# Are school loans charged interest compounded?

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Video answer: Educationloan #interestrate: simple or compound?

## Top best answers to the question Â«Are school loans charged interest compoundedÂ»

- Student loans are simple interest because interest is only charged on the amount that you borrowed, i.e. it is charged on the original $5,000 you borrowed. If student loans were compounding interest, then the interest would be charged on the full amount you owe.

Video answer: Why student loans get bigger, compound interest in two minutesâ€¦

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A Compound interest levied on your education loan amount means that additional interest will be charged on your accumulated interest amount and the principal amount. So, compound Interest = Interest on (Principal amount + Accumulated interest amount). Letâ€™s try to understand this concept in terms of the same example as above.

This is not true. Any interest accrued and not paid in full each month is added to the principal balance of your loans, therefore the interest IS compounded more similar to a credit card.

In most circumstances the interest on student loans is charged as compound interest. But in some cases it is charged as simple interest. With the federal government's Direct Loan program interest during a deferment or forbearance is capitalized once at the end of the deferment or forbearance period.