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How Does Student Loan Interest Work?
Differences between interest and APR in student loans If you're exploring different ways to pay for college or graduate school, understanding student loan interest is an important early step. In this guide, we'll explain the mechanics of student loan interest, equipping you with the knowledge needed to confidently navigate your repayment journey. Before getting started, we'll briefly explain two key terms you should be familiar with: Interest is the price paid for the use of borrowed money. It is typically expressed as a percentage rate over a period of time. APR stands for Annual Percentage Rate. The APR gives you an “apples-to-apples” comparison of loans with different terms, represented as an annual rate that includes repayment plans, repayment terms, the interest rate and any origination fees (unlike Ascent, some lenders actually charge origination fees to apply for a loan). Ascent publishes a range of APR’s for our student loan options to help you compare the cost of our college loans with other lenders. What is student loan interest? When you borrow money to pay for college or graduate school, you won't just be paying back the amount you borrowed. There's also a cost to borrowing that money, and that cost typically includes, among other things: interest. Interest is usually expressed as a percentage of the principal amount borrowed and can be either set at a fixed or variable rate, depending on the type of loan you have. The interest on your college loans can significantly impact the total amount you'll repay over time. Continue reading as we dig into the types of student loans and define how student loan interest is calculated. Types of student loans and interest rates Federal student loans The U.S. government offers federal student loans, which are often students' first choice after completing the Free Application for Federal Student Aid (FAFSA®) of their favorable terms and lower interest rates. The common types of federal student loan options include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. The interest rates for federal loans are set by the federal government and are based on two factors: the loan type and the first disbursement date of the loan. For most federal loans, the interest rates are fixed, meaning they won't change over the life of the loan, which can make budgeting for repayment more predictable. Private student loans Private entities like banks, credit unions, and online lenders, such as Ascent, offer private student loans. These loans often have higher interest rates than federal loans and may require a credit check. Interest rates for these loans can be fixed or variable, depending on the lender's policies (more on these concepts below). How student loan interest is calculated Fixed and variable rates are the primary ways to calculate student loan interest. Let's explore the key differences between the two. Fixed rates Fixed-rate student loans have an interest rate that remains the same for the life of the loan. This means your monthly payment will also stay the same, making it easier to budget for your loan payments. The interest on a fixed-rate loan is calculated by multiplying the loan's interest rate by the total principal amount. Variable rates Variable-rate student loans have an interest rate that can change over time based on market conditions. This means your monthly payment can also vary, making budgeting more challenging. Remember that variable-rate loans can offer lower interest rates initially, which can be beneficial if you plan to repay your loan quickly. Subsidized vs. unsubsidized loans Understanding the difference between subsidized vs. unsubsidized loans is crucial when considering your future repayment plans. Subsidized loans are need-based loans where the government pays the interest while you're in school or during deferment periods. On the other hand, unsubsidized loans accrue interest when the loan is disbursed, and the borrower is responsible for paying all the interest. Understanding capitalized interest Capitalized interest is a term you'll often encounter when discussing how student loan interest works. But what does it mean? Capitalization is when your unpaid interest is added to the principal amount of your loan. Capitalization can happen at the end of your grace period, deferment, or forbearance, or if you choose to leave an income-driven repayment plan or consolidate your loans. When interest is capitalized, it increases the principal amount you owe. You may end up paying interest on a larger amount. This can significantly increase the total cost of your loan. It's important to note that the frequency of capitalization can vary based on the type of loan and the terms of your loan agreement. For instance, interest on private student loans may be capitalized more often than on federal student loans, sometimes as often as monthly. When student loan interest starts A common question among borrowers is whether student loans have interest that starts accruing immediately. The answer depends on the type of loan. For federal unsubsidized loans and most private student loans, interest starts accruing as soon as the loan is disbursed. This means your loan balance grows while you're in school and during your grace period. However, if you have a federal subsidized loan, the government pays the interest on your loan while you're in school at least half-time, during your grace period, and during any periods of deferment. During this time, your loan balance will not increase. But remember, once you enter repayment or if your loan enters a forbearance period, interest will begin to accrue. The importance of understanding student loan terms Understanding the terms and mechanics of student loan interest is essential in planning your financial future. It's not just about knowing your interest rate. You should also know when the interest starts accruing, how it's capitalized, and how payments are allocated. Staying on top of these details may help you save money and pay off your debt faster. Knowing when interest accrues allows you to take advantage of opportunities to reduce overall interest. Additionally, strategically directing payments toward the principal helps you progress on your debt and may save you money in the long run. So, take the time to understand the terms of your student loans. This knowledge may empower you to make smart financial choices and take control of your repayment journey. With careful planning and strategic actions, you can confidently navigate your student loans and work toward a brighter financial future. Learn more with Ascent At Ascent, we're committed to helping students navigate the world of student loans. From the basics of student loans to repayment strategies, we've got the financial wellness resources you need to help make informed decisions about your future. Whether considering college loans for the first time or exploring graduate student loans for higher education, you can check your rates today without impacting your credit score. FAQ Can student loans be used for other expenses besides tuition? Yes, you can use student loans for other expenses related to your education. "Other expenses" may include books, supplies, meal plans, room and board, transportation, and technology expenses like a computer. However, remember that all these expenses must be repaid with interest. It's best to only borrow what you need. How long does it take to pay off student loans? The time it takes to pay off student loans can vary depending on your repayment plan, the amount you owe, and how much you can afford to pay each month. The standard repayment plan for federal student loans is ten years, but income-driven repayment plans can extend the repayment period to 20 or 25 years. For private student loans, the repayment period can range from 5 to 20 years or more.

