What Borrowing Costs

The primary costs of education loans are the principal you have borrowed, plus the interest you pay on your loan balances, plus any fees the lender charges. The total cost of the interest and fees is expressed as an annual percentage rate (APR). The other key factor in the cost of borrowing is how long it takes you to repay your loan.

If you have Unsubsidized Direct Loans, you are responsible for the interest on your loans from the date the money is disbursed, or paid to your college or university. You have two options:

  • Pay the interest while you are in school and during your grace period. If you decide to pay unsubsidized interest this way, contact your lender or the loan servicer to let them know your choice.
  • Defer payment and allow the interest to be capitalized. This means it will be added to your loan principal. Interest will then accumulate on this larger balance. As a result, the cost of borrowing will be higher.

Borrowers may also be responsible for application, credit search, and lender's attorney's fees associated with certain loans. These do not apply to Direct or Perkins Loans.