Interest rates on student loans
Whether you have a federal or a private student loan, an interest rate is the rate 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. Variable rate Sallie Mae loans applied for on or after April 1, 2021, use the Secured Overnight Financing Rate (SOFR) as the index. Variable rate Sallie Mae loans applied for before April 1, 2021, use the London Interbank Offered Rate (LIBOR) as the index. These loans will be converted to SOFR in the second quarter of 2022.
Both LIBOR and SOFR are common rates used for loans and reflect the ups and downs of the market at large.
Federal student loans only offer a fixed interest rate. Our private student loans generally offer a choice of fixed or variable rates.footnote 1
How interest accrues on student loans
The interest on your student loan begins to accrue (grow) on the first day we disburse (send) your loan’s funds to you or your school. It continues to accrue until you’ve paid off your loan. The interest rate for your loan is listed in your disclosure documents and billing statement. This is the same for both Federal Direct Loans and private student loans.
Student loan interest may be tax deductible
Your student loan interest—both federal and private—may be eligible for a tax deduction. Learn more about regulations and necessary forms.