December 20, 2024 | By: Ascent
What is a Stafford Loan?
Understanding Stafford loans & how to apply From scholarships to grants, a whole range of financial aid options are available to students pursuing higher education. But when navigating the world of college financing, Stafford Loans have become a go-to resource for many eligible students. Learn about Stafford loans and how they can help you reach your academic goals today. What is a Stafford loan? Stafford Loans, named after U.S. Senator Robert Stafford, are a type of college loan offered to eligible students enrolled in accredited American institutions to help finance their education. These loans are part of the William D. Ford Federal Direct Loan Program, the largest federal student loan program in the United States. Understanding what a Stafford Loan is can help you make informed decisions about financing your education. How Stafford loans differ from typical loans Unlike other types of personal loans, Stafford Loans are specifically designed for students and come with several benefits that make them a popular choice for financing higher education. To start, they generally offer lower interest rates compared to private student loans. Additionally, they provide flexible repayment plans and loan forgiveness programs. Most importantly, the government pays interest on some Stafford Loans while the student is in school, during the grace period, or in periods of deferment. (Note: a grace period is defined as the first six months after leaving school.) Exploring the types of Stafford loans When it comes to Stafford Loans, it's important to understand the difference between subsidized and unsubsidized loans. Here’s a look at their key differences: Subsidized Stafford loans Subsidized Stafford Loans, now commonly known as Direct Subsidized Loans, are a great option for students with demonstrated financial need. These loans come with an added benefit—the government covers the interest while you are enrolled at least part-time, during the grace period, and any deferment periods. This means you won't have to worry about interest piling up during these periods, which can make the loan more affordable long term. Unsubsidized Stafford loans Unsubsidized Stafford Loans, also known as Direct Unsubsidized Loans, are available to all students regardless of financial need. With these loans, interest starts accruing when the funds are disbursed. If you defer interest payments while in school, it's important to note that the accumulated interest will be added to the loan balance. As a result, capitalization will increase the overall repayment amount. It is crucial to consider the long-term implications of accruing interest and make an informed decision based on your specific financial circumstances. How to apply for a Stafford loan Considering a Stafford Loan to help finance your education? The first step is to complete the Free Application for Federal Student Aid (FAFSA®). This application collects important information about your financial situation. Your school can then use this information to determine your eligibility for various forms of financial aid, including Stafford Loans. Make sure to provide accurate and thorough details on the FAFSA to ensure an accurate assessment of your aid eligibility. Once your FAFSA is processed, your school will include any Stafford Loan you're eligible for in your financial aid offer. Are Stafford loans the right choice for me? Determining whether Stafford Loans are the right fit for you requires careful consideration of your circumstances. Consider factors such as your financial need, your projected future income, whether or not you’ll be applying with a cosigner, and your comfort level with taking on debt. While loans can provide valuable financial support for your college education, it's crucial to understand that they come with the responsibility of repayment, often with interest. Assess your financial situation and weigh the benefits and potential drawbacks of Stafford Loans before deciding. Exploring other sources of financial aid, such as scholarships and grants, can also be beneficial in reducing the overall amount of debt you may incur. Stay informed with Ascent From financial wellness resources to scholarship opportunities, Ascent is committed to helping students and their families make informed financial decisions—in college and beyond. Learn more about how our cosigned student loan options can help supplement