few other reasons.

In comparing subsidized vs. unsubsidized loans, the first type favors borrowers more, thanks to how accrued interest is paid.

Direct Unsubsidized Loans

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students. These loans are not based on financial need, but schools still decide how much students can borrow toward an academic year.

The key difference with this nursing loan option is that students are responsible for interest charges as soon as the loan funds are disbursed.

Direct PLUS Loans

Another federal option for nursing student loans is the Direct PLUS Loan. Grad PLUS Loans are available to graduate students who are pursuing an advanced degree like a Master of Science in Nursing.

Parents of an undergraduate student can help fund their child’s education through a Parent PLUS Loan; undergrads don’t have direct access to this loan option.

Direct PLUS Loans are non-need based and require a credit check. Borrowers are responsible for all interest that accrues. They can receive up to the school’s cost of attendance minus any other financial aid received.

Private Student Loans

Nursing students who need funding beyond federal student loans can consider private student loans. Private student loans are offered by private financial institutions like banks, credit unions, and online lenders.

Each lender has its own eligibility requirements, interest rates, and loan terms. If you’re eligible for a private student loan, your interest rate and loan details will depend on various factors, including your credit score. Most lenders welcome your bringing a solid cosigner aboard.

Pros and Cons of Loans for Nursing School

The average student loan debt among all health care professionals can be eye-opening, yet healers usually feel the need to heed the call, no matter the cost.

Nursing student loans can be a fast way to finance your college education. However, before jumping in, weigh the benefits of student loans against their disadvantages.

Applying for Nursing Student Loans

The process to apply for nursing student loans depends on the loan option chosen.

Comparing Loans

If you’re thinking about taking out student loans, you might want to compare federal student loans you might be offered in your aid package, as well as private student loans.

Prioritizing federal student loans before private student loans can be a good idea, since federal loans offer advantages like income-driven repayment plans and Public Service Loan Forgiveness, which forgives any remaining federal student loan balance after certain borrowers make 120 qualifying payments.

If private nursing student loans are still needed to pay for college, check offers across multiple private lenders. Comparing a handful of private student loan offers can help you find competitive rates and terms.

Applying for Loans

Federal nursing student loans and private student loans have distinct application processes. You must submit a Free Application for Federal Student Aid (FAFSA^®) before the academic year to see if you’re eligible for federal aid.

Private student loans don’t require the FAFSA. Instead, private nursing student loan applications can be submitted online, in person, or by mail, depending on the lender. They require the would-be borrower, or a cosigner, to meet credit and income requirements.

After Applying

It’s a good idea to start the process early when seeking federal student loans for your nursing education. The time between submitting the FAFSA and disbursement of the loan funds to your school can be months.

The turnaround time after applying to receive private student loan funds can be notably shorter. Getting pre-qualified for a loan can take just minutes.

In general, if you’re approved for a private nursing student loan, you can expect to wait up to 10 weeks after your loan is approved to receive the funds.

Alternative Financing Options for Nursing Students

Securing nursing school student loans is only one of many ways to finance your higher education. Other options include personal loans, grants, and employer sponsorship.

Personal Loans

Personal loans are a general-purpose loan option that can be used toward nursing school. A credit check is required.

Repayment begins as soon as funds are disbursed. Check your rate and decide if a personal loan makes sense. One perk of personal loans is you could get funding within 24 hours of loan approval.

Grants

Grants are provided through the federal government, state, your school, nonprofit entities, and private organizations. Since grant funding doesn’t need to be paid back, this aid alternative lets nursing students leave school with less student debt.

Employer Sponsorship

If you plan on working while you’re enrolled in nursing school, you can ask if your company has a sponsorship program. Generally in this situation, your employer will send funds directly to your school.

Private Student Loans From SoFi

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

How do nursing students get loans?

Nursing students can see if they’re eligible for federal student loans by submitting the FAFSA. Private nursing student loans are also available through various private lenders.

