When it comes to repaying your student loans, you may feel like a deer in the headlights. However, knowing the basics might make you feel more confident in your repayment strategy. Before repaying your student loans, take some time to learn more about your loan’s interest rates, principal, and type to inform your strategy.
Interest rate
The interest rate is the amount you pay your lender for borrowing money. Several factors affect student loan interest rates, including government legislation and the types of loans you choose. The higher the interest rate on a student loan, the more you’ll pay in interest over time. Many borrowers choose to consolidate their loans or pay off the loan with the highest interest rate first.
Principal amount
The principal amount refers to the money you borrow, not including the interest rate or other fees. For example, if you borrow $10,000 at 4.99%, your principal is $10,000. Due to interest, you’ll owe more than just the principal amount, but as you continue to make payments, the principal amount goes down.
Loan type
There’s more than one type of student loan. The two most common types of student loans are federal student loans and private student loans.
What kind of student loans do you have? If you’re not sure, your loan servicer can help you understand your loan types and the repayment options for your particular loan.
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