When Will Interest Start on Student Loans?

Understanding how interest works on student loans is important for borrowers. Interest is the cost of borrowing money, calculated as a percentage of the unpaid principal balance. This charge compensates the lender for the use of their funds over time. For student loans, interest generally accumulates daily, meaning a small amount is added to the loan balance each day. This daily accumulation affects the total amount a borrower will eventually repay.

Understanding Interest Accrual on Student Loans

Interest accrual is the process where interest charges accumulate on a loan over time. For student loans, this typically happens daily, with a portion of the annual interest rate applied to the outstanding principal balance each day.

The mechanics of interest accrual differ between federal subsidized and unsubsidized student loans. Federal Direct Subsidized Loans are for undergraduate students demonstrating financial need. For these loans, the government pays the interest that accrues while the borrower is enrolled in school at least half-time, during the grace period after leaving school, and during periods of deferment. This means the loan balance does not grow with interest during these specific periods.

Direct Unsubsidized Loans are available to both undergraduate and graduate students regardless of financial need. For these loans, interest begins accruing immediately upon loan disbursement. Borrowers are responsible for all interest that accrues on unsubsidized loans, including while in school, during the grace period, and during periods of deferment or forbearance.

Private student loans generally operate similarly to unsubsidized federal loans. Interest typically starts accumulating as soon as the funds are disbursed. Borrowers are usually responsible for all interest that accrues on private loans from the outset.

A concept related to interest accrual is capitalization, which occurs when accrued but unpaid interest is added to the loan’s principal balance. This increases the total principal amount owed, and future interest is then calculated on this new, larger balance. Capitalization can increase both monthly payment amounts and the overall cost of the loan over its lifetime. Common events that trigger interest capitalization include the end of grace periods, deferment, or forbearance, particularly for unsubsidized and private loans.

Initial Triggers for Interest Commencement

The point at which interest begins to accrue on student loans is determined by the loan type and the borrower’s enrollment status.

For federal subsidized loans, interest does not accrue while the borrower is enrolled in school at least half-time. The government covers these interest charges during periods of qualified academic enrollment.

For federal unsubsidized loans and most private student loans, interest begins to accrue as soon as the loan funds are disbursed. This means interest continuously accumulates even while a student is attending classes.

A grace period is a set timeframe after a borrower leaves school or drops below half-time enrollment before loan payments become due. For most federal student loans, this grace period is six months. During this period, interest continues to accumulate on federal unsubsidized and most private loans. For subsidized loans, interest begins to accrue after the grace period ends, at which point repayment obligations begin for all loan types.

How Repayment Status Affects Interest Accrual

A borrower’s repayment status influences whether interest continues to accrue or is temporarily paused. Certain relief options provide temporary payment suspension, but their impact on interest accumulation varies. Understanding these differences is important for managing overall loan costs.

Deferment allows borrowers to temporarily postpone student loan payments. For federal subsidized loans, interest does not accrue during deferment. However, for federal unsubsidized loans and Direct PLUS Loans, interest continues to accrue during deferment, and any unpaid interest will be capitalized when the deferment period ends.

Forbearance also permits a temporary halt or reduction in student loan payments. Interest always accrues on all types of loans—subsidized, unsubsidized, and private—during the forbearance period. Even if payments are paused, the loan balance will continue to grow due to accumulating interest.

Loan consolidation combines multiple federal student loans into a single new loan. When loans are consolidated, any accrued but unpaid interest on the original loans is typically capitalized and added to the new principal balance. This new, larger principal amount then begins accruing interest immediately.

A recent event affecting federal student loan interest accrual was the COVID-19 payment pause. From March 13, 2020, through August 31, 2023, interest accrual was set to 0% for most federal student loans. Regular interest rates resumed on September 1, 2023, with payments restarting in October 2023.

Checking Your Loan Interest Status

Understanding the specific details of your student loans, including their interest accrual status, is an important step in managing your debt. Borrowers can access detailed information about their federal student loans through official government channels.

For federal student loans, the primary resource is the Federal Student Aid (FSA) website, StudentAid.gov. By logging in with their FSA ID, borrowers can view their loan dashboard, which provides information about their loan types, current balances, interest rates, and assigned loan servicers.

Once the loan servicer is identified, borrowers can log into their servicer’s online portal for more specific and up-to-date information. These portals typically display the current interest accrual status, payment history, and detailed loan terms.

If a borrower has questions or needs clarification about their interest accrual schedule, contacting their loan servicer directly is recommended. For private student loans, borrowers should consult their loan statements or contact their private lender directly to obtain details about their interest and repayment terms.