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Interest FAQ

The Higher Education Reconciliation Act of 2005 (HERA) changed some of the terms of federal Stafford, PLUS, and consolidation loans made under the Federal Family Education Loan Program (FFELP).Those program details now differ from information you received if you originally applied for the loan(s) before 2005.

Read additional information about HERA.

How does interest accrue on my student loan?

Interest accrues on your loan(s) every single day, even if your account is not in repayment. Learn more.

Why do interest rates change?

Government regulations dictate that federal loans have variable interest rates that change every year on July 1. The government uses the 91-day Treasury bill (or T-bill), specifically the May T-bill, to set the rate for the entire year.

Most alternative (private) student loans have variable interest rates that may change monthly or quarterly in accordance with the terms of your promissory note. Some alternative loans have fixed interest rates. Please refer to your loan's promissory note for specifics on how your interest rate is calculated and how often it will change.

View current interest rates for federal loans.

How are interest rates calculated?

Federal loans
While you are in school, interest accrues at a rate based on the 91-day Treasury bill (T-bill) plus 1.7%.
Once you are out of school, interest accrues at a rate based on the same T-bill plus 2.3%.

Federal PLUS loans
Borrowers pay the rate on that 91-day T-bill plus 3.1%.

If you'd like help calculating your interest rate, try our Interest Savings Calculator.

How will I know if my interest rate increases?

We will send you written notification before July 31. This written notification may be in the form of a letter or a change in the interest rate on your monthly billing statement.

You can also access detailed information about your loans via Account Access, our secure website. If you do not have an online account, please sign up. It's fast, easy, and FREE!

If my interest rate increases, will my payment increase?

Installment amounts, or monthly payments, for student loans usually only change to ensure that a loan will be paid off within the allotted loan term.

Federal loans have a loan term of 120 months, or 10 years. If the interest rate increases and calculations show that your current monthly payment does not allow for you to repay your loan within that time frame, your monthly payment may increase.

If calculations prove that you can repay your loan within the allotted term, your monthly payment will not change.

What can I do if my payments increase and I can't afford them?
Does an interest rate increase affect my Direct Debit interest rate reduction?

If you have a variable interest rate loan and the interest rate increases on July 1, you will continue to receive the interest rate reduction. The reduction is based on the NEW rate.

The following example is based on a variable rate federal loan:


Interest Rate Interest Rate Reduction Your Reduced Rate
3.42% 1% 2.42%


Interest Rate Rate Increase New Rate Interest Rate Reduction Your Reduced Rate
3.42% 1.7% 5.12% 1% 4.12%

Does an interest rate increase affect my paid ahead status?

If your account is paid ahead, the amount you have paid on your loan exceeds the amount expected, according to your repayment schedule.

If you pay ahead regularly, you should see no change in your monthly payment amount even if there is an increase in your interest rate. If, instead, you skip a payment or two because you have paid ahead, then you will probably see a change in your monthly payment amount when the accrued interest reaches a point where it "catches up" to your payments.

Once the payments and interest catch up to one another, we will recalculate your repayment schedule to make sure your monthly payment amount will indeed repay your loan(s) within the allotted term.

If you are paid ahead through October 10, we will recalculate your monthly payment before its due date on November 10. We look at the number of payments you have left vs. your monthly payment amount to determine if you can still repay your loan in the time allowed. If you can do this, there will likely be no change in your payment amount. If you will not be able to pay off your loan, your payment amount will change by the November 10 due date.

(If you are only partially paid ahead for the October due date, you will receive a bill for the partial amount that remains due before we recalculate your payment for the November due date.)

Please note: Even when you are paid ahead, you will receive a bill showing you owe $0 or a partial payment depending on how far ahead you have paid.

Does an interest rate increase affect my Direct Debit service?

AES makes every effort to avoid any interruption in Direct Debit.

We recalculate your monthly payment and repayment schedule any time there is a change in the interest rate. If the change in interest rate affects your monthly payment, you may receive a bill notifying you that we will not withdraw your next payment through Direct Debit, meaning you will have to pay using another method. You can still make an online payment via Account Access, our secure website. Or you can mail a check for the new payment amount. Your Direct Debit will resume by the next due date unless you submit a written request to discontinue Direct Debit.

What happens if I have loans with both fixed and variable interest rates?

Having loans with both fixed and variable interest rates may affect your monthly payment amount.

Fixed interest rate loans have the same monthly payment amount until you pay off the loans in full. (Be aware that capitalization of interest may increase your monthly payment.)

The monthly payment amount on variable interest rate loans, however, may change every July 1 due to possible interest rate increases or decreases. If the interest rate increases, it may increase your monthly payment amount, whereas if the interest rate decreases, you may be able to pay off your loan(s) earlier than anticipated.