What is interest?
Interest is a fee an individual pays for the use of borrowed funds. When individuals enter repayment, they have to pay not only the principal (amount originally borrowed) but also an additional fee of interest on that borrowed money.
What is an interest notice?
- An interest notice is an account summary that details the interest accrued on your student loan(s) during a certain period of time.
- You receive an interest notice—instead of a bill—if your loan is in deferment, forbearance, grace, or in-school status.
- An interest notice differs from a bill because you're not required to make a payment.
Benefits of paying interest
Making payments on your interest notice can minimize the amount of interest that will capitalize (be added to your current principal balance) when your account enters repayment. Because less or no interest will be added to your original loan amount, your monthly payment will be less.
When interest accrues
Interest accrues on your unsubsidized student loan:
- Every day, from the day the loan is disbursed until you make the last payment.
- Even if your loan is not in repayment.
Interest accrues on your subsidized student loan:
- Every day, from the day the repayment period starts until you make the last payment.
- During your grace period if your loan was disbursed on or after July 1, 2012 and before July 1, 2014.
Interest does not accrue on your subsidized student loan during:
- Your in-school status.
- Your grace period if your loan was disbursed before July 1, 2012.
- An approved deferment
Calculating accrued interest
To calculate your daily interest accrual, use the following formula:
Interest rate x current principal balance ÷ number of days in the year = daily interest
Sara Student has a $10,000.00 current principal balance and 6% interest rate this year. Using the formula:
.06 x $10,000.00 ÷ 365 = 1.6438356… (round to $1.64)
How payments apply to interest vs. current principal balance
When you make a payment, our computer system counts the number of days since we processed your last payment.
Then we apply your payment as follows:
- Accrued interest—The amount of interest that accrued every day between the date of the last payment and the new payment must be satisfied first.
- Current principal balance—The remainder then applies toward your current principal balance.
The best way to control the amount that applies toward interest versus principal is to make your payments regularly and on time. The easiest way to do this is to use Direct Debit.