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Student loan interest can start adding up long before you make your first payment. In many cases, interest begins accruing when the loan is paid out, which means it can accumulate for years while you’re in school, even though you may not have to begin making payments until after you graduate.
The rules vary depending on the type of loan. With federal unsubsidized loans, interest accumulates while you are enrolled, whereas the federal government covers interest on subsidized loans while you are in school and for six months after you graduate. Private student loans follow their own lender-specific terms and often start accruing interest when they are disbursed.
Understanding when interest starts accruing, when you’re responsible for paying it, and when unpaid interest can be added to your loan balance can help you better understand the true cost of borrowing and avoid surprises when repayment begins.
Key Points
• Interest on federal unsubsidized and private student loans typically begins accruing as soon as the loan is disbursed.
• The federal government pays the interest on Direct Subsidized Loans while you are in school, during grace periods, and during qualifying deferments.
• Student loan interest is generally calculated daily using a simple interest formula based on your principal balance and interest rate.
• Unpaid accrued interest can be capitalized, adding to your loan principal and increasing overall borrowing costs over time.
• Making voluntary interest payments while in school or during grace periods can help lower overall loan costs.
Interest Accrual Basics and Exceptions
Interest generally starts accruing when a student loan is disbursed, but the rules for when you’re responsible for that interest depend on the type of loan and its status. Here’s how interest accrual works for the most common federal loan situations.
What Triggers Interest Accrual on Federal Loans?
Interest on federal student loans is triggered immediately upon disbursement to your school. If you have Direct Unsubsidized Loans, you’re responsible for all the interest that accrues, even while you’re in school.
Direct Subsidized Loans work differently. They’re available to eligible undergraduate students who demonstrate financial need, and the federal government pays the interest during certain periods. This includes while you’re enrolled at least half-time, during the six-month grace period after leaving school, and during qualifying deferments.
Interest-Free Periods and Deferments
Federal Direct Subsidized loans offer an interest-free period because the government pays the interest on your behalf during specific times. You are generally not responsible for paying interest during the following periods:
• While you are enrolled in school at least half-time.
• During the six-month grace period immediately after you graduate, leave school, or drop below half-time enrollment.
• During qualifying deferments.
The rules are different for unsubsidized loans. Interest generally continues to accrue during school, the grace period, and deferments. During forbearance, interest generally accrues on both subsidized and unsubsidized federal loans.
Some private student loans may offer deferment or other payment-relief periods, but the terms vary by lender. Interest will generally continue to accrue during these periods unless the loan agreement says otherwise.
The Basics of Student Loan Interest
Student loan interest is the cost you pay to borrow money for college or graduate school. Federal student loan interest generally accrues daily based on the outstanding principal balance and the loan’s interest rate. Interest rates vary based on the type of loan and, for federal loans, the academic year in which the loan is first disbursed.
Federal student loan rates are fixed for the life of each loan. New federal loan rates are set annually and apply to loans first disbursed between July 1 of one year and June 30 of the following year. Private student loans may have fixed or variable rates, depending on the lender and loan terms.
Federal student loans also charge an origination fee. This fee is a percentage of the loan amount and is deducted from the loan before the funds are disbursed. As a result, the amount sent to your school may be slightly less than the amount you borrowed.
Interest and Fees by Loan
Here’s a look at the interest rates for common federal student loans for the 2026–27 academic year.
Unsubsidized Student Loans
Federal Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students. Unlike subsidized loans, you don’t have to demonstrate financial need to qualify.
For loans first disbursed from July 1, 2026, through June 30, 2027:
• Interest rate for undergraduates: 6.52%
• Interest rate for graduate and professional students: 8.07%
• Loan fee: 1.057%
Subsidized Student Loans
Federal Direct Subsidized Loans are available to eligible undergraduate students who demonstrate financial need. The federal government pays the interest during qualifying in-school, grace, and deferment periods.
For loans first disbursed from July 1, 2026, through June 30, 2027:
• Interest rate: 6.52%
• Loan fee: 1.057%
Direct PLUS Loans
Direct PLUS Loans are available to eligible parents of dependent undergraduate students. Beginning July 1, 2026, Direct PLUS Loans are generally no longer available to new graduate and professional student borrowers, although a limited exception applies to certain students who were already enrolled and had previously borrowed for the same program.
For Direct PLUS Loans first disbursed from July 1, 2026, through June 30, 2027:
• Interest rate: 9.07%
• Loan fee: 4.228%
Private Student Loans
Private student loans are offered by banks, credit unions, and online lenders.
• Interest rate: Rates can be fixed or variable, and vary by lender and a student’s (or their cosigner’s) qualifications.
• Loan fee: Varies by lender; many lenders do not charge origination fees.
Student Loan Interest Accrual at a Glance
The following table provides a general overview. Specific federal loan rules can vary by loan type and status, while private loans are governed by the terms of the loan agreement.
| Loan Status | Direct Subsidized | Direct Unsubsidized/Private |
|---|---|---|
| In school/grace period | Government pays interest | Generally, accrues daily |
| Deferment | Government pay interest | Generally, accrues daily |
| Forbearance | Interest accrues | Interest accrues |
| Standard repayment | Interest accrues | Interest accrues |
| Capitalization trigger | Typically, none | May occur in certain circumstances |
How Is Interest on Student Loans Calculated?
