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Should I Refinance My Federal Student Loans?

Refinancing federal student loans can either help you pay down your loans sooner (by shortening your term) or lower your monthly payment (by extending your term). However, when you refinance federal student loans with a private lender, you lose federal benefits and protections.

Refinancing is not a simple decision. Keep reading to learn more about federal student loan refinancing and whether or not it’s right for you.

What Is Federal Student Loan Refinancing?

If you graduated with student loans, you may have a combination of private and federal student loans. The latter are loans funded by the federal government. Direct Subsidized Loans and Direct PLUS Loans are both examples of federal student loans.

Interest rates on federal student loans are fixed and set by the government annually. The current rate for the 2024-25 school year is 6.53% for undergraduate students. Private student loan rates are set by individual lenders. If you’re unhappy with your current interest rates, you may be able to refinance your student loans with a private lender and a new — ideally lower — interest rate.

Recommended: Types of Federal Student Loans

Can I Refinance My Federal Student Loans?

It is possible to refinance federal student loans with a private lender. However, you lose the benefits and protections that come with a federal loan, like income-based repayment plans and public service-based loan forgiveness. On the plus side, refinancing may allow you to pay less interest over the life of the loan and pay off your debt sooner.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How Are Refinancing and Consolidation Different?

Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re signing different terms on a new loan to replace your old student loan(s).

Consolidation takes multiple federal student loans and bundles them together, allowing borrowers to repay with one monthly bill. Consolidation does not typically get you a lower interest rate (you’ll see why in the next paragraph). Refinancing, on the other hand, rolls your old federal and private loans into a new private loan with a different loan term and interest rate.

When you consolidate federal student loans through the Direct Consolidation Loan program, the resulting interest rate is the weighted average of the original loans’ rates, rounded up to the nearest one-eighth of a percent. This means you don’t usually save any money. If your monthly payment goes down, it’s usually the result of lengthening the loan term, and you’ll spend more on total interest in the long run.

When you refinance federal and/or private student loans, you’re given a new interest rate. That rate can be lower if you have a strong credit history, which can save you money. You may also choose to lower your monthly payments or shorten your payment term (but not both).

Recommended: Student Loan Consolidation vs Refinancing

What Are Potential Benefits of Refinancing Federal Student Loans?

Potential Savings in Interest

The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you could save thousands over the life of the new loan.

Plus, you may be able to switch out your fixed-rate loan for a variable rate loan if that makes more financial sense for you (more on variable rates below).

Lower Monthly Payments

You can also lower your monthly payments. That typically means lengthening your term and paying more in interest overall. (Shortening your term usually results in higher monthly payments but more savings in total interest.)

Streamlining Repayments

Refinancing multiple loans into a single loan can help simplify the repayment process. Instead of multiple loan payments with potentially different servicers, refinancing allows you to combine them into a single monthly payment with one lender.

What Are Potential Disadvantages of Refinancing Federal Loans?

When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-held student loans. Those benefits fall into three main categories:

Deferment / Forbearance

Most federal loans will allow borrowers to put payments on hold through deferment or forbearance when they are experiencing financial hardship. Student loan deferment allows you to pause subsidized loan payments without accruing interest, while unsubsidized loans will still accrue interest.

Student loan forbearance allows you to reduce or pause payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance — check your lender’s policies before refinancing.

Special Repayment Plans

Federal loans offer extended, graduated, and income-driven repayment plans (such as Pay As You Earn, or PAYE), which allow you to make payments based on your discretionary income. It’s important to note that these plans typically cost more in total interest over the life of the loan. Private lenders do not offer these programs.

Another plan called REPAYE was phased out and replaced by the SAVE Plan, which promises to cut payments in half for low-income borrowers. According to the Department of Education, SAVE is the most affordable repayment plan, with some borrowers not having to make payments at all.

Student Loan Forgiveness

The Supreme Court has blocked President Joe Biden’s mass forgiveness plan for federal student loan borrowers. However, other loan forgiveness options are still available.

•   Public Service Loan Forgiveness (PSLF). Teachers, firefighters, social workers, and other professionals who work for select government and nonprofit organizations may apply for this program. Changes made by the Biden Administration will make qualifying easier — even for borrowers who were previously rejected. Learn more in our guide to PSLF.

•   Teacher Loan Forgiveness. This program is available to full-time teachers who complete five consecutive years of teaching in a low-income school. Find out more in our Teacher Loan Forgiveness explainer.

•   Income-Based Repayment Plans. With some repayment plans, you may be eligible for forgiveness if your student loans aren’t paid off after 20 to 25 years (and in some cases under the new SAVE plan, after 10 years).

Private student loan holders are not eligible for these programs.

