Understanding Student Loan Interest Rates

Amelia JosephsonTax planning is one reason investors seek the help of a financial professional. Learn how SmartAsset can help you find clients looking for advice.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Like mortgages and credit cards, student loans come with interest rates. These can be fixed or variable depending on the loan type. They can also cause you to pay significant amounts of extra money over the long haul. As of the end of 2022, the average student loan debt is $37,574, according to a study by BestColleges.com. With figures as high as that for many Americans, it’s important to understand how student loan interest rates work.

How student loan interest works

Let’s get back to basics. What is an interest rate? It’s the percentage of the loan amount that a creditor charges a borrower. Interest rates are usually expressed in terms of an annual percentage rate (APR). The APR takes into account not just the nominal interest rate on a loan but the fees as well. That’s why it gives you a more realistic picture of what you’ll pay to borrow money.