your federal loans to cover more of your education costs. Frequently Asked Questions Are Stafford loans federal loans? Stafford Loans are federal loans administered by the U.S. Department of Education. As part of the William D. Ford Federal Direct Loan Program, the federal government provides these loans directly to eligible students. The government acts as the lender, offering the loan funds and managing the loan throughout its lifecycle. As with other federal loans, Stafford Loans come with certain advantages. They typically offer more favorable terms and borrower protections compared to private loans. Additionally, federal loans provide access to various repayment plans, forgiveness options, and potential deferment or forbearance opportunities in case you face financial hardship. Do Stafford loans have to be repaid? Yes, like all student loans, Stafford Loans do require repayment. However, repayment typically starts six months after you graduate, leave school, or drop below half-time enrollment. This grace period gives you a transition period to find employment and establish your financial footing before you begin making loan payments. Interest may still accrue during this grace period for unsubsidized Stafford Loans, so it's worth considering whether making interest payments during this time would benefit you in the long run. Understanding the repayment terms and options for Stafford Loans is crucial for planning your financial future and ensuring timely repayment without undue burden. Can you get denied for a Stafford loan? Although Stafford Loans are designed to benefit most students, they have some eligibility requirements. For instance, you must be enrolled at least half-time in a program that leads to a degree or certificate. You also need to maintain satisfactory academic progress. Your financial situation could also affect your eligibility for subsidized Stafford Loans based on financial need. It's important to understand these requirements before you apply for a Stafford Loan. How much can you borrow with a Stafford loan? The amount you can borrow with a Stafford Loan depends on several factors, including your year in school, whether you are a dependent or independent student, and whether the loan is subsidized or unsubsidized. For dependent students, the annual borrowing limit for subsidized loans ranges from $3,500 for first-year undergraduate students to $5,500 for third- and fourth-year undergraduate students. The total loan limit for dependent students is $31,000, of which at most $23,000 can be in subsidized loans. For independent students, the annual borrowing limit for subsidized loans is the same as for dependent students. However, independent students can borrow more in unsubsidized loans, with the total annual borrowing limit ranging from $9,500 for first-year undergraduate students to $12,500 for third- and fourth-year students. The total loan limit for independent students is $57,500, of which at most $23,000 can be in subsidized loans. Graduate or professional students, considered independent, can borrow up to $20,500 per year in unsubsidized loans, with an aggregate limit of $138,500, including loans received for undergraduate studies. Planning your borrowing carefully ensures you only hit these limits after you complete your education. What is the interest rate on a Stafford loan? The federal government determines the interest rate on a Stafford Loan, which is fixed for the life of the loan. For loans first disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate for undergraduate unsubsidized and subsidized Stafford Loans is 5.50%. For graduate or professional unsubsidized Stafford Loans, the rate is 7.05%. These rates are often lower than those for private student loans, making Stafford Loans a potentially more affordable option for students. Can Stafford loans be forgiven? Yes, your Stafford Loans can be forgiven under certain circumstances, meaning you won't have to repay some or all of the loan. For instance, the Public Service Loan Forgiveness (PSLF) program forgives the remaining balance on your Direct Loans after you have made 120 qualifying payments while working full-time for a qualifying employer, typically a government or non-profit organization. There are also loan forgiveness programs for teachers and for those serving in the military. It's important to understand the requirements for these programs if you're considering pursuing loan forgiveness.