Potential Advantages of Refinancing Federal Student Loans

Potential Disadvantages Refinancing Federal Student Loans

Interest Rate. Opportunity to qualify for a lower interest rate, which may result in cost savings over the long term. Option to select variable rate, if preferable for individual financial circumstances. Loss of Deferment or Forbearance Options.These programs allow borrowers to temporarily pause their payments during periods of financial difficulty.
Adjustable Loan Term. Get a lower monthly payment, usually by extending the loan term, which could make loan payments easier to budget for, but may make the loan more expensive in the long term. Loss of Federal Repayment Plans.No longer eligible for special repayment plans, such as income-driven repayment plans.
Get a Single Monthly Payment.Combining existing loans into a new refinanced loan can help streamline monthly bills. Loan Forgiveness.Elimination from federal forgiveness programs, including Public Service Loan Forgiveness.

When Should You Consider Refinancing Your Student Loans Again?

You can refinance your student loans for a second time, and in fact, there is no limit to how many times you can refinance. Each time you refinance, you essentially take out a new loan to pay off the old one, ideally with better terms. However, it’s crucial to ensure that refinancing again is beneficial for your financial situation. Here are some key considerations:

Improved Financial Situation

•   Credit Score: If your credit score has improved, you may qualify for a lower interest rate.

•   Income: A higher or more stable income can make you eligible for better loan terms.

•   Debt-to-Income Ratio: A lower ratio can also help secure more favorable terms.

Market Conditions

•   Interest Rates: If market interest rates have decreased since your last refinancing, you might get a better rate.

•   Promotional Offers: Keep an eye out for new promotional rates or special offers from lenders.

Loan Terms

•   Shorter Terms: Refinancing to a shorter loan term can reduce the overall interest paid.

•   Extended Terms: If you need lower monthly payments, extending the loan term can provide relief, though it may increase the total interest paid over the life of the loan.

•   Consolidation: Refinancing multiple loans into one can simplify your payments and possibly offer better terms.

FAQs on Refinancing Your Federal Loans

Who Typically Chooses Federal Student Loan Refinancing?

Many borrowers who refinance have graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates than federal student loans for undergraduates.

In order to qualify for a lower interest rate, it’s helpful to show strong income and a history of managing credit responsibly, among other factors. The one thing many refinance borrowers have in common is a desire to save money.

Do I Need a High Credit Score to Refinance Federal Loans?

Generally speaking, the better your history of dealing with debt (illustrated by your credit score), the lower your new interest rate may be, regardless of the lender you choose. While many lenders look at credit scores as part of their analysis, however, it’s not the single defining factor. Underwriting criteria vary from lender to lender, which means it can pay to shop around.

For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. Check here for current eligibility requirements.

Are There Any Fees Involved in Refinancing Federal Loans?

Fees vary and depend on the lender. That said, SoFi has no application or origination fees.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Should I Choose a Fixed or Variable Rate Loan?

Most federal loans are fixed-rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable rate loan.

Here’s what you should know:

Fixed Rate Refinancing Loans Typically Have:

•   A rate that stays the same throughout the life of the loan

•   A higher rate than variable rate refinancing loans (at least at first)

•   Payments that stay the same over the life of the loan

Variable Rate Refinancing Loans Typically Have:

•   A rate that’s tied to an “index” rate, such as the prime rate

•   A lower initial rate than fixed rate refinancing loans

•   Payments and total interest costs that change based on interest rate changes

•   A cap, or maximum interest rate

Generally speaking, a variable rate loan can be a cost-saving option if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise — taking your loan’s rate with it.

What Happens If I Lose My Job or Can’t Afford Loan Payments?

Some private lenders offer forbearance — the ability to put loans on hold — in cases of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. For policies on disability forbearance, it’s best to check with the lender directly, as this is often considered on a case-by-case basis.

Do Refinance Lenders Allow Cosigners / Cosigner Release?

Many private lenders do allow cosigners and some allow cosigner release options. SoFi allows cosigners, but no option for cosigner release for refinanced student loans. However, if you have a cosigner and your financial situation improves, you can apply to refinance the cosigned loan under your name alone.

The Takeaway

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

https://www.sofi.com/signup/slr“>


SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Financial Planning Tips for Young Adults in Their 20s

The 20’s can be a really busy, really exciting time, whether you’re finishing school, building a career, getting married, or starting a family (or some combination thereof). Add to that things like traveling, hanging out with friends, and discovering your passions in life, and it can be hard to prioritize financial planning.

But it’s important not to miss out on this important decade when major financial progress can be made. Establishing good money habits doesn’t have to be hard. Plus, skills like managing debt well and saving methodically for the future can set you up for a lifetime of financial wellness. Here’s how to start on that path.

10 Financial Tips for Your 20s

Here are some of the most important components of good money management and building wealth. The following advice can help you enjoy financial stability in your 20s and beyond.

