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It’s not just students who struggle with the concept of interest rates. Pretty much anyone that borrows money has questions about interest rate facts.

That doesn’t mean that you should just let it be, though. Interest rates are a crucial aspect to any loan, but they are especially important to students who have to borrow to pay for their education. Need proof? Watch the video.

The Other Kind of Principal

One thing briefly mentioned in the video is how the interest you accrue in school gets added onto the principal balance. And while many people understand how that leads to earning interest on your interest, we wanted to really hammer it home.

The amount of interest you have to pay on a loan depends on your principal balance, which is usually the amount you borrowed. So while you are busy paying off interest, you are paying off less of your principal balance to cover the cost of interest. This is one of the lesser discussed ‘interest rate facts.’

The only way to pay off more of your principal balance is to increase how much you are paying each month–you can’t choose to pay principal instead of interest just on a whim.

THAT is why it is important to pay off any interest you can while in college. It may not be a financial possibility for every student, but once you graduate that interest amount will be added to your principal balance.

Chipping away at interest may not feel like you’re doing a lot, but when it comes to student loans, every little bit counts.

Beyond Interest Rate Facts

Paying for college is much more complicated than just understanding how interest rates work. The good news is that this is just the beginning of our tips, advice and resources on how to pay for college.

Need help with something specific? Have an interesting fact or story to share with us? That’s the point of what we’re doing.

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