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Student Loan APR vs. Interest Rate: 5 Essential FAQs

September 07, 2021 · 4 minute read

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Student Loan APR vs. Interest Rate: 5 Essential FAQs

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Pop quiz: What’s the difference between student loan APR and student loan interest rate?

Both terms are related to how much money you’ll spend on total interest, so they should factor into your decision when comparing loans and lenders. It can be hard to weigh your options when some student loans display an interest rate, while others state an APR. The main difference is that APR includes any upfront charges and fees the lender may add to the loan principal and the interest rate does not. But there are complexities to each, which we’ll break down here.

What Do I Need to Know About Student Loan Interest Rates?

The interest rate represents the amount your lender is charging you to borrow money. It’s expressed as a percentage of your principal and doesn’t reflect any fees or other charges that might be connected to your loan.

Since interest is spread out over the life of a loan, the number of years it takes you to pay the loan in full will affect how much total interest you pay. The total interest can be estimated, of course, but if it takes you longer to pay off the loan than you estimated, you’ll pay more interest.

What Is 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—meaning it 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 Student Loan APR?

For student loans, the most common fee is the loan origination fee—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. Fees related to non-payment 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.

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

Another factor included in the APR is the time the loan might be in deferment or forbearance , when payments are on hold but interest is still accruing.

When payments resume, that accrued interest is capitalized (added to the loan’s principal), which means the amount spent on interest increases, so your APR increases, too.

Since it’s unknown if and when you might put your loan in forbearance, a new loan’s APR won’t typically reflect this cost, but it will likely affect your APR on the back end.

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 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 I’m Shopping for a Loan, Should I Look at Interest Rate or 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 could miss the big picture in terms of the total cost of the loan, and 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, in some cases, is pretty significant. For example, the current interest rate on a Direct PLUS loan (disbursed on or after 10/1/20 and before 10/1/22) is 6.28%, but the loan origination fee is a hefty 4.228%.

And 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.

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.

And remember, 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 other 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 students, graduate and professional school students, and parents or sponsors of college students. With no fees, competitive interest rates, and flexible repayment plans, there are several 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.

Check your rate today on a SoFi Private Student Loan.

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended to December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since in doing so you will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave up to $10,000 and $20,000 for Pell Grant recipients unrefinanced to receive your federal benefit. CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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.


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