Can nursing school loans be forgiven?

Nursing professionals might be eligible for loan forgiveness through federal programs like Public Service Loan Forgiveness and the Nurse Corps Loan Repayment Program.

What is the average student loan amount for a nurse?

The median student loan debt among nurses ranges from $40,000 to $55,000, according to the most recent report by the American Association of Colleges of Nursing. Those who pursue a Master of Science in Nursing are often left with more than $47,000 in student loan debt, according to NurseJournal.

For perspective, in terms of educational investment and earnings, registered nurses earned a median annual wage of $86,070 in 2023, according to the Bureau of Labor Statistics. RNs usually have earned an associate’s or bachelor’s degree in nursing or a diploma from an approved nursing program.

Licensed practical and licensed vocational nurses, who complete a state-approved educational program that typically takes about one year, had median pay of $59,730 per year.
Nurse anesthetists, nurse midwives, and nurse practitioners, who must earn at least a master’s degree, had median pay of $129,480 per year.

Photo credit: iStock/erdikocak

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIS-Q224-1902868-V1

When deciding on a student loan repayment schedule, the option with the lowest possible monthly payment is not always best.

That’s because of amortization, the process of paying back a loan on a fixed payment schedule over a period of time. A repayment option with the lowest monthly payment typically means the loan is stretched out over a longer time frame. This results in the borrower paying more in interest than they would have with a shorter loan term and a higher monthly payment.

Read on to learn more about an amortized student loan, how it affects your monthly payments, and ways to potentially lower the amount you pay in interest on your student loans.

Exploring Amortization

Amortization is common with installment loans, which have regular monthly payments. Are student loans amortized? Yes, because they are installment loans.

With an amortized student loan, a borrower pays both the principal balance and interest each month. This is called a student loan amortization schedule. The schedule begins with the full balance owed, and the payments are then calculated by the lender over the life of the loan to cover the principal and interest.

At the beginning of an amortization schedule, payments typically cover more interest than principal. As time goes on, a bigger amount goes toward the principal.

To help determine amortization on your student loans, it’s important to first calculate the cost of the loan. You’ll need to know these three variables:

1.    The loan principal

2.    The interest rate and annual percentage rate (APR)

3.    The duration, or term, of the loan (usually given in months or years)

Using this information, it is possible to determine both the monthly payment on the loan and the total interest paid on the loan. A student loan interest calculator can help you figure this out.

The next step is to determine how much of each monthly payment is going toward both interest and principal. That’s when the loan’s amortization schedule comes into play.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Student Loan Amortization Examples

To understand how student loan amortization works, let’s say a borrower takes out a $30,000 student loan at 7% interest rate amortized over a 10-year repayment period.

The borrower’s monthly payment is approximately $348. Each year, the borrower will pay about $4,180 total on their loan. While these monthly and yearly amounts will remain the same, the proportions allocated to the principal and interest will change.

The chart below shows you what a student loan amortization schedule might look like for a $30,000 loan at 7% interest over 10 years. The chart illustrates the principal and interest amounts monthly for the first year and the last year of the loan, and annually for the years in between.

Amortization schedule for $30,000 student loan with 7% interest over 10 years

Using this estimated example, during the first year, the borrower’s monthly payments would be about half interest and half principal. With each passing month and year of paying down debt, more of each payment is allocated to the principal. By the final year, the borrower pays only $154 to interest and $4,026 to principal.

To see how a longer loan term can affect amortization, here is a student loan amortization schedule with a longer timeline of 20 years. It’s important to note that a 20-year payback period isn’t standard for federal student loans — this example is to illustrate the impact of time on amortization calculations.

Amortization schedule for the first year and last year of payment on a student loan of $60,000 with 7% interest over 20 years:

In this example, each monthly payment for the 20-year duration is $465. In January 2024, the first month of the first year of the loan, $350 is paid towards interest, and $115 is paid towards the principal. That’s less than 25% of the total payment, compared to 50% in the previous example.

