Student loan interest rates are set to resume on July 1, after being paused for over a year. If you’re wondering when your interest will resume, we have the answer.
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If you have a federal student loan, you may be wondering when your interest will start accruing again. The answer depends on the type of loan you have and the repayment plan you’re on.
If you have a Direct Subsidized Loan or a Subsidized Federal Stafford Loan, your loan servicer (the company that manages your loan) will not charge you any interest on your loan until six months after you graduate, leave school, or drop below half-time enrollment.
If you have an Unsubsidized Loan or an Unsubsidized Federal Stafford Loan, interest will start accruing as soon as your loan is disbursed. If you want to avoid paying interest while in school, you can pay the interest as it accrues, or you can allow the interest toaccrue and be capitalized (added to your loan principal balance). Capitalization will increase the amount of money you have to repay because it will increase the size of your loan.
What is Student Loan Interest?
Student loan interest is the amount of money that you are charged for borrowing money for college. The interest rate on your student loans can be either fixed or variable, which means that it can change over time. The amount of interest that you will pay on your student loans depends on the type of loan that you have, the interest rate, and the repayment term.
Most student loans have a grace period, which is a period of time after you graduate, leave school, or drop below half-time enrollment when you are not required to make payments on your loans. For federal student loans, the grace period is typically six months. After the grace period ends, you will be required to begin making payments on your loans.
Interest will begin accruing on your loan as soon as the grace period ends. If you do not pay the interest that accrues on your loan, it will be capitalized, which means that the interest will be added to your principal balance and you will end up paying interest on the interest.
If you have a Federal Perkins Loan or a Direct Subsidized Loan, the federal government will pay the interest that accrues on your loan while you are in school and during your grace period. If you have a Direct Unsubsidized Loan or an unsubsidized portion of a Direct Consolidation Loan, you are responsible for paying all of the interest that accrues on your loan.
If you are repaying your student loans under an income-driven repayment plan or if your loans are in deferment or forbearance, you may also be responsible for paying some or all of the accruing interest on your loans.
How Does Student Loan Interest Work?
Depending on the type of student loan you have, interest may start accruing right away, or it may not start accruing until after you graduate. For subsidized loans, the government pays the interest while you’re in school, so your loan balance won’t increase while you’re still in school. For unsubsidized loans, the interest starts accruing right away, but you don’t have to make any payments until after you graduate.
If you’re still in school and your interest is already accruing, you can choose to make payments on the interest while you’re in school. This will help keep your loan balance from growing too much before you even start repayment. If you don’t make payments on the interest while you’re in school, it will be added to your loan balance when you enter repayment, and you’ll end up paying interest on theinterest.
When Will Student Loan Interest Resume?
Interest on student loans will resume on January 1, 2020. The interest rate for federal student loans disbursed between July 1, 2019 and June 30, 2020 is 4.53%.
How to Manage Student Loan Interest
If you have federal student loans, you don’t have to start paying them back until after you graduate, leave school, or drop below half-time enrollment.
The first thing you should do is find out what type of loans you have. If all of your loans are from the William D. Ford Federal Direct Loan Program, then you can sign up for income-driven repayment plans. These plans can help lower your monthly payment to an amount that’s based on your income and family size.
If you have loans from other programs, you might still be able to lower your monthly payments by consolidating your loans into a Direct Consolidation Loan. You might also want to look into deferment or forbearance as options for temporarily stopping or lowering your payments.
Keep in mind that if you don’t make payments on your student loans, your loan balance will increase because of interest, and the total amount you owe will become more and more difficult to manage. Student loan interest will accrue (accumulate) daily on most types of loans beginning the day after your first federal student loan is disbursed (paid out).
Interest on federal student loans is simple interest. Simple interest is a type of interest that is not compounded. Compound interest is when interest accrues on both the principal balance (the original amount borrowed) and any unpaid accrued interest. With simple interest, only the unpaid principal balance accrues interest .
Simple Interest Formula:
I = Total accumulated interest
P = Principal balance
r = Annual interest rate (expressed as a decimal) t = Number of months since first disbursement
The bottom line is that you should contact your loan servicer to find out when your interest will resume. Depending on the type of loan you have, the date could be different. If you have a Direct Subsidized Loan, for example, the government pays the interest while you’re in school and during your grace period. But if you have a Direct Unsubsidized Loan, you’re responsible for the interest from the time the loan is disbursed.