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When you borrow for school, you end up paying back more money than the actual amount initially borrowed. Why? Because lenders charge interest when you borrow money. The higher the interest rate, the more you’ll have to pay — and the more difficult student loan repayment becomes.

Comparison shopping to find loans offering the best student loan interest rates is important. We’ll help you get started with some key information about how student loan interest works.

We’ll also help you figure out the federal student loan interest rate and private student loan rates so that you’ll have a better idea of what you may need to pay when you borrow for school.

Understanding the federal student loan interest rate

The federal student loan interest rate is set by the government. The rates are standardized — meaning that everyone who is eligible pays the same interest rate — but they can change from year to year. In fact, rates went up in 2018, so students borrowing for the 2018-19 academic year will pay more than those who borrowed last year.

Rates have gone up and down on federal student loans, so it’s important to know the interest charge before borrowing. This table shows how interest rates have fluctuated over the past five years for different types of federal student loans.

Type of Loan Direct Subsidized Loans Direct Unsubsidized Loans for Undergrads Direct Unsubsidized Loans for Grad Students Direct PLUS Loans
Who’s the loan for? Undergrads with demonstrated financial need Undergrads regardless of need Grad students regardless of need Grad students or parents of dependent undergrads
Interest rates for 2014-15 4.66% 4.66% 6.21% 7.21%
Interest rates for 2015-16 4.29% 4.29% 5.84% 6.84%
Interest rates for 2016-17 3.76% 3.76% 5.31% 6.31%
Interest rates for 2017-18 4.45% 4.45% 6.00% 7.00%
Interest rates for 2018-19 5.05% 5.05% 6.60% 7.60%

SNote: New rates take effect July 1 of each year.

Those interest rates can cause your loans to balloon. For example, if you had the average student loan balance of $39,400 with a 5.05% interest rate and a $419 monthly payment, you’d pay over $10,000 in interest fees over 10 years. In total, you’d pay back more than $50,000.

But there are ways to save money on interest, including refinancing student loans to a lower rate or paying off your loans more quickly.

Once you fully understand how student loan interest rates work, you can create a plan that works for your finances and helps you pay less interest over time.

Understanding private student loan rates

While federal student loan rates are standardized by the government, there is much more variation in private student loan rates since lenders can decide how much interest to charge borrowers.

It’s important to shop around among private student loan providers to compare interest charges and find the best student loan rates. As of Sept. 19, 2018, rates from top lenders vary between 3.69% and 12.99%, but rates fluctuate and your credit score and other factors affect the interest you’ll pay.

At first glance, these private student loans might seem tempting since they can start at lower interest rates than federal ones. But it’s harder to qualify for these low rates, and these loans might carry more risk than federal student loans.

That’s because federal student loans come with protections such as access to income-driven repayment (IDR) plans, forbearance and deferment, and even student loan forgiveness options. With private loans, you don’t have access to perks such as IDR plans or forgiveness.

But private student loans can be a useful tool. If you exhaust all your federal student loan options and still need more money to complete your degree, private loans can help fill the gap so that you can finish school.

Your loan term affects the amount of student loan interest you pay

Your interest rate is one of the major factors determining how much you pay back on your federal or private student loans. But the length of time you take to repay your loan also makes a big impact.

While repaying your loan over a longer time allows you to have lower monthly payments, this approach means you’ll pay much more in interest. You can use our student loan comparison calculator to see how loan terms affect the total amount you’d pay. We’ve done this for you below with a $28,000 loan at 5% interest to showcase how much repayment periods matter.

As you can see, the longer you hold the loan, the more it’ll cost. Although the five-year plan comes with much higher monthly payments, following the 25-year plan will cost you $17,402 extra in the end.

How to reduce the student loan interest you pay

Because student loan interest charges can add so much to your educational costs, it’s a good idea to explore options to reduce your expenses. Following these steps can help you save money.

1. Before you borrow: Apply for scholarships and grants

One of the best things you can do is to apply for grants and scholarships. Unlike student loans, which you have to repay, scholarships and grants are free money that you don’t have to pay back. Plus, you can apply for and receive multiple grants and scholarships, lowering how much you need to borrow in student loans.

Devote an hour or two every week to finding grants and scholarships and applying. You can also meet with your college’s financial aid office to see if there are institutional aid programs for which you qualify.

2. Once you borrow: Try to boost your income to pay your loans down faster

Besides scholarships, launching a high-paying college side hustle can make a huge difference in reducing your reliance on student loans.

And if you’ve already graduated, you can also look into side hustle opportunities that you can do while working full time. If you apply all the extra income straight to your loans, you can really get ahead on repayment. Our extra payment calculator shows how much of an impact these extra payments make.

3. Once you’re stable: Refinance your student loans

Once you graduate, refinancing your student loans can be a great option for lowering your interest rates.

When you refinance your loans, you can take out a new loan with completely different repayment terms. You could qualify for a loan with a lower interest rate, different repayment period, and even a lower monthly payment.

Refinancing does have some drawbacks to keep in mind. For example, if you refinance federal loans, you’ll lose out on access to IDR plans and loan forgiveness. You also won’t get borrower protections such as the ability to defer loan payments.

But if you’re focused on become debt-free as quickly as possible, refinancing with a lower-interest loan can help you pay off your loan ahead of schedule.

Understanding how student loan interest works helps you make smart choices

For new and current borrowers alike, student loan interest rates can be extremely frustrating. After all, it’s bad enough to enter adulthood with tens of thousands of dollars in debt, much less to have to pay interest on it.

But now that you what factors determine the interest you pay, you can make smart choices for dealing with your debt.

Shannon Insler contributed to this post.