Daily interest
Federal Direct Loans charge interest every day. StudentAid.gov gives the formula: outstanding principal × the interest rate factor × days since your last payment, where the factor is your rate divided by 365.25.
For 2026–27, new loans are fixed at 6.52% for undergraduates, 8.07% for graduate unsubsidized loans and 9.07% for PLUS loans. Fixed means the rate stays the same for the life of that loan.
Where your payment goes
On most plans, a payment covers fees and collection costs first, then interest, then principal. On IBR and RAP the order is interest, then fees, then principal (34 CFR 685.211).
When unpaid interest is added to the balance
Adding unpaid interest to principal is called capitalization. After that, interest is charged on the larger balance.
- After a deferment ends on an unsubsidized loan, unpaid interest is capitalized (34 CFR 685.202).
- On IBR, unpaid interest is capitalized when you leave the plan, or when your payment reaches the plan’s cap (34 CFR 685.209).
- On RAP, unpaid interest in a month you pay on time and in full is waived instead of being added.
What each plan does with interest your payment doesn’t cover
| Plan | Unpaid interest |
|---|---|
| Standard, Tiered Standard | Doesn’t happen: the payment covers each month’s interest |
| RAP | Waived in on-time, full months |
| IBR | Builds up; on subsidized loans, waived for the first three years |
| ICR | Charged to you in full |
The student loan calculator shows how much of a fixed payment goes to interest each year.
Not financial or legal advice. This page explains the published rules. It does not tell you which plan to choose. Your loan servicer and StudentAid.gov have the final word on your account.
Official sources
- StudentAid.gov: Interest Rates and Fees for Federal Student Loans
- 34 CFR 685.202, interest and capitalization (current eCFR)
- 34 CFR 685.209, income-driven repayment plans (current eCFR, as amended May 1, 2026)
- 34 CFR 685.211, payment application, prepayment and loan rehabilitation (current eCFR)
Last verified Oct 17, 2026. Corrections are logged on What changed.
Next guide: Paying extra on federal student loans: what happens to the money