In the last year of the loan, only $206 total goes towards interest versus $4,155 in the first year.

If you’re interested in expediting your loan payoff, you may want to explore different loan lengths to see how much you could save on interest if you shorten the term.

Alternative Repayment Plans and Amortization

In addition to the standard 10-year federal student loan repayment plan, there are some alternate repayment plans such as income-driven repayment (IDR) plans. There are four types of IDR plans:

•   SAVE (Saving on a Valuable Education) plan

•   PAYE (Pay as You Earn) plan

•   Income-Based Repayment (IBR) plan

•   Income-Contingent Repayment (ICR) plan

Each of these plans uses your income and family size to determine what your payments are.

Depending on an individual’s discretionary income and family size, the monthly payments with IDR plans are generally lower than with the standard, 10-year repayment plan because repayment is stretched out over 20 or 25 years. At the end of that time, any remaining balance you owe is typically forgiven.

While IDR may be a good option if you’re having trouble affording your monthly payments, it’s important to understand that not only will you likely pay more in total interest over the course of the loan because the term is longer, but it is also possible that your payments will dip into what is called negative amortization.

Negative amortization on a student loan is when your monthly payment is so low that it doesn’t even cover the interest for that month. When this happens, it can cause the loan balance to increase.

This is not ideal, of course, but utilizing an income-driven repayment plan is a far better option than missing payments or defaulting on a federal student loan. Using an income-driven repayment plan is also necessary if the borrower plans on utilizing the Public Service Loan Forgiveness (PSLF) program.

💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Managing Student Loan Amortization

To avoid the full impact of an amortized student loan there are several steps you could take to potentially help lower your interest payments.

Pay back your student loans faster than the stated term.

You can do this by paying more than you owe each month, or by making additional payments on your student loan, if you can afford to. Paying off the loan in advance may help you to pay less interest over the life of the loan.

If you opt to pay more than your minimum payments or make additional payments on your loans, it’s a good idea to let your lender know that the additional amount or payment should be applied to the principal of the loan, not the interest. That way, the extra amounts can help lower the principal amount you’re paying interest on.

Explore debt reduction methods.

For borrowers with multiple federal or private student loans who want to expedite their debt repayment, it can sometimes be hard to know where to start.

If your primary goal is to reduce the overall amount of interest you owe, you might want to consider the debt avalanche method of debt repayment. Using this technique, you choose the student loan debt with the highest interest rate and work on tackling it first. You would do this while making the minimum payment on all other loans or sources of debt. After the loan with the highest interest rate is paid off, focus on the loan with the next highest interest rate, and so on.

Refinancing student loans.

When you refinance a student loan, you’re essentially paying off your old loan or loans with a new loan from a private lender. Ideally, with refinancing, you would get a lower interest rate if your credit score and income qualify.

You might also be able to shorten the repayment term to pay off the loan faster, or lengthen the term to lower your monthly payments. Just remember, you may pay more interest over the life of the loan with a longer loan term.

When considering whether to refinance, borrowers should think carefully about the benefits their federal student loans have, such as income-driven repayment and the Public Service Loan Forgiveness option. When you refinance federal loans with a private lender, you lose access to these federal programs.

Weigh all your options to help determine what course of action makes the most sense for you.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Student loans — federal or private — begin accruing interest when they’re disbursed, and the borrower is responsible for paying the interest on all but subsidized federal student loans during grace periods or deferment.

There are a few exceptions, though, including periods of deferment for certain subsidized loans. And if you have federal student loans that were subject to the payment pause that began in 2020, it’s important to know when those loans begin accruing interest again in 2023.

Interest Accrual Basics and Exceptions

As a general rule, interest begins accruing on a student loan as soon as it’s disbursed. While the repayment of the loan is usually subject to a grace period (detailed later in this article), the interest continues to accrue even while the payments are paused.