January 17, 2025 | By: Ascent
Does FAFSA® Cover Graduate School and Masters Programs?
You're reaching the final year of college, and you couldn't be happier. You have already decided to continue your education by going to graduate school and are ready to embark on this new adventure. But as you look at the potential cost of graduate school, you wonder, "Does FAFSA cover graduate school? Is that a thing?" If you're wondering, "does FAFSA pay for graduate school?" this blog will review the ins and outs of federal aid for graduate school. Can you get financial aid for graduate school? The Free Application for Federal Student Aid (FAFSA®) covers graduate school, and if you're wondering, "Does FAFSA cover masters programs?" It does! Just like your undergraduate degree, when you apply for the FAFSA for graduate school, you may be eligible for federal grants, scholarships, and loans, including: Direct Unsubsidized Loans Direct PLUS Loans for Graduate or Professional Students Teacher Education Assistance for College and Higher Education (TEACH) Grants Federal Work-Study Federal Pell Grants Outside of the FAFSA, you may also explore other funding opportunities, such as: Organization grants: There could be many industry-specific grants in your prospective field. Fellowships: In exchange for research activities, private organizations, government organizations, and schools may have fellowships based on your field of study and G.P.A. Employer Tuition Assistance: Some employers will pay or even reimburse some of the tuition for grad school. Scholarships: This is a traditional option available to graduate students. You can research scholarships on academic excellence, majors, and cultural diversity. Assistantships: Some schools have living stipends or even waive tuition for students in a specific trade. Military Aid: The GI Bill may help you pay for graduate school if you served in the military. Depending on where and when you did, you could also be eligible for the Iraq & Afghanistan Service Grant. How to fill out the FAFSA for graduate school Now that you know the answer to does FAFSA pay for graduate school, you're probably wondering how to fill out the application online. The submission process is almost the same for graduate students as for undergrad students. There is just one key difference. You're now considered independent. When you (and probably your parents) first filled out your FAFSA for your undergrad degree, you identified as a dependent. As a result, you submitted your parents’ financial information. Now that you're a graduate student, you'll need to apply independently and submit the following on your own: Tax return information Account balances for your bank or credit union and investment accounts if you have any Your social security number Your Federal Student Aid (F.S.A.) I.D. It can take less than an hour to complete the FAFSA if you have all the documentation handy. How much does FAFSA cover for grad school? How much FAFSA covers for graduate school depends on when you submit your application and what you may be eligible to receive. Grants and scholarships are awarded on a first-come-first-serve basis. When you submit your FAFSA and what funds are available at that time will determine how much aid you can expect to receive. When it comes to Direct Unsubsidized Loans, you'll get up to $20,500 a year. Remember that since you are applying as a dependent student, you are not eligible for the Direct PLUS loan. What is the Deadline for FAFSA? The deadline for FAFSA is the same regardless of whether you're an undergrad or graduate student is June 30th. The deadline stays the same year by year, so submitting your application as early as possible is best. As we've said before, the earlier you submit your application, the more money you could receive via scholarships and grants. Other financial aid options for grad students Don't worry if you've filled out your FAFSA, tried all the other options listed above, and still need help. There are some options to consider. Private graduate school loans can help you bridge the financial gap in your expenses and can help you pay for school.

