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Interest Charges

If it is necessary to borrow, having an understanding of how interest charges are calculated and added to your loan will help you make informed decisions. To limit charges, do not borrow more than you need.

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.

Subsidized Loans

Unsubsidized Loans

No interest accrues during your period of enrollmentInterest is assessed as soon as you receive a disbursement of your loan funds, and will be charged throughout your enrollment
Less expensive form of borrowingNo 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 repaymentInterest charged during your grace and repayment period
Interest continues to apply until the loan is paid in fullInterest 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.

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