Interest and interest rates
An interest rate is the rate charged to borrow money. It’s calculated as a percentage of your Current Principal.
The interest on your student loan begins to accrue (grow) on the first day we disburse (send) your loan’s funds to you or your school. It continues to accrue until you’ve paid off your loan. The interest rate for your loan is listed in your disclosure documents and billing statement.
Fixed vs. variable interest
A fixed interest rate is an interest rate that stays the same for the life of the loan.
A variable interest rate is an interest rate that may go up or down due to an increase or decrease to the loan’s index. Our loans generally use LIBOR (London Interbank Offered Rate) as an index. It is a common rate used for loans and reflects the ups and downs of the market at large. LIBOR is often used as a basis for interest rates on private student loans.
Capitalized interest is a second reason your loan may end up costing more than the amount you originally borrowed.
Interest starts to accrue (grow) from the day your loan is disbursed (sent to you or your school). At certain points in time—when your separation or grace period ends, or at the end of forbearance or deferment—your Unpaid Interest may capitalize. That means it is added to your loan’s Current Principal. From that point, your interest will now be calculated on this new amount. That’s capitalized interest.
Lower your Total Loan Cost by avoiding capitalization
You can lower your Total Loan Cost by paying your accrued interest before it capitalizes. The interest repayment option of the Smart Option Student Loan® does this naturally, since you’ve paid accrued interest throughout school.
Alternatively, if you’re making fixed payments or deferring payments until after school, try to make small additional payments. Or try to pay your accrued interest before your separation or grace period ends. These actions can help you avoid—or at least lower—the amount of capitalized interest after you’re out of school.