Why is the Amount the School Told me I Must Repay More than the Amount I Received?


Mainly because interest accumulates on your loan. Interest is a percentage of the original loan amount (the loan principal) thats added to what you have to pay. Its a charge for using borrowed money. Everyone has to pay interest, no matter what type of loan they have; education loans are no different. The interest rate for a Federal Perkins Loan is fixed at 5 percent. The interest rate for FFEL and Direct Loans is variable but does not exceed 8.25 percent. The rate is adjusted each year on July 1. Youll be notified of interest rate changes throughout the life of your FFEL or Direct Loan.

As mentioned earlier, if you received an unsubsidized Stafford Loan, interest starts accruing (accumulating) from the time the funds were disbursed to you, and youre responsible for paying that interest. You chose to either pay it while you were in school or let it accrue. If you let the interest accrue, it has been capitalized (that is, added to your principal balance). This means the total amount you repay will be greater than if you paid the interest all along.

Also, theres a fee charged for Federal Stafford and Direct loans of up to 4 percent of the loan. This fee is deducted proportionately from each loan disbursement you received. This means the loan amount you received was less than the amount you actually borrowed. Youre responsible for repaying the entire amount you borrow, however, not just the amount you received in loan disbursements.

And, the nicest thing is that, right now, the current interest rates are the lowest in the last few decades.