BETA
Chapter 1
The anatomy of a student loan
Chapter 2
Federal versus private loans
Chapter 3
The magic and trap of compound interest
Chapter 4
Repayment plans and the path to freedom
YOUR GOAL
Master of The truth about student loans before you sign
Ch 3 · The magic and trap of compound interest
dash Decode the monster's fine print to learn the truth about student loans before you sign.
dash Compound Interest Student Loans
When interest compounds, don't you know... your student loan can really grow!
dash Student loan interest is calculated daily, meaning a small amount is added to your balance every single day.
dash Interest capitalization occurs when unpaid accrued interest is officially added to your principal balance.
Fun Fact
Overpaying the principal: Making even a small extra payment directly to your student loan principal can shave years off your repayment timeline and save you thousands in interest.
Glossary
compound interest (noun)
Interest calculated on both the initial principal and the accumulated interest of previous periods. In July 2023, federal regulations eliminated this compounding mechanism for many common student loan status changes.
Interest calculated on both the initial principal and the accumulated interest of previous periods. In July 2023, federal regulations eliminated this compounding mechanism for many common student loan status changes.
Quiz
What is the process of adding unpaid accrued interest to the loan's principal balance called?
Quiz
What is the best way to reduce the total amount of interest paid over the life of a loan?
Quiz
During a standard federal grace period, what happens to interest on unsubsidized loans?
Quiz
What is the typical length of the post-graduation grace period for federal student loans?
Quiz
If a $20,000 loan has a 6% interest rate, approximately how much interest does it accumulate daily?
Quiz
What is the mathematical effect of interest capitalization on your future interest charges?