About Interest
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 student loan:
- Every single day, from the day the loan is disbursed until you make the very last payment.
- Even if your account is not in repayment.
Interest does not accrue on your student loan:
- During the in-school grace period for your Subsidized Stafford loans.
- When you're in an approved period of deferment for Subsidized Stafford/Subsidized Consolidation loans. In this instance, the government pays the interest for you.
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
Example
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.