Student Loan Basics
We’ve compiled a list of frequently asked questions that provide answers to help you make smart decisions.
Interest is calculated as simple daily interest. The outstanding principal balance is multiplied by the interest rate and divided by 365 days to calculate one day’s interest amount. For example, if you have a $10,000 loan and the interest rate is 7%, a day’s interest would equal $1.92. ($10,000 x 0.07) / 365 = $1.92. For more information about interest rates, read our article on Understanding Interest Rates.
If you don’t have an established credit history, applying with a creditworthy cosigner may improve the likelihood for loan approval and may lower the interest rate.
A certified private loan is one in which your school verifies your eligibility for the loan amount you are requesting. This helps you borrow only what you need. Non-certified loans typically have higher borrowing limits and higher interest rates than the certified loans. It’s important to borrow only what you need to avoid paying back the additional amount with interest later. Finally, while the interest on certified private loans is generally tax deductible, interest paid on non-certified private loans is not tax deductible.
Federal student loans are originated by the government and feature fixed interest rates. Private student loans are credit-based education loans offered by banks and other lenders and feature fixed or variable interest rates.
No. You should first obtain as much free money as you can from scholarships and grants since they help reduce the overall cost of education. Once you have maximized these options , you will know exactly how much money you still need for school. If you need to borrow, compare federal and private student loans and borrow only what you need.