Understanding Federal & Private Student Loans
Student loans assist undergraduate and graduate students in covering tuition, campus housing, books, and living expenses.
Federal loans (Direct Subsidized and Unsubsidized) offer fixed interest rates set by federal statute and income-driven repayment options,
while private loans from banks and credit unions feature rates tied to market indices and borrower creditworthiness.
What is Interest Capitalization?
For unsubsidized federal loans and most private loans, interest begins accruing the moment funds are disbursed to your school.
If you do not pay interest while enrolled in school or during the 6-month grace period, that unpaid accrued interest
capitalizes (gets added directly to your original principal balance). You then pay interest on the interest
for the remainder of the repayment term.
Standard Fixed vs. Graduated Repayment Plans
Standard Fixed Repayment
Equal monthly payments spread across 10 years (120 payments). Results in the lowest overall interest cost and fastest standard payoff.
Graduated Repayment
Payments start low and increase every two years. Helpful for entry-level professionals who anticipate substantial income growth, though total interest is higher.