# How Much Is Interest On Student Loans

Interest on student loans can be confusing, and that’s often intentional. The government wants you to spend as much as possible on your education, so they make it hard to understand how much interest you’ll pay in the long run (it’s a lot). In this article, we’ll explain what each type of loan has in store for you if you’re thinking about taking out some money for college.

## Interest on unsubsidized student loans starts adding up immediately.

Student loans can be a pricey proposition, and the interest that accumulates on student loans can get expensive fast. As of 2019, unsubsidized student loan interest rates were 6.6 percent and subsidized student loan interest rates were 5.05 percent (this is the fourth year in a row they’ve risen). So how much money do you pay in interest over time?

To find out, you’ll need to know two things: how much money you borrowed in total and how long it took to pay back your debt (the repayment term). For example, if Sally borrowed $10,000 under the Grad PLUS program with a 10-year repayment term at an annual fixed rate of 7.60 percent (the current unsubsidized rate), she’d pay about $946 per month for 120 months (or 10 years) until her debt was fully paid off. And that comes out to about $12k all told!

## If you get a subsidized student loan, interest doesn’t add up until you leave school.

If you get a subsidized student loan, interest doesn’t add up until you leave school. This means that when your loans first come out of deferment and start accruing interest, the government will pay it for you. The amount of interest paid depends on what year your student loans were disbursed and will be written off at the end of your grace period.

## In some cases, the government will pay interest for you.

If you get a subsidized loan, the government will pay your interest for you until you leave school. You won’t have to pay anything until then. However, if you don’t get a subsidized loan and instead opt for an unsubsidized one, then you’ll have to start paying interest right away.

## You can mess up the government’s offer to pay your interest by doing nothing.

If you don’t sign up for a payment plan, the government will pay your interest while you’re in school. After that, it won’t.

If you don’t enroll in an income-driven repayment plan, the government will stop paying your interest after leaving school.

## Interest rates change every year.

Interest rates on student loans are tied to the 10-year Treasury rate, which is the average interest rate for a 10-year U.S. government bond. The 10-year Treasury rate changes every year and is influenced by many factors, including economic conditions, Federal Reserve policy and investor demand.

## Your starting interest rate is based on the year you get your loan, not when you graduate.

You might be wondering why your interest rate is based on the year that you take out your loan, not when you graduate. It has to do with the fact that student loans are variable-rate loans, which means they change every year depending on economic conditions.

When you get a loan, it’s considered part of a pool of other loans issued at the same time. Each year, this pool gets repriced and refinanced into new bonds that pay interest based on its current value (which is determined by how much each borrower paid in). The process is called “bond issuance” or “refinancing.” This happens every year until all of your payments have been used up—and then there will still be some left over!

## Starting in July with the 2018-2019 academic year, the lowest possible subsidized and unsubsidized interest rates are 5.05% and 6.6% respectively.

Interest rates on federal student loans are set by Congress, and they’re based on a formula that uses the 10-year treasury rate and a markup percentage. When you take out a loan, you’re charged interest from the date of disbursement (the date your money is sent to you).

## You can’t negotiate your interest rate or get a lower one because of good grades or being nice to your lender.

Interest rates do not vary based on your grades, how nice you are to your lender, or any other factor that the borrower has control over. Interest rates are set by the government and are based on a formula that takes into account things like inflation and current market conditions.

Unlike most loans (such as mortgages and credit cards), student loan interest rates aren’t variable but rather fixed for the life of the loan.

## If you’re going to take out student loans, it pays to know how interest works so you don’t end up paying more than you have to.

Interest on student loans can be confusing. The interest rate may seem low, but if you’re not careful, it will add up. For example, let’s say your unsubsidized student loan has a 4% interest rate and you make $30,000 per year (this is based on the 2019-2020 academic year). If you don’t pay off that debt for 20 years, you’ll wind up paying an additional $36,000 in interest—that’s more than twice what your original loan amount was!

While figuring out how much money to borrow can be difficult and frustrating, understanding how much interest is going to cost you is also important. Interest rates change every year—so finding out what they are before taking out a loan is crucial if you want to avoid paying more than necessary later.

Interest rates are set by Congress each year; they’re based on what the government thinks students need in order to cover the cost of living while attending school full-time at an institution with no financial aid waivers or discounts from third parties.”

The takeaway from all this is that if you’re going to take out student loans, it pays to know how interest works so you don’t end up paying more than you have to.