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Step 2: Know the Relative Cost of Your Student Loans

Step 1: Know what you borrowed, from whom you borrowed, and who services the loans.

Step 2: Know the "relative cost" of your student loans.

Step 3: Know your grace periods, deferment options, and forbearance options.

Step 4: Know your "decision points" and keep a calendar.

Step 5: Run the numbers before choosing a repayment option of consolidating your student loans.

Step 6: Commit to keeping good records.

Step 7: Keep a budget and know when you need the help of a financial professional.

Step 8: Know and use your support systems.

Topics in this Section

Interest Rates
- Stafford Loans
- Federal Perkins Loans
- Primary Care Loans (PCL) and Loans for Disadvantaged Students (LDS)
- Health Professions Student Loans (HPSL)
- Private Loans
- HEAL Loans
- Institutional loans
Capitalization

Be sure you know whether your loans are subsidized or unsubsidized, the interest rates, and the capitalization terms. This could save you money, especially if you make voluntary payments or additional payments on your loans when they come due.

You will want to know which of your loans are the most expensive. In order to figure out which loans are more expensive you need to know at least two things: the interest rate on the loans and the capitalization policy on any unsubsidized loans in your portfolio.

Interest Rates

Some loans have variable interest rates, and others have fixed interest rates. In general, the following interest rates apply (please see the interest rate table on our site for rates on Federal Stafford Loans, including consolidation loans).

Stafford Loans

Variable interest rates are capped at 8.25%
Stafford Loans disbursed from July 1, 1995 up to and including June 30, 1998 carry an interest rate of the 91-Day T-Bill plus 2.5% during school, grace, and deferment, and the 91-Day T-Bill plus 3.1% during forbearance and "active repayment"
Stafford Loans disbursed from July 1, 1998 to June 30, 2006 carry an interest rate of the 91-Day T-Bill plus 1.7% during school, grace, and deferment, and the 91-Day T-Bill plus 2.3% during forbearance and "active repayment"
Stafford Loans disbursed on or after July 1, 2006 carry a fixed interest rate of 6.8% for the life of the loan.

Federal Perkins Loans

5% fixed throughout repayment

Primary Care Loans (PCL) and Loans for Disadvantaged Students (LDS)

5% fixed throughout repayment

Health Professions Student Loans (HPSL)

5% fixed throughout repayment (some older HPSLs have a 9% fixed rate, check your promissory note)

Private Loans

variable, tied or "indexed" to any number of government indices such as the 91-Day T-Bill and the Prime Rate
rates usually change quarterly
in general, no cap on the interest rate (these are considered loans of last resort)

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HEAL Loans

variable, tied or "indexed" to the 91-Day T-Bill
rates usually change quarterly
in general, no cap on the interest rate

Institutional loans

Check your promissory note or contact your medical school financial aid officer.

Capitalization

Knowing the interest rate is only part of knowing the "relative cost" of your student loans. You also need to know how accrued interest on your unsubsidized loans is capitalized. Capitalization refers to the practice by loan servicers (on behalf of the holder) of adding any accrued and unpaid interest to the principal of a borrower's loan, thereby increasing the loan balance and causing the principal to grow, sometimes significantly. In this way, the next time interest is charged by the servicer, it is being charged on a higher principal amount, resulting in the total balance of the loan growing at a faster rate. Capitalization policies vary by lender and loan program, and may be listed in the promissory note.

Please note the following carefully. In the lending industry, the term "repayment" actually refers to the day after a borrower's grace period expires. In fact, both deferment and forbearance are actually adjustments to and part of repayment, although they are not counted against the borrower's allowed repayment length (for example, deferment and forbearance do not count against or reduce the 10 years allowed on the Standard Repayment plan).

This is important to note because should you contact your loan servicer to ask when they capitalize interest (if you do not already know), they may tell you they do so "once at repayment". You may interpret this to mean when you are done with residency, or have exhausted any deferment and forbearance options and are ready to begin actively repaying your loans. However, they may actually mean that they plan to capitalize interest after grace, then again later following deferment periods. Just be sure you know, because if they do capitalize interest after grace, then again following deferment periods, the balance on your unsubsidized loans will grow much faster. Just remember, if your loan servicer indicates they capitalize "once at repayment", you may want to ask them how they actually define repayment.

Also note that it is not unusual for loan servicers to capitalize interest at the end of each forbearance period.

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