Frequently Asked Questions
Answers to common questions are below. See additional information about how payments are applied to your account.
Show All Hide All
What is interest?
When you take out a loan, you are borrowing money. The entity that loans you the money charges you interest to cover the costs associated with allowing you to borrow money. When you pay back what you borrowed, you must repay the original loan amount (principal) plus interest.
How is interest calculated on student loans?
Interest accrues daily based on your student loan's principal balance as of that day and your interest rate.
Interest is calculated on student loans through a simple interest method using the following formula:
Principal balance x interest rate / number of days in a year = daily outstanding interest
Example: You have a balance of $10,000 at 6.80% interest.
$10,000 x 0.068 / 365 = daily outstanding interest
$10,000 x 0.068 / 365 = $1.8630
If your payment is due on the 13th of each month, and there were 30 days from your last payment, the monthly interest in this example is $55.89.
What is the difference between fixed and variable interest rates?
Loans have either a fixed or a variable interest rate, which is published with the other loan terms when you take out the loan. For some private student loans, the borrower may choose either a fixed or a variable interest rate at the time a loan is made.
Fixed interest rates are set for the life of the loan and cannot change. On the Standard Repayment Plan, if you pay your minimum payment on time each month, every monthly payment amount will remain the same.
Variable interest rates are determined using a formula, usually a set interest rate plus a market rate index such as Prime or Libor (London Interbank Offered Rate). Variable rates may change daily, monthly, quarterly or annually depending on the formula used. Because these rates may fluctuate over time based on financial markets, your minimum monthly payment amount may change based on the rate being charged for that time period.
All variable-rate private loans serviced by Aspire Servicing Center use a quarterly index, meaning that the interest rates are recalculated each Jan. 1, April 1, July 1 and Oct. 1 based on changes to the index used.
Federal student loans made on or after July 1, 2006, have fixed interest rates. Federal student loans made between July 1, 1998, and June 30, 2006, have variable interest rates that change annually on July 1, according to a formula set by Congress that is based on the results of the latest Treasury Bill (T-Bill) auction in May.
What is interest capitalization?
Capitalization is a process where unpaid interest is added to the principal balance of your loan. Depending on your loan, interest may capitalize annually, quarterly, at repayment or at other times such as when deferment or forbearance is used. Please review your promissory note or credit agreement for specific details on your loan.
Unpaid interest that is capitalized increases the principal balance. Each time interest is capitalized, the principal balance increases. Because the principal balance is larger, more interest then accrues each day. This can make your loan balance more than the amount you originally borrowed.
How can I reduce interest capitalization?
Interest that accrues during periods of assistance, like deferment or forbearance, capitalizes at the end of the assistance period. Aspire Servicing Center sends you periodic interest statements when regular monthly payments are not required, and you may pay the accrued interest before the end of the assistance period to reduce the amount of interest that capitalizes.
Why did the loan amount increase from what was originally borrowed?
Most student loans do not require payments while you are enrolled in school at least half time and for a short period of time after you leave school or drop below half-time enrollment. However, interest continues to accrue daily on student loans during this in-school deferment and subsequent grace or separation period. If you do not make any payments to cover accruing interest during these periods, it may be capitalized, or added to your principal balance, when the deferment and grace or separation periods end.
As you continue in your repayment period, if your payments are not enough to cover accruing interest, that interest is also capitalized at certain times according to the terms you agreed to when you took out the loan. Outstanding (unpaid accrued) interest may capitalize at certain intervals, such as annually or quarterly, on private student loans. It may also capitalize at the end of any assistance period, such as deferment or forbearance, on private and federal loans. See how to avoid this interest capitalization in the answers above.
Can payments be postponed?
You may qualify for deferment or forbearance on your federal student loan to postpone payment on those loans. Deferment is also a limited option for private loans serviced by Aspire Servicing Center. You must call Aspire Servicing Center to learn more about deferring payments on private student loans.
Remember that interest accrues daily on student loans. Interest that is not paid during a deferment or forbearance period will capitalize, or be added to the principal balance of your loans, at the end of the deferment or forbearance. This can increase your loan balance to more than the amount you originally borrowed. The government pays accruing interest on subsidized federal loans during qualifying deferments. You are responsible for interest that accrues on unsubsidized federal loans or private student loans during deferment and interest that accrues on any student loan during forbearance.
Deferring payments for an extended period of time may substantially increase your loan balance. We strongly encourage you to make payments that at least cover your accrued interest to avoid increases in your loan balance.