In Your 20s

1. Open Your Own Bank Account

If you’re a 20-something who doesn’t already have a bank account, you’ll want to open one. It can be the hub of your daily financial life. With a checking account, you can direct-deposit your paychecks, easily pay bills electronically, and have a debit card for daily spending.

You’ll also probably benefit from a savings account, so you have a safe place to store your money while earning interest. Having FDIC-insured bank accounts means your money is secure, and it’s easier to stay organized and work toward financial goals.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.

2. Budget Wisely

If you’re like many young adults, you may earn a limited income while building your career. Creating and sticking to a budget can be a very helpful move. Alongside budgeting for your basic living expenses, you can also accommodate the “wants” in life (fun spending, such as dining out, travel, and concert tickets) and savings goals into your budget. Financial planning in your 20s can be hard to accomplish without a strong budget in place.

There are various ways to learn how to budget as a beginner, like the envelope system or the 50/30/20 rule. It may take a bit of experimentation to find a method that suits you. Another option: There are many apps that will help with this task, including those offered by your bank. Checking your account balances is another good step, as it helps you stay in touch with your money and course-correct if you are out of sync with your budget.

3. Don’t Overspend While Having Fun

Of course, you want to enjoy your 20s. Hanging out with friends, going to concerts, and decorating your first home are all worthy pursuits. However, being a financially responsible adult involves slowly chipping away at savings goals like retirement (more on that in a minute) or a down payment for a home. It can be helpful to set aside 10% to 15% of your earnings each month for your savings goals to make sure they aren’t ignored.

Also be smart about your spending. According to the 50/30/20 budget rule mentioned above, 30% of your take-home pay should go toward “wants” vs. 50% for “musts” and 20% toward savings and additional debt repayment.

There is plenty of advice available about cutting costs on groceries, streaming platforms, subscriptions, and travel. It’s wise to balance “in the moment” fun with working your way toward long-term aspirations, like your own home.

4. Avoid Credit Card Debt

Credit card debt comes with pricey interest charges and fees which can make it hard to pay it down. As of this writing, the average credit card interest rate on new offers was almost 25%. Think about it: Purchases cost a lot more than they seem to in the moment when you consider that interest getting tacked onto the purchase price. Plus, those high rates can mean that paying only the minimum amount due on your balance will take quite a while to pay off.

Whenever possible, it’s best to avoid taking on credit card debt. Otherwise, the interest charges will just mount. If you do have credit card debt, explore offers for balance transfer cards that give you no or super low interest rates for a period of time so you can hopefully get out of debt. Or consider a lower interest personal loan or talking to a debt counselor at a nonprofit like NFCC (National Foundation for Credit Counseling).

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5. Be Smart About Student Loans

If you’re out of school and are paying back student loans, that can certainly take a bite out of your disposable income. Whether you have a federal or private student loan, you can benefit by regularly making extra payments, whenever possible, so you can pay down your debt faster and spend less on interest. If the amount you owe seems overwhelming, you might look into options for switching repayment plans or consolidating your loans.

6. Earn Interest on Your Money

As noted briefly earlier, it’s possible to earn interest on savings by keeping it in a savings account. To earn even more, 20-somethings can turn to high-yield savings accounts that tend to earn more interest than traditional savings accounts do, which is of course a good thing. These accounts also keep your cash liquid, meaning your funds are very accessible. You’ll often find the best rates at online-only banks.

If you have additional funds available and are comfortable with taking on more risk, you can look into investing in your 20s. You might seek professional guidance on managing your money, though there’s likely a cost for working with a financial advisor.

7. Prioritize Goals

If you can buckle down and focus on the money goals that matter now, your long-term financial fitness can benefit greatly. You can develop a financial strategy for achieving the following, as they apply:

•   Buying a home

•   Child rearing expenses

•   A child’s college education

You can create a savings account (preferably a high-yield savings account) for whichever ones may apply. A way to make saving seamless is to automate your savings. That means setting up recurring transfers from your checking account, usually just after payday. That way, you don’t have to remember to build these accounts.

One other very important account to begin building is an emergency fund. This should hold three to six months’ worth of living expenses. It’s a great cushion to have if you are hit with a major unexpected expense or get laid off. Even contributing $20 or so per pay period is a good start. The critical thing is to begin earmarking funds in this way.

8. Invest Early for Retirement

It takes decades to save for retirement, so the younger you can start saving, the more time your savings have to grow. Once you enter the working world, if your employer offers a 401(k) plan or a different retirement account type, you may want to participate. You can really benefit from this kind of tax-advantaged saving. If your employer matches some of your contributions, that’s even better. It’s akin to free money that helps you grow your savings for the future.

Need more incentive to get a head start on saving for retirement? Consider this:

•   Say you start saving at age 25 and put away $10,000 a year for 15 years at a 6% return, and then stop saving. If that money just sits there, earning interest, you’ll have $1,058,912 at age 65.

