Yes, most student loans charge interest, and it starts accruing when ready or after you leave school
Nearly all student loans charge interest — a percentage of what you borrowed that you pay back on top of the original amount. The interest rate, when it starts growing, and how much you ultimately pay depend on the loan type and your repayment plan.
Federal student loans have interest rates set by Congress and vary by loan type. Private student loans have rates set by the lender and depend on your credit. Some federal loans let you defer payments while you're in school, but interest still accrues on most of them — meaning it piles up and gets added to what you owe.
Understanding how interest works on your specific loans matters because it changes how much you'll repay and how long repayment takes. A small difference in interest rate or when interest starts adds up to thousands of dollars over ten or twenty years.
Key Takeaways
- Federal student loans have fixed interest rates set by Congress; rates vary by loan type and the year you borrowed.
- Interest on most federal loans accrues while you're in school, even if you don't make payments yet.
- Private student loans have variable or fixed rates based on your credit score and the lender's terms.
- Unsubsidized loans charge interest from the moment you borrow; subsidized loans don't accrue interest while you're enrolled at least half-time.
Federal loan interest rates and how they're set
The federal government sets interest rates for federal student loans each year based on the 10-year Treasury note rate, then adds a fixed percentage on top. The rate Congress adds depends on the loan type — undergraduate loans, graduate loans, and PLUS loans each have different markups.
For loans taken out in the 2024–2025 school year, federal undergraduate loans carry a 6.53% interest rate. Graduate loans are higher, and Parent PLUS loans are higher still. These rates are fixed for the life of the loan, meaning they don't change after you borrow.
Because rates are set annually, loans you took out in different years may have different rates. If you have multiple federal loans, you might owe 4.5% on one and 6.53% on another. You can check your loan's rate on the Federal Student Aid website or your loan servicer's account portal.
When interest starts accruing on federal loans
Interest accrual — the process of interest being added to your balance — begins the moment the loan is disbursed, or paid out to you. Whether you pay that accrued interest when ready, let it sit, or have it added to your principal balance depends on the loan type and your status as a student.
Subsidized loans do not accrue interest while you're enrolled at least half-time in school, during your grace period after graduation, or during certain deferment periods. The government pays the interest for you during these times. Once you leave school or drop below half-time status, interest starts accruing and you're responsible for it.
Unsubsidized loans accrue interest from the day they're disbursed, whether you're in school or not. If you don't pay the accrued interest while you're in school, it gets capitalized — added to your principal — when you enter repayment. This means you'll pay interest on interest, which increases the total amount you owe.
Parent PLUS loans and most graduate loans are unsubsidized, so interest accrues when ready. If you're borrowing for graduate school, assume interest is growing from day one.
Private student loan interest rates and terms
Private lenders set their own interest rates based on your credit score, income, and the lender's risk assessment. Rates can be fixed (staying the same for the life of the loan) or variable (changing based on market conditions, usually annually).
Private loan rates typically range from around 4% to 14%, but the exact rate you receive depends on your creditworthiness. A borrower with excellent credit might get 5%, while someone with fair credit might be offered 10% or higher. Some private lenders require a co-signer — usually a parent — if your credit is limited.
Unlike federal loans, private loans don't have a grace period after graduation. Interest usually starts accruing when ready, and you may be required to begin making payments while still in school. Read the promissory note carefully to understand when your lender expects payments to start.
How interest affects your total repayment amount
The longer you take to repay a loan, the more interest you pay overall. A $30,000 loan at 6% interest repaid over ten years costs roughly $9,900 in interest. The same loan repaid over twenty years costs roughly $19,800 in interest — double.
If you don't pay accrued interest while in school and it gets capitalized, your principal balance grows before repayment even begins. A $20,000 unsubsidized loan with $2,000 in accrued interest becomes a $22,000 loan, and you pay interest on that larger amount for the next ten or twenty years.
This is why paying accrued interest while you're in school — even small amounts — can save thousands. If you can pay $50 per month toward interest before graduation, you reduce capitalization and lower your total repayment cost.
Interest and income-driven repayment plans
Federal loans offer income-driven repayment plans that base your monthly payment on what you earn rather than a fixed ten-year schedule. These plans can lower your monthly payment, but they extend repayment and increase total interest paid.
On an income-driven plan, if your payment doesn't cover all the interest that accrues each month, the unpaid interest capitalizes — gets added to your principal. This happens annually on most plans. Over time, your balance can grow even while you're making payments, especially in the early years when your income is low.
Federal loans on income-driven plans may also be forgiven after twenty or twenty-five years of payments, depending on the plan. Any forgiven balance is not taxed as income (as of now, though this could change). Understanding how interest accrues under your specific plan helps you decide whether to pay extra toward principal or stick with the minimum payment.
How to find your loan's interest rate
For federal loans, log into your account at studentaid.gov using your FSA ID. Your dashboard shows each loan, its balance, and its interest rate. You can also contact your loan servicer — the company that collects your payments — by phone or through their website.
For private loans, check your promissory note (the document you signed when you borrowed) or log into your lender's website. If you can't find it, call the lender's customer service line and ask for your current rate and whether it's fixed or variable.
Write down the rates and loan types. Knowing what you owe and at what rate helps you decide whether to pay extra toward high-interest loans first or pursue forgiveness programs for federal loans.
Frequently Asked Questions
Does interest on student loans accrue daily?
Yes. Interest accrues daily on both federal and private loans, calculated as a percentage of your outstanding balance. The daily accrual is small, but it compounds — meaning interest is calculated on interest — which is why the total grows faster than you might expect over months and years.
Can I pay just the interest while I'm in school?
Yes. Paying accrued interest while you're in school prevents it from being capitalized when you enter repayment, which saves you thousands over the life of the loan. You can make voluntary payments to your loan servicer at any time, even if you're not required to pay yet.
What's the difference between fixed and variable interest rates?
A fixed rate stays the same for the entire life of the loan. A variable rate changes, usually annually, based on market conditions. Federal loans always have fixed rates. Private loans may offer either, but variable rates are riskier because your payment could increase if rates rise.
Do federal student loans have interest if I'm on an income-driven plan?
Yes. Income-driven plans lower your monthly payment, but interest still accrues on the full balance. If your payment is less than the monthly interest, the unpaid interest capitalizes and gets added to your principal, increasing what you owe.
What happens to interest if I don't pay my student loan?
Interest continues to accrue and is added to your balance. If you miss payments, late fees may also be added. The longer you don't pay, the larger your total debt becomes. Contact your loan servicer if you're struggling to make payments — you may be able to pause payments through deferment or forbearance while interest still accrues on federal loans.