The amount you borrow is the smallest your student loan will ever be. What you repay depends on the rate, how long interest accrues before your first payment, and the term you repay over, and the gap between the two numbers is the real price of the degree.
How interest accrues
Interest is the price of borrowing, charged as a percentage of the principal you still owe. Federal Direct Loans accrue interest daily at a fixed rate; loans first disbursed between July 1, 2026 and June 30, 2027 carry 6.52% for undergraduates. The higher the balance and the rate, the faster it builds.
Timing is what surprises people. On a subsidized loan the Department of Education pays the interest while you are enrolled at least half-time and during the six-month grace period. On an unsubsidized or private loan interest accrues from the day the money is disbursed, through every semester, every summer and the grace period, before a single payment is due.
| Loan type | Interest in school and grace | Balance when repayment starts |
|---|---|---|
| Direct Subsidized | Paid by the Department | Equal to the amount borrowed |
| Direct Unsubsidized | Accrues to you | Larger than the amount borrowed |
| Private | Accrues to you, often compounding | Larger still |
Capitalization: interest that becomes principal
While you are not required to pay, unpaid interest builds up beside the loan. When you enter repayment, that accrued interest is capitalized: added to the principal. From then on interest is charged on the larger balance, which is compound interest working against you. The earlier capitalization happens and the more interest it folds in, the more the loan costs over its life.
The term sets the total
For loans made on or after July 1, 2026, the fixed-payment plan is Tiered Standard: a level payment over 10 years if your balance at repayment is under $25,000, 15 years from $25,000 to $49,999, 20 years from $50,000 to $99,999, and 25 years at $100,000 or more. A longer term lowers the payment and raises the total, because each payment covers that month's interest first and the rest goes to principal, the process called amortization. Every figure below uses 6.52% and the standard amortization formula.
| Balance at repayment | Term | Monthly payment | Total repaid | Interest |
|---|---|---|---|---|
| $15,000 | 10 years | $170.47 | $20,456.96 | $5,456.96 |
| $30,000 | 15 years | $261.66 | $47,099.19 | $17,099.19 |
| $30,000 paid off in 10 years | 10 years | $340.95 | $40,913.92 | $10,913.92 |
| $60,000 | 20 years | $448.05 | $107,532.15 | $47,532.15 |
| $100,000 | 25 years | $676.46 | $202,937.23 | $102,937.23 |
Read the two $30,000 rows together: paying $79 more a month on the 15-year tier ends the loan five years sooner and saves $6,185.27 in interest. You can pay more than the minimum on any federal loan; the loan payment calculator shows the effect of any extra amount, and the interest, APR and amortization lesson shows the formula line by line.
Borrowing against a starting salary
A widely used benchmark keeps your total borrowing at or below the first-year salary your field pays. At the Tiered Standard payment above, $27,000 of loans costs $249 a month for 15 years; on a $42,000 salary that is about 7% of gross pay, alongside rent, food and everything else. Look up starting pay for your intended field, put your projected balance beside it, and check the monthly figure against your take-home pay in the debt-to-income calculator.