Student Loan Types and Interest


Student Loan Types and Interest

The predominant federal student loan types available for graduate/professional school (i.e. veterinary school) are Direct Unsubsidized and Direct PLUS loans. The following table illustrates the various loan types currently available during 2017-2018:

Loan Type

Fees

Cost

Loan Limits

IDR Eligible

Direct Grad PLUS
(@7.0%, unsubsidized)

4.276%

$$$

Up to Cost of Attendance (COA)

Yes

Direct Unsubsidized
(@6.0%, unsubsidized)

1.069%

$$

$40,500 for 9-month term
$47,167 for 12-month term

Yes

Health Professions Student Loan (HPSL), Perkins Loans, Loans for Disadvantaged Students (LDS) 
(@5%, subsidized)

None

$

Variable

If Consolidated

IDR = income-driven repayment

There are currently only three types of school-dependent federal student loans available to graduate school students that do not accumulate interest during school:

  • Health Professions Student Loans (HPSL)
  • Perkins Loans
  • Loans for Disadvantaged Students (LDS)

These loans are inconsistently available depending on the school you attend and your individual circumstances. Check with your financial aid office to see if you might be eligible for these types of loans.

While you are in school, Direct Unsubsidized and PLUS loans accumulate interest daily starting from the date you receive each loan (disbursement date). The interest rate is determined by the type of loan and your disbursement date and the amount you receive is net of loan origination fees charged to you at the time of disbursement.

Direct Loan interest rates are based on the high yield of the 10-year Treasury note auctioned just prior to July 1st each year. While student loan interest rates change each year, the rate remains fixed for the life of the loan.

For Example:
Federal Direct Student Loans 2017-2018 Interest Rates
Effective for Loans First Disbursed on or after July 1, 2017 and prior to July 1, 2018

Loan Type

Borrower Type

10-Year Treasury Note

Add-On

Fixed Interest Rate

Direct Unsubsidized Loans

Graduate/Professional Students

2.40%

3.60%

6.0%

Direct PLUS Loans

Graduate/Professional Students

2.40%

4.60%

7.0%

Source: https://ifap.ed.gov/eannouncements/053017DirectLoansInterestRates070117t063018.html

Federal student loan interest is calculated using a “simple” daily interest calculation. The interest rate on your loans is divided by the number of days in the year to get a daily interest rate factor.  

Most loan servicers use the following daily interest rate factor calculation:

daily interest rate factor= interest rate ÷ 365.25 (number of days in a year)


In-school Interest

While you are in school, calculate the interest accumulation for each of your Direct Unsubsidized and PLUS loans by counting the days between each loan disbursement date and the date you will enter repayment after your grace period ends, generally 6 months after graduation.  Multiply that number of days by the daily interest rate factor to estimate your in-school interest for each loan.

In–school Interest Projection = Principal balance × Daily interest rate factor × number of days between loan disbursement and the end of your grace period


Login to NSLDS.ED.GOV each semester and update your student loan worksheet to track your current interest and project remaining interest from now until graduation and when repayment begins after your grace period.  See that Student Loan Worksheet example for details.

Preparing your own student loan worksheet together with your budget will help you understand how much financial aid you need each semester and if there is an opportunity to reduce or return unused funds or reduce future award amounts. Generally, you have 120 days from the disbursement date to return unused/excess award amounts.  If you return funds within that 120-day window, you will not be charged the interest or fees associated with the disbursed.  After 120 days, you will be responsible for all interest and fees associated with your loan disbursement.  The student loan worksheet will also help you estimate the amount of interest that you may accumulate during school and estimate your starting loan repayment balance.

For example, let’s consider two veterinary students starting at Colorado State University in Fall 2017, borrowing the cost of attendance (COA). Knowing the predominant student loan types and interest rates, we can calculate the interest that will accrue through school, until graduation and the post-graduation 6-month grace period:  

Colorado State student starting 2017 Direct Unsubsidized loan for first-year Direct Grad Plus loan for first-year Interest on first-year loans through graduation (~ 5/10/2021) Total cost of first-year loan
Resident COA = $51,216

8/15/2017: $20,250 @ 6%

1/15/2018: $20,500 @ 6%

8/15/2017: $5,358 @ 7%

1/15/2018: $5,358 @ 7%

$11,316 $63,032
Non-resident COA = $76,248

8/15/2017: $20,250 @ 6%

1/15/2018: $20,500 @ 6%

8/15/2017: $17,624 @ 7%

1/15/2018: $17,624 @ 7%

$17,369 $93,617


Interest during student loan repayment

Multiply the daily interest rate factor by the average days per month and by your principal balance (disbursed amounts) to get the average interest accumulation per month.  

The amount of interest you owe per month depends on the number of days that occur between payments, generally between 28 and 31 days when you’re in repayment.  To figure an average monthly interest accrual, take the number of days per year and divide by twelve months (365.25 ÷ 12 = 30.4) to get an average days per month.

Average interest accumulation per month = Principal balance × Daily interest rate factor × Average days per month


Weighted Average Interest Rate

The weighted average interest rate is the sum of interest paid on all debt. The calculation for this rate is to add all interest accumulation across loans and divide by the total loan principal. For example:

Loan Number

Principal

Interest Rate

Interest Accumulation per year

Loan 1

$40,500

5.84%

$2,365.20

Loan 2

$30,000

6.84%

$2,052

Loan 3

$5,000

5.00%

$250

Sum of loans

$75,500

6.18%

$4,664.20


Weighted Average Interest rate across Loans 1, 2 and 3 = $4,664.20 ÷ $75,500 = 6.18%


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