Student Loan APR vs. Interest Rate: 5 Essential FAQs

January 23, 2022 · 6 minute read

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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 thing is that APR includes any upfront charges and fees the lender may add to the loan principal. The “interest rate” does not.

But there are complexities to each, which we’ll break down here. After all, student loans may be the first big financial commitment you’ll make, and their impact will be felt for years to come.

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 principal and doesn’t reflect any fees or other charges that might be connected to your loan.

Congress sets the interest rate on federal student loans. If you are in school now, the interest rate for undergraduates is 4.99% for the 2022-23 school year. The direct unsubsidized loan rate for graduate or professional students is 6.54%. (For a refresher on loan terms, see our story on the basics of student loans.)

If you have a private student loan, possibly through a refinance of your federal loan, the interest rate will vary by lender. Rates can range from 2% to 14%, with the lowest rates reserved for borrowers with the highest credit scores. (Check out our guide to private student loans.)

Regardless of your interest rate, the total interest you’ll pay over the life of the loan depends on the number of years it takes you to pay back the loan in full. You’ll pay much more in interest over a 20-year loan term than you will over a 10-year term. In loan-speak, interest has accrued for a longer period.

A student loan calculator can show you how much total interest you’ll pay in different repayment scenarios.

Recommended: The Advantages of Refinancing Student Loans

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

The annual percentage rate (APR) represents a more comprehensive view of what you’re being charged. APR includes additional loan fees, if there are any. Because of that, a loan’s APR may be higher than its interest rate.

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

For student loans, the most common fee is the loan origination fee. This is an upfront fee most lenders charge for processing your loan application. Another fee that might be charged is an application fee, which is generally non-refundable even if you don’t end up taking out the loan.

Then there are late fees and returned check fees, both of which add to the total amount of your loan, accrue interest, and increase the amount you must repay. You can avoid these fees by always paying your bill on time.
Fees vary widely from one lender to the next, and some lenders, including SoFi, may not charge any fees.

Your APR may change if you take advantage of student loan deferment or forbearance, when payments are on hold but interest is still accruing. When payments resume, that accrued interest may be capitalized (added to the loan’s principal). The amount you spend on interest increases, so your APR increases, too.

Fortunately, new rules will eliminate interest capitalization under most circumstances, beginning in July 2023.

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

Not necessarily. Lenders handle origination fees in different ways, and that has a bearing on the APR. For example, the origination fee on a federal student loan is deducted from the loan disbursement up front, which keeps the fee out of the APR calculation. That deduction means that you don’t receive the full amount you borrowed, but you are still responsible for paying the full amount back.

Private lenders that charge an origination fee may add it to the principal loan amount and charge interest on it over the life of the loan. This fee and any others that a lender charges must be listed in the loan disclosure documents.

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

The benefit of the APR is that it can give you 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.

However, even the APR doesn’t always tell the whole story. As mentioned above, the APR on a federal student loan doesn’t include the origination fee, which can be pretty significant. For example, the current interest rate on a Direct PLUS loan (disbursed on or after 7/1/22 and before 7/1/23) is 7.54%, but the loan origination fee is a hefty 4.228%.

Since the federal student loan origination fee is deducted from the total loan amount, leaving you with less to put toward your college costs, you may have to come up with additional funding from another source to make up the difference. The origination fee on a $10,000 Direct PLUS loan, for example, would be $422.80. If you’re counting on those dollars to cover your costs, you’ll have to get them from somewhere else.

Recommended: How Much Money Should You Pay Toward Student Loans?

The Takeaway

When considering a new student loan or refinancing an existing student loan, asking questions about APR and interest rate will inform you of any fees or charges and how they are to be paid. Finding the best rate is only one factor in the loan consideration process. You’ll also want to look at the potential benefits that come with the loan.

Federal student financial aid options (loans, grants, and work-study) as well as scholarships and private grants should be exhausted before considering a private student loan option. This is because private student loans may lack benefits like forgiveness programs and protections that come with federal student loans. These benefits are also forfeited when refinancing federal student loans.

SoFi Private Student Loans are available for undergraduate, graduate, and professional school students, and parents or sponsors of college students. With no fees, competitive interest rates, and flexible repayment plans, there are a range of options for different budgets. For current borrowers who want to refinance an existing student loan, SoFi takes the same no-fee approach with low fixed- or variable-rate loan options.

SoFi was named Best Loan Company for Private Student Loans in 2023 by U.S. News.


What is a good APR for a student loan?

The federal student loan interest rate for the 2022-2023 academic year is 4.99% for undergraduates, plus an origination fee of 1.057%. The APR for private student loans varies from 2% to 14%.

Is APR better than interest rate?

The APR represents a more comprehensive view of what you’re being charged. APR includes additional loan fees, if there are any. For that reason, the APR may be higher than the interest rate.

Can APR and interest rate be the same?

Yes, if there are no fees added to the loan principal, the APR and interest rate may be the same. However, that does not mean there are no fees at all. A lender may still deduct an origination fee from the loan amount you receive, which would not affect the APR.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.

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