•   Now, say you have a friend who starts saving $10,000 a year at age 35, does so for 30 years, and earns the same 6% return. Your pal will have $838,019 at age 65.

They saved twice as long as you did, but wound up with less money. That’s the beauty of compounding interest in action. And it can serve as an important incentive to start saving ASAP.

9. Pay Your Bills on Time

It may seem like a no-brainer that it’s important to pay bills on time. But doing so isn’t just about the joys of punctuality; it’s also a great way to build your credit score. Paying bills on time is one of the largest components of your credit score, and a solid credit score can help you borrow money in the future (say, when you take out a mortgage) at the best possible rates.

Not sure where your credit score stands? You can pull a free copy of your credit report annually from each of the big three credit reporting agencies to see how you’re doing and correct any errors you might find.

10. Build Your Credit

Speaking of credit scores, it takes time to build a credit history, and you need to take out credit to do so. A credit card is a great place to start. If you can apply for a credit card in your 20s and make payments on it month after month, this can positively impact your credit score. Just be sure not to charge more than you can afford to pay off.

Another tip is to keep your credit utilization ratio low; under 30% is good, and under 10% is even better. Here’s an example of how this plays out: If your credit limit is $10,000, a wise move is to avoid carrying a balance of $3,000 (30%) or more on it. Ideally, you should keep that number at $1,000 (10%) or lower.

The Takeaway

The basics for smart money management in your 20s is a combination of getting financially savvy, starting to save, and avoiding pitfalls like too much debt. Taking proactive steps today will keep your money in good shape and prepare you to navigate and enjoy the years ahead.

Having the right banking partner is also an important facet of money management at every age.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Should a 20-year-old have a financial advisor?

While hiring a financial advisor isn’t necessary, some 20-year-olds may find it valuable. This is especially true if you’re earning a high income and aren’t sure how to best save and invest your money.

How can I be financially stable at 20?

Financial stability at age 20 can involve several factors, such as spending within your means, managing debt well, and starting to save for an emergency fund and long-term goals.

What is the best financial advice for a young person?

There are several important pieces of financial advice for a young person. Finding a budget that works for you and sticking with it is valuable, as is making sure you are earning a competitive rate of interest on your emergency fund and other savings. Allocating any extra money to pay down debt, such as high-interest credit card debt, is also a wise move.


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SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Understanding Student Loan Amortization

When deciding on a student loan repayment schedule, the option with the lowest possible monthly payment is not always best.

That’s because of amortization, the process of paying back a loan on a fixed payment schedule over a period of time. A repayment option with the lowest monthly payment typically means the loan is stretched out over a longer time frame. This results in the borrower paying more in interest than they would have with a shorter loan term and a higher monthly payment.

Read on to learn more about an amortized student loan, how it affects your monthly payments, and ways to potentially lower the amount you pay in interest on your student loans.

Exploring Amortization

Amortization is common with installment loans, which have regular monthly payments. Are student loans amortized? Yes, because they are installment loans.

With an amortized student loan, a borrower pays both the principal balance and interest each month. This is called a student loan amortization schedule. The schedule begins with the full balance owed, and the payments are then calculated by the lender over the life of the loan to cover the principal and interest.

At the beginning of an amortization schedule, payments typically cover more interest than principal. As time goes on, a bigger amount goes toward the principal.

To help determine amortization on your student loans, it’s important to first calculate the cost of the loan. You’ll need to know these three variables:

1.    The loan principal

2.    The interest rate and annual percentage rate (APR)

3.    The duration, or term, of the loan (usually given in months or years)

Using this information, it is possible to determine both the monthly payment on the loan and the total interest paid on the loan. A student loan interest calculator can help you figure this out.

The next step is to determine how much of each monthly payment is going toward both interest and principal. That’s when the loan’s amortization schedule comes into play.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Student Loan Amortization Examples

To understand how student loan amortization works, let’s say a borrower takes out a $30,000 student loan at 7% interest rate amortized over a 10-year repayment period.

The borrower’s monthly payment is approximately $348. Each year, the borrower will pay about $4,180 total on their loan. While these monthly and yearly amounts will remain the same, the proportions allocated to the principal and interest will change.

The chart below shows you what a student loan amortization schedule might look like for a $30,000 loan at 7% interest over 10 years. The chart illustrates the principal and interest amounts monthly for the first year and the last year of the loan, and annually for the years in between.