January 17, 2025 | By: Ascent
The Different Types of Financial Aid Explained: Loans, Grants, & Work-Study Programs
Types of Financial Aid Explained: Learn about the different types of financial aid available for students, including loans, grants, and work-study programs.

June 05, 2025 | By: Ascent
Confused about Federal Student Loan Repayments? Questions from Students, Answers from Ascent
Ascent hosted an engaging webinar to address what’s on many people’s minds - federal student loan repayment. We know that embarking on this journey can be overwhelming and you're not alone. According to NerdWallet, “nearly 44 million borrowers with student loans” are entering repayment. We're committed to supporting individuals every step of the way. Our recent webinar, 'Federal Student Loan Repayment De-Mystified,' covered several topics ranging from how to prepare for repayment to understanding your repayment plan and exploring the invaluable resources available for those making budget adjustments. We want to offer resources and address some important audience questions we didn’t have time to cover and provide guidance and support on this complex topic. There are some great options for student loan repayment. What are the potential downsides to an Income Driven Repayment plan (IDR)? Income Driven Repayment (IDR) plans may be a good option for students that are unable to make their required payments under a standard, graduated or extended repayment plan, have low income or are enrolled in the Public Service Loan Forgiveness program, among other reasons. However, it is not always the best option for all students. Some of the disadvantages of IDR's include: You might not qualify for a lower payment than under a standard repayment plan Depending on which IDR plan, loan balances may increase as well as total cost of the loan due to unpaid interest It will generally take longer to fully repay the debt obligation Monthly payments may increase as your income increases There may be tax consequences for forgiven loan balances, and you may want to consult a tax professional What if my monthly payment is too high? How can I reduce this to a manageable amount? According to StudentAid.gov, “Most federal student loans are eligible for at least one income-driven repayment plan. If your income is low enough, your payment could be as low as $0 per month.” Start by exploring the new SAVE plan and use the Loan Simulator. This tool will help you explore repayment options that fit your needs. You can also reach out to your Loan Servicer to explore options for reducing your monthly payment. To find your Loan Servicer: Log into StudentAid.gov, view your Dashboard and access their information on the right-hand side panel. What is PSLF and how can I qualify? The Public Service Loan Forgiveness is a program for individuals employed by a government or non-profit organization that forgives the remaining balance on your direct loans: If you are working full time for an eligible employer After you’ve made the equivalent of 120 qualifying monthly payments under an accepted repayment plan The PSLF Help Tool is a great place to start and will help you: Search for qualifying employers List what actions you may need to take to become eligible Generate a PSLF form (tip: You must complete the form in a single session) Need more info? Check out this helpful FAQ about PSLF What types of student loan repayment options are there for Parent Plus Loans? Parent PLUS borrowers are eligible for the following repayment plans: Standard Repayment Plan Graduated Repayment Plan Extended Repayment Plan According to StudentAid.gov, “Parent borrowers can become eligible for an additional repayment plan—the Income-Contingent Repayment Plan—by consolidating their parent PLUS loans into a Direct Consolidation Loan.” If you have concerns about making payments, reach out to your Loan Servicer to discuss your options. Need more info? Check out these Parent Plus FAQs The conversation is far from over The conversation is far from over. It's ever evolving, and we recognize the importance of this topic for enrolled and unenrolled students, graduates and cosigners. We're dedicated to delving deeper and bringing more insights, advice, and conversations in the coming weeks. Stay tuned and keep sharing your questions, concerns, and personal experiences as it helps shape these discussions and strengthens our Ascent community.

