Interest Charges
When paying for school, it is important to avoid debt if possible. Using student loans to pay for school can increase your cost of attendance. This is because you must pay for the use of borrowed money, in the form of interest charges. Paying interest is like paying to "rent" someone else's money. The higher the interest rate, the higher the "rent" you must pay to borrow these funds.
How It Works
Student loans can be subsidized or unsubsidized.
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| No interest accrues during your period of enrollment | Interest is assessed as soon as you receive a disbursement of your loan funds, and will be charged throughout your enrollment |
| Less expensive form of borrowing | No payments required during enrollment, but interest continues to accrue and is added to your loan balance |
| Interest charges begin after a 6-month grace period, at a time you begin repayment | Interest charged during your grace and repayment period |
| Interest continues to apply until the loan is paid in full | Interest continues to apply until the loan is paid in full |
| Interest may accrue for many years (undergraduate, mission, graduate school) before you begin repayment | |
| Borrowing for multiple years of enrollment can significantly increase your total loan balance and accumulated interest charges |
Every time you make a required loan payment, a portion of your payment will first go towards the accumulated interest charges for that month. The remaining portion of your payment will reduce the outstanding balance owed. In this way, interest is paid (or collected) as you make monthly payments.
When you are paying a higher interest rate, more of your monthly payment goes towards interest charges and less goes toward the repayment of your outstanding balance.
Helpful Tips
- To limit/avoid interest charges, look for ways to pay for school without using loans, such as scholarships and a part-time job.
- Spend less to owe less. Find cheaper ways to get what you need so you do not have to borrow as much.
- Pay off your loans early and save money. Generally, there is no penalty for extra payments and you will owe less interest overall.