Amortization schedule for $30,000 student loan with 7% interest over 10 years

Date

Interest Paid

Principal Paid

Balance
January 2024 $175 $173 $29,827
February 2024 $174 $174 $29,652
March 2024 $173 $175 $29,477
April 2024 $172 $176 $29,301
May 2024 $171 $177 $29,123
June 2024 $170 $178 $28,945
July 2024 $169 $179 $28,765
August 2024 $168 $181 $28,585
September 2024 $167 $182 $28,403
October 2024 $166 $183 $28,221
November 2024 $165 $184 $28,037
December 2024 $164 $185 $27,852
2024 $2,032 $2,148 $27,852
  
2025 $1,877 $2,303 $25,852
  
2026 $1,710 $2,470 $23,079
  
2027 $1,532 $2,648 $20,431
  
2028 $1,340 $2,840 $17,591
  
2029 $1,135 $3,045 $14,546
  
2030 $915 $3,265 $11,281
  
2031 $679 $3,501 $7,780
  
2032 $426 $3,754 $4,026
  
January 2033 $23 $325 $3,701
February 2033 $22 $327 $3,374
March 2033 $20 $329 $3,045
April 2033 $18 $331 $2,715
May 2033 $16 $332 $2,382
June 2033 $14 $334 $2,048
July 2033 $12 $336 $1,712
August 2033 $10 $338 $1,373
September 2033 $8 $340 $1,033
October 2033 $6 $342 $691
November 2033 $4 $344 $346
December 2033 $2 $346 $0
2033 $154 $4,026 $0

Using this estimated example, during the first year, the borrower’s monthly payments would be about half interest and half principal. With each passing month and year of paying down debt, more of each payment is allocated to the principal. By the final year, the borrower pays only $154 to interest and $4,026 to principal.

To see how a longer loan term can affect amortization, here is a student loan amortization schedule with a longer timeline of 20 years. It’s important to note that a 20-year payback period isn’t standard for federal student loans — this example is to illustrate the impact of time on amortization calculations.

Amortization schedule for the first year and last year of payment on a student loan of $60,000 with 7% interest over 20 years:

Date

Interest

Principal

Balance
January 2024 $350 $115 $59,885
February 2024 $349 $116 $59,769
March 2024 $349 $117 $59,652
April 2024 $348 $117 $59,535
May 2024 $347 $118 $59,417
June 2024 $347 $119 $59,299
July 2024 $346 $119 $59,179
August 2024 $345 $120 $59,060
September 2024 $345 $121 $58,939
October 2024 $344 $121 $58,817
November 2024 $343 $122 $58,695
December 2024 $342 $123 $58,573
2024 $4,155 $1,427 $58,573
  
January 2043 $31 $434 $4,942
February 2043 $29 $436 $4,506
March 2043 $26 $439 $4,067
April 2043 $24 $441 $3,626
May 2043 $21 $444 $3,182
June 2043 $19 $447 $2,735
July 2043 $16 $449 $2,286
August 2043 $13 $452 $1,834
September 2043 $11 $454 $1,379
October 2043 $8 $457 $922
November 2043 $5 $460 $462
December 2043 $3 $462 $0
2043 $206 $5,376 $0

In this example, each monthly payment for the 20-year duration is $465. In January 2024, the first month of the first year of the loan, $350 is paid towards interest, and $115 is paid towards the principal. That’s less than 25% of the total payment, compared to 50% in the previous example.

In the last year of the loan, only $206 total goes towards interest versus $4,155 in the first year.

If you’re interested in expediting your loan payoff, you may want to explore different loan lengths to see how much you could save on interest if you shorten the term.

Alternative Repayment Plans and Amortization

In addition to the standard 10-year federal student loan repayment plan, there are some alternate repayment plans such as income-driven repayment (IDR) plans. There are four types of IDR plans:

•   SAVE (Saving on a Valuable Education) plan

•   PAYE (Pay as You Earn) plan

•   Income-Based Repayment (IBR) plan

•   Income-Contingent Repayment (ICR) plan

Each of these plans uses your income and family size to determine what your payments are.

Depending on an individual’s discretionary income and family size, the monthly payments with IDR plans are generally lower than with the standard, 10-year repayment plan because repayment is stretched out over 20 or 25 years. At the end of that time, any remaining balance you owe is typically forgiven.

While IDR may be a good option if you’re having trouble affording your monthly payments, it’s important to understand that not only will you likely pay more in total interest over the course of the loan because the term is longer, but it is also possible that your payments will dip into what is called negative amortization.

Negative amortization on a student loan is when your monthly payment is so low that it doesn’t even cover the interest for that month. When this happens, it can cause the loan balance to increase.

This is not ideal, of course, but utilizing an income-driven repayment plan is a far better option than missing payments or defaulting on a federal student loan. Using an income-driven repayment plan is also necessary if the borrower plans on utilizing the Public Service Loan Forgiveness (PSLF) program.

💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Managing Student Loan Amortization

To avoid the full impact of an amortized student loan there are several steps you could take to potentially help lower your interest payments.

Pay back your student loans faster than the stated term.

You can do this by paying more than you owe each month, or by making additional payments on your student loan, if you can afford to. Paying off the loan in advance may help you to pay less interest over the life of the loan.

