Interest is the extra cost you pay for borrowing money. With student loans, understanding how interest works can save you money and help you pay off debt faster.
How Is Interest Calculated?
Most student loans use “simple interest,” which is based on your outstanding principal. Each month, interest is added to your balance. If you don’t pay interest while in school (like with unsubsidized loans), it may get added to your principal when you graduate—this is called capitalization.
Tips to Pay Less Interest:
- Make payments while in school, even small ones, to stop interest from building up.
- Pay more than the minimum after graduation—extra payments go toward the principal, reducing total interest.
- Consider refinancing for a lower rate if your credit improves after college.
- Set up auto-pay, which sometimes gets you an interest discount.
Conclusion:
Even a small effort to pay interest early or extra can make a big difference. Stay on top of your payments and watch your savings grow.
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