October 04, 2023 | By: Ascent
Ask Ascent: From Internship to Full-Time Role
Internships offer students the chance to gain real-world experiences and grow their professional development skills. Internships may have the potential to lead to full-time roles, which can be a smooth transition for students as they enter the workforce. At Ascent, we are proud to onboard, train, and support interns as they take what they learn in the classroom and apply it to the workplace. We talked with a few team members who first joined the team as interns to learn more about their journey from internship to full-time role. Continue reading for more on the projects they worked on and the advice they would give to other students on the job or internship hunt. How did you two hear about Ascent as an intern opportunity? Jen: I was a newly transferred junior attending SDSU. The internships at Ascent were recommended to me by another SDSU student who was an Ascent intern at the time. Abigail: I became aware of Ascent’s internship opportunity via Handshake, an intern and job-hunting platform. I was in the application process for several different marketing internships, but I resonated with Ascent’s mission, and it struck a chord with me as someone who also felt lost navigating financial aid and loan borrowing. What role were you hired to do? Jen: My internship role here at Ascent consisted of a variety of experiences. Originally, I was a marketing intern working under our Marketing Operations Specialist at the time. I spent time supporting and coordinating various marketing campaigns including email, social media, content creation, and direct consumer marketing strategies. Abigail: My role as a marketing intern focused on content creation, social media, email campaigns, and blog posts. Today, my role as a marketing coordinator will work a lot more with engagement. I will be focusing on our email strategy and customer lifecycle. This includes ways to better connect with students and learn about the challenges they face. How long was your internship at Ascent? Jen: My internship lasted a little over a year, from March 2021 to May 2022. This would have been over my junior and senior year of college. Abigail: I was able to remain an intern at Ascent for over two years! Around the one-year mark, I was promoted to lead marketing intern and received a raise. Describe your team and the people you worked closely with on different projects. Jen: My teams were awesome! I met a ton of people because I was able to branch out and experience tons of different marketing initiatives. I was working on real projects that had a positive impact on the company, and I was able to test out different areas I was interested in. My age and student experience were celebrated as Ascent and my teams were eager to listen to my college and financial experiences. Everyone around me was excited to see me grow and happy to teach me new skills. Abigail: Since starting at Ascent, I have worked with nearly every team and department in some way or another. Currently, I work with our engagement team, and I love that we spend our time trying to find new ways to personally connect with our students and borrowers. My direct manager is Joanna, and she walks with me every step of the way. She has been a mentor and advocate for me since my very first day. What was your overall impression of company culture at Ascent? Jen: I was originally nervous about working for a loan company because I had little knowledge of the industry, but the previous intern who recommended the position spoke incredibly highly of Ascent. Once I started the interview process, everything fell into place. It was a perfect match and exactly what I was looking for in an internship. Abigail: I was concerned being the youngest person at the company would hinder my experience, but it became clear interns were seen as a valuable resource. It’s difficult being a full-time student during your internship experience, but Ascent was understanding and invested in my success as both an intern and student. What are you looking forward to the most in a full-time role at Ascent? Jen: I’m excited to continue my work with an incredible supervisor and experience a new position at Ascent that I was able to make my own. Abigail: With this new role I will be getting more involved in different projects and can fully focus on my work. Previously, I was trying to navigate being a student and employee. While working as an intern I would sometimes miss out on big picture projects or meetings due to classes or studying. Do you have any tips for other students searching for their dream internship that could turn into a full-time role? Jen: Take the initiative! There are tons of advantages to being a student. You’re able to find organizations that match your interests and ambitions while networking with like-minded individuals and alumni. During your internship, your chances of obtaining a full-time role will be impacted by building relationships with coworkers. They will be your supporters and advocates if you’re moved into a full-time role. Abigail: Internship and job-hunting can be exhausting, but the next application could be the one that propels you to your dream internship. If you’re an intern looking to score a full-time role, don’t be afraid to ask questions and explore different opportunities. While it’s important to show up and meet expectations, you also need to take time to decide if you like your role. I made sure to ask for more opportunities from my manager until I found my current role that fits my strengths and individuality.

January 09, 2025 | By: Ascent
What Will Make the Biggest Impact on Your Financial Future
Take the stress out of financial planning for college students with these five key steps.

June 05, 2025 | By: Ascent
6 Tips to Research & Apply for a Private Student Loan
Private student loans can be a daunting task, here's how students can research and apply for a private student loan.

December 14, 2023 | By: Ascent
How to Qualify for Student Loans & Eligibility Requirements
Confused about private student loans? Learn how to qualify for private student loans and other eligibility requirements in this blog.

May 23, 2023 | By: Ascent
Celebrating Earth Day as a Student
Earth Day 2023 will land on April 22nd this year, right around the corner!

April 21, 2023 | By: Ascent
How to Get a Student Loan
There are several ways to get student loans, with a cosigner or without. Read how to get a student loan here to learn more.

December 29, 2025 | By: Ascent