If you opt to pay more than your minimum payments or make additional payments on your loans, it’s a good idea to let your lender know that the additional amount or payment should be applied to the principal of the loan, not the interest. That way, the extra amounts can help lower the principal amount you’re paying interest on.

Explore debt reduction methods.

For borrowers with multiple federal or private student loans who want to expedite their debt repayment, it can sometimes be hard to know where to start.

If your primary goal is to reduce the overall amount of interest you owe, you might want to consider the debt avalanche method of debt repayment. Using this technique, you choose the student loan debt with the highest interest rate and work on tackling it first. You would do this while making the minimum payment on all other loans or sources of debt. After the loan with the highest interest rate is paid off, focus on the loan with the next highest interest rate, and so on.

Refinancing student loans.

When you refinance a student loan, you’re essentially paying off your old loan or loans with a new loan from a private lender. Ideally, with refinancing, you would get a lower interest rate if your credit score and income qualify.

You might also be able to shorten the repayment term to pay off the loan faster, or lengthen the term to lower your monthly payments. Just remember, you may pay more interest over the life of the loan with a longer loan term.

When considering whether to refinance, borrowers should think carefully about the benefits their federal student loans have, such as income-driven repayment and the Public Service Loan Forgiveness option. When you refinance federal loans with a private lender, you lose access to these federal programs.

Weigh all your options to help determine what course of action makes the most sense for you.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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When Do Student Loans Start Accruing Interest?

Student loans — federal or private — begin accruing interest when they’re disbursed, and the borrower is responsible for paying the interest on all but subsidized federal student loans during grace periods or deferment.

There are a few exceptions, though, including periods of deferment for certain subsidized loans. And if you have federal student loans that were subject to the payment pause that began in 2020, it’s important to know when those loans begin accruing interest again in 2023.

Key Points

•   Student loans generally start accruing interest as soon as they are disbursed.

•   Subsidized federal loans do not accrue interest while the student is in school or during deferment periods.

•   The federal student loan forbearance set interest rates at 0% temporarily, resuming regular accrual in September 2023.

•   Private student loans may offer deferment with interest accruing, which is added to the principal after the pause.

•   Understanding when interest starts and how it is capitalized is crucial for managing repayment effectively.

Interest Accrual Basics and Exceptions

As a general rule, interest begins accruing on a student loan as soon as it’s disbursed. While the repayment of the loan is usually subject to a grace period (detailed later in this article), the interest continues to accrue even while the payments are paused.

The one exception is when certain loans are on deferment. Interest on the following types of loans usually does not accrue when a loan is on deferment:

•   Direct Subsidized Loans

•   Perkins Loans

•   The subsidized portion of Direct Consolidation Loans

•   The subsidized portion of Federal Family Education Loan Consolidation Loans

The other major exception is the federal student loan forbearance that the government implemented in March 2020. Not only did this pause federal student loan payments, it also set federal student loan interest rates at 0%, thereby pausing all interest accrual. The 2023 debt ceiling bill officially ended the payment pause, requiring interest accrual to resume on Sept. 1 and payments to resume on Oct. 1, 2023.

Some private student loan issuers offer deferment or forbearance for specific reasons. Any unpaid interest will likely accrue and be added to the principal after the payment pause, though.

The Basics of Student Loan Interest

A student who takes out a student loan (or a parent who takes out a parent-student loan in their own name) signs a promissory note outlining all the terms of the loan, which include the loan amount, interest rate, disbursement date, and payment schedule.

Federal student loans issued after July 1, 2006, have a fixed rate. The repayment default is the standard 10-year plan, but there are options, such as income-based repayment or a Direct Consolidation Loan, that can draw out repayment to double that or more. The Saving on a Valuable Education (SAVE) Plan is one of the federal student loan repayment options to consider.

The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments under this federal income-driven repayment plan. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)

Private student loans are not eligible for federal income-driven repayment plans. Interest rates on private student loans may be fixed or variable, and are based on your — or your cosigner’s — financial history. The repayment term can be anywhere from five to 20 years.

When does interest start on student loans? Federal and private student loans typically begin accruing interest when they’re disbursed. With federal student loans and most private student loans, payments are deferred until after you graduate. Interest will have accrued, and in almost all cases you’re responsible for paying it.

Interest and Grace Periods by Loan

Capitalized interest on student loans can significantly increase how much a borrower owes. This is when a lender adds unpaid interest to your principal loan balance and then charges interest on your larger balance.

The Department of Education implemented new regulations in July 2023 eliminating all instances of interest capitalization that are not specified in the Higher Education Act of 1965 (HEA). That means federal student loan interest capitalization no longer occurs when a borrower first enters repayment status following the grace period.

A federal student loan borrower who exits a period of deferment on an unsubsidized loan or who overcomes a partial financial hardship on the Income-Based Repayment Plan may face capitalized interest charges. Federal student loan interest capitalization can also occur upon loan consolidation. These are the few instances where federal law requires interest capitalization.

