Student loan interest is the cost a lender charges you for borrowing money, calculated as a percentage of what you owe
When you borrow for school, the lender adds interest on top of the principal — the amount you actually borrowed. How much interest you pay depends on the type of loan, who lends it, and the terms you agree to. Federal student loans have interest rates set by Congress and are the same for all borrowers in a given year. Private student loans have rates that vary based on your credit score and the lender's policies.
Interest accrues, meaning it builds up over time. On some loans, interest starts accumulating while you are still in school. On others, it does not accrue until after you graduate. Understanding when interest starts and how it compounds — when unpaid interest gets added to your balance and then earns interest itself — changes how much you will ultimately repay.
Key Takeaways
- Federal student loan interest rates are set by Congress each year and range from roughly 5% to 8%, depending on the loan type and the year you borrowed.
- Private student loan rates vary by lender and your credit score, typically ranging from 3% to 14% or higher.
- Interest on federal loans does not accrue while you are in school on most loan types, but interest on private loans usually does.
- Unsubsidized federal loans accrue interest even while you are enrolled, and that interest gets added to your balance after graduation.
- The total amount you repay depends on your interest rate, how long you take to repay, and whether you make payments while in school.
How federal student loan interest rates are set
Congress sets the interest rate for federal student loans each year. The rate is the same for all borrowers who take out a loan in that year, regardless of credit score or income. Rates have varied over time: loans issued in 2023–24 had rates around 8.05% for undergraduate Direct Loans and 7.05% for graduate Direct Loans, while rates in earlier years were lower.
The rate you receive is locked in for the life of that loan. If you borrowed at 4% in 2015 and still owe on that loan today, your rate remains 4%. New loans you take out in a different year will have whatever rate Congress set for that year.
There are different types of federal loans, and each has its own interest rate. Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans all have different rates set annually. Parent PLUS Loans typically have the highest federal rate.
The difference between subsidized and unsubsidized federal loans
Subsidized loans do not accrue interest while you are enrolled in school at least half-time. The federal government pays the interest during this period. Once you graduate or drop below half-time enrollment, interest begins to accrue and you start owing it.
Unsubsidized loans accrue interest from the moment the loan is disbursed, even while you are in school. You are not required to pay this interest while enrolled, but it builds up. After graduation, this unpaid interest is added to your loan balance — a process called capitalization — and you then owe interest on the larger amount. This means unsubsidized loans cost more over time if you do not pay the interest while in school.
For example, if you borrow $10,000 in an unsubsidized loan at 6% interest and do not pay anything for four years while in school, roughly $2,600 in interest accrues. Your balance becomes $12,600 when repayment begins, and you then owe interest on that higher amount.
How private student loan interest rates work
Private lenders set their own interest rates based on your creditworthiness. A borrower with a strong credit score may receive a rate of 4% to 6%, while someone with a lower score might be offered 10% to 14% or higher. Some private loans have fixed rates that do not change; others have variable rates that move with market conditions.
Private loan interest typically accrues while you are in school, regardless of whether you are making payments. Some lenders offer in-school payment plans or the option to pay interest only while enrolled, but this is not standard. You will need to check the terms of the specific loan.
Private loans do not have the same protections as federal loans. There is no income-driven repayment option, no automatic forbearance if you face hardship, and no loan forgiveness program. The interest rate you receive depends entirely on the lender's assessment of your risk.
How interest compounds and affects your total repayment
Compound interest means you pay interest on interest. When unpaid interest is capitalized — added to your principal balance — future interest accrues on that larger amount. This happens most often after graduation, when interest that built up during school gets added to what you owe.
The longer you take to repay, the more interest you pay overall. A $30,000 loan at 6% interest repaid over 10 years costs roughly $9,900 in interest. The same loan repaid over 20 years costs roughly $19,900 in interest. Making payments while in school, even small ones, reduces the principal and lowers the total interest you will owe.
Income-driven repayment plans for federal loans can extend your repayment period to 20 or 25 years, which lowers your monthly payment but increases total interest paid. Some borrowers on these plans may have remaining balance forgiven after the repayment period ends, which can offset the extra interest cost.
What happens to interest during deferment and forbearance
If you cannot make payments due to hardship, you may be able to pause your loans through deferment or forbearance. The rules differ by loan type.
On subsidized federal loans, interest does not accrue during deferment. During forbearance, interest does accrue, but you are not required to pay it. On unsubsidized federal loans, interest accrues during both deferment and forbearance. If you do not pay the accrued interest, it gets capitalized when the pause ends.
Private loans typically continue to accrue interest during any pause in payments. Check your loan documents to confirm the terms.
How to estimate what you will pay in interest
The Federal Student Aid office provides a loan calculator on studentaid.gov where you can enter your loan amount, interest rate, and repayment plan to see an estimate of total interest and monthly payment. This tool works for federal loans and gives you a clear picture of how different repayment timelines affect your cost.
For private loans, most lenders provide an amortization schedule — a table showing how much of each payment goes to interest versus principal over the life of the loan. Request this from your lender before you borrow, so you understand the true cost.
Keep in mind that these are estimates. If you make extra payments, your interest cost will be lower. If you enter forbearance or deferment, accrued interest may change the total.
Frequently Asked Questions
Can I pay off student loan interest before the principal?
No. Loan payments are applied to interest first, then to principal. You cannot choose to pay principal only. However, you can make extra payments beyond your required monthly amount, and those extra payments go directly to principal, reducing future interest.
Does student loan interest change over time?
Federal loan interest rates are fixed for the life of each loan. Private loans may have fixed or variable rates depending on the lender. Variable-rate private loans can increase or decrease based on market conditions, so your payment may change.
What is the current federal student loan interest rate?
Federal rates change each year and depend on the loan type. Rates for loans issued in 2024–25 are set by Congress. Check studentaid.gov or your loan servicer's website for the current rate on your specific loan type.
Do I owe interest on Parent PLUS loans while my child is in school?
Yes. Parent PLUS loans accrue interest from the moment they are disbursed, even while your child is enrolled. Interest continues to build if you do not make payments, and it gets capitalized when repayment begins.
What happens to unpaid interest if I consolidate my loans?
When you consolidate federal loans, any unpaid accrued interest is capitalized and added to your new loan balance. This increases the amount you owe, but it also locks in a new interest rate based on the average of your old rates.