When you pay off your student loan in full, you’ll have paid more than the amount you originally borrowed. This is generally due to the accrual of interest and interest capitalization. Interest rates are the rates charged to borrow money. It’s calculated as a percentage of your Current Principal. There are two primary types of interest rates: fixed and variable.
- A fixed interest rate is an interest rate that stays the same for the life of the loan.
- A variable interest rate is an interest rate that may go up or down due to an increase or decrease to the loan’s index.
Both your rate and rate type can be found on your billing statement and loan documents.
If you need more help, you can learn more about interest rates or choose which rate is right for you.
How is the interest rate on my variable rate loan calculated?
For a variable rate loan, most lenders start with a benchmark index and add a margin. For instance, if the lender uses the Secured Overnight Financing Rate (SOFR) as its index and then adds a 5% margin, the rate will be quoted as “SOFR + 5%.” While economic conditions may make the benchmark index go up or down, the margin added will usually remain fixed.
You can find your loan’s index and margin on your Promissory Note and loan documents.
For questions related to indexes and the transition from LIBOR to SOFR, please visit www.salliemae.com/libor2sofr.