Fixed interest rates on newly disbursed federal student loans are determined by formulas specified in the HEA. These are the rates and loan fees (deducted from each disbursement) for the 2024–25 school year:

•   6.53% for Direct Subsidized or Unsubsidized loans for undergraduates

•   8.08% for Direct Unsubsidized loans for graduate and professional students

•   9.08% for Direct PLUS loans for graduate students, professional students, and parents

Recommended: Types of Federal Student Loans

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Unsubsidized Student Loans

Federal Direct Unsubsidized Loans are available to undergraduate and graduate students with no regard to financial need.

Loan fee: 1.057%.

Grace period: While you’re in school at least half-time and for six months after graduation.

Subsidized Student Loans

Federal Direct Subsidized Loans are available to undergraduates with financial needs.

Loan fee: 1.057%.

Grace period: While you’re in school at least half-time and for six months after you leave school. The government pays the interest during those grace periods and during any deferment.

Direct PLUS Loans

Taken Out by a Parent

A Parent PLUS Loan acquired to help a dependent undergraduate is unsubsidized.

Loan fee: 4.228%.

Some private lenders refinance Parent PLUS loans at what could be a lower rate.

Grace period: First payment is due within 60 days of final disbursement, but a parent can apply to defer payments while their child is in school at least half-time and for six months after.

Taken Out by a Graduate Student or Professional Student

Grad PLUS Loans are available to students through schools participating in the Direct Loan Program.

Loan fee: 4.228%.

Grace period: Automatic deferment while in school and for six months after graduating or dropping below half-time enrollment.

Private Student Loans

Some banks, credit unions, state agencies, and online lenders offer private student loans.

Rate and fee: Rates can be fixed or variable, and rates and fees vary by lender

Grace period: Student loan interest accrual begins when a private student loan is disbursed, but payments may be deferred while a borrower is in school.

How Is Interest on Student Loans Calculated?

Student loans typically generate interest every day. Your annual percentage rate (APR) is divided by 365 days to determine a daily interest rate, and you are then charged interest each day on the total amount you owe.

That interest is added to your total balance, and you’re then charged interest on the new balance — paying interest on interest until the loans are paid off.

If you don’t know what your monthly payments will be, a student loan payment calculator can help. This one estimates how much you’ll be paying each month so you can better prepare for your upcoming bills.
The amount you pay each month will be the same, but the money first goes toward paying off interest and any fees you’ve been charged (like late fees); the remainder goes to pay down the principal of the loan.

As you pay down your loan, because the principal is decreasing, the amount of interest you’re accruing decreases. And so, over the life of your loan, less of your monthly payment will go toward interest and more will go toward the principal. This is known as amortization

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How You Could Save on Interest

Because interest can add up so quickly, it’s important to pay attention to the interest rates you’re paying on your student loans.

Student loan refinancing — taking out a brand-new loan that pays off your current loans — can lower the amount of interest your loans accrue if you qualify for a lower interest rate or a shorter term. To see how refinancing might save you money, take a look at this student loan refinance calculator.

Even a small difference in interest rates could help you save a substantial amount of money paid in total interest over the life of the loan, depending on the term you select.

It’s important to know, though, that refinancing federal student loans will make them ineligible for federal benefits like income-driven repayment plans and Public Service Loan Forgiveness.

💡 Quick Tip: If you have student loans with variable rates, you may want to consider refinancing to lock in a fixed rate before rates rise. But if you’re willing to take a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate.

The Takeaway

When does student loan interest start accruing? The minute the loan is disbursed, and you’re usually responsible for paying it. It’s important for borrowers to understand and pay attention to capitalized interest.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Student Loan APR vs Interest Rate: 5 Essential FAQs

You may have noticed when shopping around for student loans that some lenders display an interest rate, while others show an APR. What’s the difference? The main distinction is that APR (which stands for annual percentage rate) includes any fees or other charges the lender may add to the loan principal. The “interest rate” does not.

When shopping for a student loan, it’s key to know whether you’re looking at an APR or an interest rate, since this can have a significant impact on the total cost of the loan. Read on to learn more about APR vs. interest rate, what each number includes, and how to compare student loan rates apples to apples to find the best deal.

How Do Student Loan Interest Rates Work?

As with any loan, the interest rate represents the amount your lender is charging you to borrow money. It’s expressed as a percentage of your loan amount (or principal) and doesn’t reflect any fees or other charges that might be connected to your loan. Interest rates can be fixed (the same for the life of the loan) or variable (may fluctuate over the life of the loan).

Interest rates work differently depending on whether a student loan is federal or private. Congress sets the interest rate for federal student loans. The rate is fixed — and it’s the same for all borrowers. The federal student loan interest rate for undergraduates is 6.53% for new loans taken out for the 2024-25 school year, effective from July 1, 2024 to July 1, 2025.