The one exception is when certain loans are on deferment. Interest on the following types of loans usually does not accrue when a loan is on deferment:

•   Direct Subsidized Loans

•   Perkins Loans

•   The subsidized portion of Direct Consolidation Loans

•   The subsidized portion of Federal Family Education Loan Consolidation Loans

The other major exception is the federal student loan forbearance that the government implemented in March 2020. Not only did this pause federal student loan payments, it also set federal student loan interest rates at 0%, thereby pausing all interest accrual. The 2023 debt ceiling bill officially ended the payment pause, requiring interest accrual to resume on Sept. 1 and payments to resume on Oct. 1, 2023.

Some private student loan issuers offer deferment or forbearance for specific reasons. Any unpaid interest will likely accrue and be added to the principal after the payment pause, though.

The Basics of Student Loan Interest

A student who takes out a student loan (or a parent who takes out a parent-student loan in their own name) signs a promissory note outlining all the terms of the loan, which include the loan amount, interest rate, disbursement date, and payment schedule.

Federal student loans issued after July 1, 2006, have a fixed rate. The repayment default is the standard 10-year plan, but there are options, such as income-based repayment or a Direct Consolidation Loan, that can draw out repayment to double that or more. The Saving on a Valuable Education (SAVE) Plan is one of the federal student loan repayment options to consider.

The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments under this federal income-driven repayment plan. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)

Private student loans are not eligible for federal income-driven repayment plans. Interest rates on private student loans may be fixed or variable, and are based on your — or your cosigner’s — financial history. The repayment term can be anywhere from five to 20 years.

When does interest start on student loans? Federal and private student loans typically begin accruing interest when they’re disbursed. With federal student loans and most private student loans, payments are deferred until after you graduate. Interest will have accrued, and in almost all cases you’re responsible for paying it.

Interest and Grace Periods by Loan

Capitalized interest on student loans can significantly increase how much a borrower owes. This is when a lender adds unpaid interest to your principal loan balance and then charges interest on your larger balance.

The Department of Education implemented new regulations in July 2023 eliminating all instances of interest capitalization that are not specified in the Higher Education Act of 1965 (HEA). That means federal student loan interest capitalization no longer occurs when a borrower first enters repayment status following the grace period.

A federal student loan borrower who exits a period of deferment on an unsubsidized loan or who overcomes a partial financial hardship on the Income-Based Repayment Plan may face capitalized interest charges. Federal student loan interest capitalization can also occur upon loan consolidation. These are the few instances where federal law requires interest capitalization.

Fixed interest rates on newly disbursed federal student loans are determined by formulas specified in the HEA. These are the rates and loan fees (deducted from each disbursement) for the 2024–25 school year:

•   6.53% for Direct Subsidized or Unsubsidized loans for undergraduates

•   8.08% for Direct Unsubsidized loans for graduate and professional students

•   9.08% for Direct PLUS loans for graduate students, professional students, and parents

Recommended: Types of Federal Student Loans

Unsubsidized Student Loans

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students with no regard to financial need.

Loan fee: 1.057%.

Grace period: While you’re in school at least half-time and for six months after graduation.

Subsidized Student Loans

Federal Direct Subsidized Loans are available to undergraduates with financial needs.

Loan fee: 1.057%.

Grace period: While you’re in school at least half-time and for six months after you leave school. The government pays the interest during those grace periods and during any deferment.

Direct PLUS Loans

Taken Out by a Parent

A Parent PLUS Loan acquired to help a dependent undergraduate is unsubsidized.

Loan fee: 4.228%.

Some private lenders refinance Parent PLUS loans at what could be a lower rate.

Grace period: First payment is due within 60 days of final disbursement, but a parent can apply to defer payments while their child is in school at least half-time and for six months after.

Taken Out by a Graduate Student or Professional Student

Grad PLUS Loans are available to students through schools participating in the Direct Loan Program.

Loan fee: 4.228%.

Grace period: Automatic deferment while in school and for six months after graduating or dropping below half-time enrollment.