Student loan interest is generally calculated using a simple daily interest formula. This means the daily interest amount is based on your outstanding principal balance and interest rate.
The formula that is commonly used:
(Outstanding Principal Balance Ă— Interest Rate) Ă· 365.25 = Daily Interest Accrual
For example, if you have a $10,000 principal balance and a 6% interest rate:
You can multiply the daily interest amount by the number of days in a given period to estimate how much interest accrues. Your actual amount can vary as your principal balance changes and depending on how your servicer calculates interest.
Fixed vs. Variable Interest Rates
Federal student loans have fixed interest rates, meaning the rate for a particular loan doesn’t change over the life of that loan. Private student loans may have either fixed or variable rates. A fixed rate stays the same; a variable rate can change over time based on broader market conditions, meaning your monthly payment can go up or down.
Capitalization of Interest
Interest accrual and interest capitalization are two different things. Accrued interest is interest that has accumulated but hasn’t been paid. Capitalization occurs when unpaid interest is added to the loan’s principal balance. Once interest is capitalized, future interest is calculated on the higher principal balance. This can increase the total amount you pay over the life of the loan.
Capitalization doesn’t happen automatically in every situation. For federal loans, it can occur under certain circumstances, such after certain periods of deferment. Private lenders set their own rules for when interest capitalizes, which are outlined in the loan agreement.
How You Could Save on Interest
To reduce the amount of interest you pay on student loans, you generally can either reduce the amount you owe or, when possible, lower your interest rate.
If you have federal student loans, the interest rate is fixed for each individual loan. If you’re considering a private student loan, comparing lenders and rates may help you find a loan with terms that fit your circumstances. Using a cosigner with strong credit may also help you qualify for a lower rate.
If you’re already repaying your loans, you may consider refinancing federal student loans with a private lender if you qualify for a lower rate. Just keep in mind that refinancing federal loans with a private loan means giving up federal benefits and protections, which can include income-driven repayment, federal deferment and forbearance options, and eligibility for federal forgiveness programs such as Public Service Loan Forgiveness.
Making Payments During School or Grace Period
If you have a loan that accrues interest while you’re in school or during your grace period, making voluntary payments before they’re required can reduce the amount of unpaid interest that accumulates. If you cover all of your interest, no interest gets capitalized. Your principal balance stays at its original amount, which can save you a significant sum over time.
You can also make payments toward principal after covering any outstanding interest. Reducing the principal earlier can reduce the amount of future interest that accrues.
Direct Subsidized Loans are different because the federal government pays the interest during qualifying in-school and grace periods. You can still make voluntary payments on these loans while you’re in school or during your grace period if you want to reduce your principal balance.
The Takeaway
Student loan interest generally begins accruing when a loan is disbursed, but when you’re responsible for that interest depends on the type of loan and its status. Direct Unsubsidized Loans generally accrue interest while you’re in school and during your grace period, while the federal government generally pays interest on Direct Subsidized Loans during qualifying in-school and grace periods.
Interest can also accrue during deferment or forbearance, depending on the loan type, and unpaid interest may be capitalized in certain circumstances. Understanding when interest accrues and when capitalization can occur can help you better manage your loan balance and repayment costs.
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.
FAQ
When do unsubsidized student loans start accruing interest?
Federal Direct Unsubsidized Loans begin accruing interest when the loan is disbursed. Interest continues to accrue while you’re in school, during your six-month grace period, and during most deferments and forbearances. You’re responsible for paying this interest once you begin repayment of your loan. During repayment Interest continues to accrue on a daily basis based on your outstanding principal balance.
Do subsidized loans ever accrue interest?
Yes. Direct Subsidized Loans accrue interest, but the federal government pays the interest during qualifying periods, including while you’re enrolled at least half-time, during your six-month grace period, and during certain deferments. Once you enter repayment, interest accrues and you become responsible for paying it. Interest can also accrue during certain periods, such as forbearance.
How does interest capitalization affect your loan balance?
Interest capitalization occurs when unpaid interest is added to your principal balance rather than kept as a separate balance. Once capitalized, the higher principal balance is used to calculate future interest. This can increase the amount of interest you pay over time. Capitalization occurs on unsubsidized federal student loans after certain types of deferment. Private lenders generally follow the terms of the loan agreement.
Can you avoid student loan interest completely?
It may be possible to avoid paying some or all student loan interest in certain circumstances, but it’s difficult to avoid it entirely. The federal government covers interest on Direct Subsidized Loans during qualifying periods, including while you’re in school. For loans that accrue interest, making payments while you’re in school or during your grace period can reduce the amount of interest you ultimately pay.
Does refinancing stop interest accrual?
No. Refinancing doesn’t stop interest from accruing. Instead, it replaces an existing loan with a new loan, typically with a new interest rate and repayment terms. If you refinance a federal student loan with a private lender, the new loan will generally continue to accrue interest according to its terms. Refinancing federal loans also means giving up federal benefits and protections, such as certain income-driven repayment and forgiveness options.
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