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Fast Fact

You can deduct up to $2,500 on your taxes for the interest you paid on your student loans.

Source: IRS, 2019

About Interest

Understanding interest is essential to understanding how your student loan works. Interest accrues on a student loan every single day, even if the account is not in repayment.

What is interest?

Interest is a fee an individual pays for the use of borrowed funds. When an individual enters repayment, they must repay not only the principal (amount originally borrowed) but also an additional fee of interest on that borrowed money.

When does interest accrue?

All student loans accrue interest:

Every single day, from the day the loan is disbursed until you make the very last payment.
Even if your loan is not in repayment.

The key is to understand who is responsible for paying the interest that accrues. You are responsible for paying all the interest that accrues on your unsubsidized loan from the date of disbursement. Any unpaid interest that remains at the end of an in-school, deferment, forbearance or grace period will be capitalized (added to the principal balance of your loan).

The government will pay the interest on your subsidized loan while you are in-school, during your grace period, and during authorized periods of deferment for any subsidized loan disbursed prior to July 1, 2012. You are responsible for the interest that accrues on your subsidized loan during grace if it was disbursed on/after July 1, 2012 and prior to
July 1, 2014.

Calculating accrued interest

To calculate your daily interest accrual, use the following formula:

Interest rate x current principal balance ÷ number of days in the year = daily interest

Example

Sara Student has a $10,000.00 current principal balance and 6% interest rate this year. Using the formula:

.06 x $10,000.00 ÷ 365 = 1.6438356… (round to $1.64)

What happens to accrued interest

Any outstanding interest that remains on your loan at the end of a specific period, such as a grace, deferment, or forbearance period will be capitalized (added to the principal balance of your loan).

What is an interest notice?

An interest notice is an account summary that details the interest that accrued on your student loan(s) during a certain period of time.
You receive an interest notice—instead of an interest bill—if you did not request to pay the interest on your loans while in a deferment, forbearance, grace, or in-school status.
An interest notice differs from a bill because you're not required to make a payment.

Let us show you the benefits of paying interest. Review our information to see if this option is right for you.

What is an interest bill?

An interest bill is similar to a notice in that it details the interest that accrued on your student loan(s) during a certain period of time.
If you requested to pay your interest while in-school, during deferment, forbearance, or your grace period you will receive an interest bill rather than an interest notice.
The bill gives you the opportunity to pay the outstanding interest on your account.
If you would like to start receiving interest bills, contact your servicer to make the request.