Private Student Loans

Some banks, credit unions, state agencies, and online lenders offer private student loans.

Rate and fee: Rates can be fixed or variable, and rates and fees vary by lender

Grace period: Student loan interest accrual begins when a private student loan is disbursed, but payments may be deferred while a borrower is in school.

How Is Interest on Student Loans Calculated?

Student loans typically generate interest every day. Your annual percentage rate (APR) is divided by 365 days to determine a daily interest rate, and you are then charged interest each day on the total amount you owe.

That interest is added to your total balance, and you’re then charged interest on the new balance — paying interest on interest until the loans are paid off.

If you don’t know what your monthly payments will be, a student loan payment calculator can help. This one estimates how much you’ll be paying each month so you can better prepare for your upcoming bills.
The amount you pay each month will be the same, but the money first goes toward paying off interest and any fees you’ve been charged (like late fees); the remainder goes to pay down the principal of the loan.

As you pay down your loan, because the principal is decreasing, the amount of interest you’re accruing decreases. And so, over the life of your loan, less of your monthly payment will go toward interest and more will go toward the principal. This is known as amortization

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How You Could Save on Interest

Because interest can add up so quickly, it’s important to pay attention to the interest rates you’re paying on your student loans.

Student loan refinancing — taking out a brand-new loan that pays off your current loans — can lower the amount of interest your loans accrue if you qualify for a lower interest rate or a shorter term. To see how refinancing might save you money, take a look at this student loan refinance calculator.

Even a small difference in interest rates could help you save a substantial amount of money paid in total interest over the life of the loan, depending on the term you select.

It’s important to know, though, that refinancing federal student loans will make them ineligible for federal benefits like income-driven repayment plans and Public Service Loan Forgiveness.

💡 Quick Tip: If you have student loans with variable rates, you may want to consider refinancing to lock in a fixed rate before rates rise. But if you’re willing to take a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate.

The Takeaway

When does student loan interest start accruing? The minute the loan is disbursed, and you’re usually responsible for paying it. It’s important for borrowers to understand and pay attention to capitalized interest.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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You may have noticed when shopping around for student loans that some lenders display an interest rate, while others show an APR. What’s the difference? The main distinction is that APR (which stands for annual percentage rate) includes any fees or other charges the lender may add to the loan principal. The “interest rate” does not.

When shopping for a student loan, it’s key to know whether you’re looking at an APR or an interest rate, since this can have a significant impact on the total cost of the loan. Read on to learn more about APR vs. interest rate, what each number includes, and how to compare student loan rates apples to apples to find the best deal.

How Do Student Loan Interest Rates Work?

As with any loan, 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. Interest rates can be fixed (the same for the life of the loan) or variable (may fluctuate over the life of the loan).

Interest rates work differently depending on whether a student loan is federal or private. Congress sets the interest rate for federal student loans. The rate is fixed — and it’s the same for all borrowers. The federal student loan interest rate for undergraduates is 6.53% for new loans taken out for the 2024-25 school year, effective from July 1, 2024 to July 1, 2025.

Private student loan companies are allowed to set their own interest rates, which may be higher or lower than rates for federal loans. Interest rates on private loans may be fixed or variable and typically depend on the creditworthiness of the borrower (or cosigner) — those with higher credit scores generally qualify for lower rates, while borrowers with lower credit scores tend to get higher rates.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

What Is the Student Loan APR, and How Is It Different From Interest Rate?

A loan’s annual percentage rate (APR) represents a more comprehensive view of what you’re being charged. It tells you the total cost of the loan per year, including any fees, such as an origination fee. Because of that, a loan’s APR may be higher than its interest rate.

Looking at the APR helps you compare different loan offers and get a real picture of the overall cost you will pay for borrowing money for your education. If a loan doesn’t have any fees then the interest and the APR will be the same.

