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 the student loan 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 student loan APR vs. interest rate, what each number includes, and how to compare student loan rates accurately 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 the loan 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).

One of the factors that affect student loan interest rates is the type of student loan it is. Interest rates work differently depending on whether a student loan is federal or private. Congress sets the interest rates 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 6.39% for new loans taken out for the 2025-26 school year, effective from July 1, 2025 to July 1, 2026.

The interest rate for private student loans works differently. Private lenders set their own 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 the student loan cosigner, if there is one). Those with higher credit scores generally qualify for lower rates, while borrowers with lower credit scores tend to get higher rates.

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 upfront fees, such as an origination fee, which a lender may charge for processing the loan. 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, 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 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 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 private loans that don’t have 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?

Fees that may be included in a student loan APR are upfront fees, such as origination fees. Other factors that could impact your loan balance — but are not included in the loan’s APR — are interest capitalization and late fees for missed payments.

Here’s how each of these things plays a role in student loans.

Origination Fees

The most common fee for student loans is the loan origination fee for processing the loan. 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 you’ll pay interest on the fee paid.

Capitalized Interest

Accruing interest and capitalized interest may affect the cost of your loan. Most student loans begin accruing interest daily as soon as they are disbursed. The exception is federal Direct Subsidized Loans, which the government covers the interest on until you are required to start making payments. That’s one of the major differences between subsidized vs. unsubsidized loans: For unsubsidized loans, the interest continues to accrue, increasing the amount the borrower will need to repay.

In addition, in certain situations, including deferment and during the six-month grace period after graduation, unpaid interest on your federal student loans may capitalize. That means the interest is added to your principal balance, and you’re charged interest on the new higher amount. Capitalization can increase the total balance of your loan.

Private lenders may have other or different situations when interest on student loans capitalizes, so it’s important to find this out when reviewing loan offers.

Late Payment or Returned Payment Fees

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.

Recommended: Average Student Loan Interest Rate

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

Typically, if a student loan’s interest rate and APR are the same, it means there are no hidden fees. However, there are still a few things to watch out for that could affect the cost of your loan.

What to Look for in the Loan Agreement

Be sure to carefully read the loan agreement for your student loan. The agreement should spell out the loan’s interest rate and any upfront fees such as an origination fee.

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 upfront charges and fees. If the lender doesn’t charge any fees, the APR and interest rate will be the same.

Finally, check the loan agreement to see in what situations interest might capitalize and increase the overall cost of a loan.

Why Some Fees May Still Apply

A student loan may come with other fees, such as late fees for missed or late payments, and returned payment fees if a borrower doesn’t have enough money in their bank account to cover their loan payment. Other fees might include collection fees if a borrower defaults on a loan and the loan goes to collection.

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

As you’re shopping for a student loan, it’s important to look at the APR, if it’s available, as well as the interest rate, to get an accurate picture of what the loan will cost you.

Understanding the Full Cost of Borrowing

Because it includes interest and any fees, a loan’s APR tells the true cost of the loan, so that a borrower will know what the full cost of borrowing the money is. If you only look at the interest rate, you won’t be able to factor in any fees that the loan might come with.

Once you know what a loan will cost you in full, you can calculate student loan payments to determine what your monthly payments might be.

How to Compare Lenders Accurately

Whenever possible, 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. The APR reflects both the loans interest rates and fees. 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.

How APR and Interest Rates Affect Student Loan Repayment Over Time

A loan’s repayment amount — both the monthly payments and the total cost of the loan over time — are significantly impacted by a loan’s APR and interest rate.

Impact on Monthly Payments

A student loan’s interest rate and APR can affect student loan repayment over time in the following ways:

•   The percentage: A higher interest rate or APR means a higher monthly payment, and a lower rate means a lower payment.

•   How interest accrues: 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.

For private student loans, interest typically begins to accrue as soon as the loan money is disbursed to your school. The longer interest accrues, the higher your monthly payments may be.

•   When interest capitalizes: In certain situations, unpaid interest on your student loans may capitalize and be added to your principal balance. That can increase monthly student loan payments as well as the overall cost of the loan.

Total Repayment Cost Over Loan Term

Your APR can determine the total cost of your loan over time. The higher the APY, the more interest that will accrue on the loan, and the more interest you’ll pay over time. That can lead to a higher overall cost of your loan over the term.

To reduce your payments, and potentially lower the total cost of your loan, one option some borrowers may want to consider is refinancing student loans. With student loan refinancing, you exchange your current loan for a new loan from a private lender with new rates and terms. Ideally, if you qualify, the interest rate on the new loan will be lower.

A student loan refinancing calculator can help you figure out how much refinancing might save you.

You can shop around for student loan refinancing rates to look for the best offer. Just be aware that refinancing federal student loans makes them ineligible for federal benefits like forgiveness, deferment, and income-driven repayment plans.

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. Another option for potentially lowering your payments is through refinancing, if you qualify for a lower interest rate.

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.

FAQ

What is a good APR for a student loan?

For new loans taken out for the 2025-26 school year, the federal student loan interest rate is 6.39% for undergraduates (whether the loan is unsubsidized or subsidized). For graduate students it’s 7.94%, and for parents it’s 8.94%. Average private student loan annual percentage rates (APRs) vary by lender. They range from 3.18% to 17.99%, as of January 2026, depending on a borrower’s credit.

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 typically be the same.

Why does APR matter when refinancing student loans?

APR gives you the total cost of borrowing, including any upfront fees you’ll incur when refinancing. It provides the true and total cost of borrowing, and it gives you a way to compare loan offers accurately.

How can I lower the APR on my student loans?

One option for lowering the APR on student loans is with student loan refinancing. When you refinance, you replace your existing student loans with a new loan that has new rates and terms. If your credit is strong, you may qualify for a lower interest rate, which would lower your APR.

If you have federal loans and you want to keep them because of the federal benefits they come with, enrolling in auto pay can give you a $0.25% discount on your loan’s interest rate.

---

About the author

---

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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., Puerto Rico, U.S. Virgin Islands, or American Samoa, 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 4/22/2025 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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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 .

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.

SOSLR-Q126-002