Private student loan companies are allowed to set their own interest rates, which may be higher or lower than rates for federal loans. Interest rates on private loans may be fixed or variable and typically depend on the creditworthiness of the borrower (or cosigner) — those with higher credit scores generally qualify for lower rates, while borrowers with lower credit scores tend to get higher rates.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

What Is the Student Loan APR, and How Is It Different From Interest Rate?

A loan’s annual percentage rate (APR) represents a more comprehensive view of what you’re being charged. It tells you the total cost of the loan per year, including any fees, such as an origination fee. Because of that, a loan’s APR may be higher than its interest rate.

Looking at the APR helps you compare different loan offers and get a real picture of the overall cost you will pay for borrowing money for your education. If a loan doesn’t have any fees then the interest and the APR will be the same.

Federal student loans publish interest rates but not the APRs, so it’s important to keep in mind that the headline interest rate of a federal student loan is not the total cost of that loan. These loans also charge an origination fee, which is 1.057% for Direct Subsidized and Direct Unsubsidized loans, and 4.228% for Direct PLUS loans (unsubsidized loans for the parents and graduate/professional students.)

For private student loans, origination fees vary by lender. While some private lenders charge origination fees, it’s possible to find a private loan that doesn’t come with these fees. However, it’s important to keep in mind that private student loans generally don’t come with the same protections as federal student loans, such as income-driven repayment plans and forgiveness programs.

What Fees / Charges Might Be Included in a Student Loan APR?

For student loans, the most common fee is the loan origination fee. Whether the loan is federal or private, this fee is typically based on a percentage of the total loan amount and will be deducted from your loan amount before the loan is dispersed. This means that if you borrow $10,000 and the origination fee is 1.057%, $105.70 will be deducted from your total loan amount — so you would actually receive $9,894.30 for the year.

While origination fees can be small, the cost can add up. Because these fees are deducted from the total loan amount, you are paying the fee with borrowed money and will pay interest on the fee paid.

Both private and federal student loans may also have late fees and returned payment (or insufficient funds) fees, both of which add to the total amount you must repay. However, you can avoid these fees by always paying your bill on time and making sure you have enough money in your bank account to cover the payment.

Fees vary widely from one lender to the next, and some private lenders may not charge any fees.

If a Loan’s Interest Rate and APR Are the Same, Does That Mean There Are No Hidden Fees?

Typically, yes. Just keep in mind that interest rates published for federal student loans are not APRs and do not include the origination fee. This fee will come out of the amount of money that is disbursed (paid out) to you while you’re in school.

The student loan APRs listed by private lenders include any additional charges and fees. If the lender doesn’t charge any fees, the APR and interest rate will be the same.

Recommended: Pros and Cons of Refinancing Student Loans

When Shopping for a Loan, Should I Look at Interest Rate, APR, or Both?

Whenever available, you’ll want to look at the APR of a student loan, since this number allows a more apples-to-apples comparison of loan costs. If you just compare straight interest rates, you can miss the big picture in terms of the total cost of the loan. Sometimes those additional fees can make a big impact.

It’s also important to know when the interest rate or APR will kick in. Although the interest rate is the same for federal Direct Subsidized and Direct Unsubsidized loans, the latter loan ends up costing significantly more because interest starts accruing from the time the funds are disbursed. With subsidized federal loans, the interest does not accrue while you are still in school.

With private student loans, interest typically begins to accrue as soon as the loan money is disbursed to your school.

Whether interest starts accruing immediately or later, you typically don’t have to start making any payments on private or federal student loans until after you graduate.

💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

The Takeaway

A student loan’s interest rate is the cost of borrowing money and is expressed as a percentage of the loan amount. APR includes the interest rate as well as the additional costs and fees associated with borrowing. As a result, it gives you a more complete picture of the total cost of the loan. Understanding APR vs. interest rate is important when you’re researching best rates for student loans. It will help you make informed decisions that may lower your cost of borrowing.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What is a good APR for a student loan?

For new loans taken out for the 2024-25 school year, the federal student loan interest rate is 6.530% for undergraduates (whether the loan is unsubsidized or subsidized). For graduate students it’s 8.08%, and for parents it’s 9.08%.

Average private student loan annual percentage rates (APRs) range from just under 4% to almost 15% percent.

Is APR better than interest rate?

The annual percentage rate (APR) gives you a more accurate picture of the true cost of financing. The APR of a loan tells you how much you will pay for a loan over the course of a year after accounting for the interest rate as well as any extra costs, like origination fees.

When comparing loan offers, it’s generally better to compare APRs than interest rates, since this allows you to compare loan offers apples to apples.

Can APR and interest rate be the same?

Yes. If no fees are added to your loan amount, the interest rate and the annual percentage rate (APR) will be the same.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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