Federal student loans publish interest rates but not the APRs, so it’s important to keep in mind that the headline interest rate of a federal student loan is not the total cost of that loan. These loans also charge an origination fee, which is 1.057% for Direct Subsidized and Direct Unsubsidized loans, and 4.228% for Direct PLUS loans (unsubsidized loans for the parents and graduate/professional students.)

For private student loans, origination fees vary by lender. While some private lenders charge origination fees, it’s possible to find a private loan that doesn’t come with these fees. However, it’s important to keep in mind that private student loans generally don’t come with the same protections as federal student loans, such as income-driven repayment plans and forgiveness programs.

What Fees / Charges Might Be Included in a Student Loan APR?

For student loans, the most common fee is the loan origination fee. Whether the loan is federal or private, this fee is typically based on a percentage of the total loan amount and will be deducted from your loan amount before the loan is dispersed. This means that if you borrow $10,000 and the origination fee is 1.057%, $105.70 will be deducted from your total loan amount — so you would actually receive $9,894.30 for the year.

While origination fees can be small, the cost can add up. Because these fees are deducted from the total loan amount, you are paying the fee with borrowed money and will pay interest on the fee paid.

Both private and federal student loans may also have late fees and returned payment (or insufficient funds) fees, both of which add to the total amount you must repay. However, you can avoid these fees by always paying your bill on time and making sure you have enough money in your bank account to cover the payment.

Fees vary widely from one lender to the next, and some private lenders may not charge any fees.

If a Loan’s Interest Rate and APR Are the Same, Does That Mean There Are No Hidden Fees?

Typically, yes. Just keep in mind that interest rates published for federal student loans are not APRs and do not include the origination fee. This fee will come out of the amount of money that is disbursed (paid out) to you while you’re in school.

The student loan APRs listed by private lenders include any additional charges and fees. If the lender doesn’t charge any fees, the APR and interest rate will be the same.

Recommended: Pros and Cons of Refinancing Student Loans

When Shopping for a Loan, Should I Look at Interest Rate, APR, or Both?

Whenever available, you’ll want to look at the APR of a student loan, since this number allows a more apples-to-apples comparison of loan costs. If you just compare straight interest rates, you can miss the big picture in terms of the total cost of the loan. Sometimes those additional fees can make a big impact.

It’s also important to know when the interest rate or APR will kick in. Although the interest rate is the same for federal Direct Subsidized and Direct Unsubsidized loans, the latter loan ends up costing significantly more because interest starts accruing from the time the funds are disbursed. With subsidized federal loans, the interest does not accrue while you are still in school.

With private student loans, interest typically begins to accrue as soon as the loan money is disbursed to your school.

Whether interest starts accruing immediately or later, you typically don’t have to start making any payments on private or federal student loans until after you graduate.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

The Takeaway

A student loan’s interest rate is the cost of borrowing money and is expressed as a percentage of the loan amount. APR includes the interest rate as well as the additional costs and fees associated with borrowing. As a result, it gives you a more complete picture of the total cost of the loan. Understanding APR vs. interest rate is important when you’re researching best rates for student loans. It will help you make informed decisions that may lower your cost of borrowing.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What is a good APR for a student loan?

For new loans taken out for the 2024-25 school year, the federal student loan interest rate is 6.530% for undergraduates (whether the loan is unsubsidized or subsidized). For graduate students it’s 8.08%, and for parents it’s 9.08%.

Average private student loan annual percentage rates (APRs) range from just under 4% to almost 15% percent.

Is APR better than interest rate?

The annual percentage rate (APR) gives you a more accurate picture of the true cost of financing. The APR of a loan tells you how much you will pay for a loan over the course of a year after accounting for the interest rate as well as any extra costs, like origination fees.

When comparing loan offers, it’s generally better to compare APRs than interest rates, since this allows you to compare loan offers apples to apples.

Can APR and interest rate be the same?

Yes. If no fees are added to your loan amount, the interest rate and the annual percentage rate (APR) will be the same.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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