If you need to take out a $10,000 student loan 2 years before graduating, which loan option will result in the lowest overall cost to you: a subsidized loan with 6.7% interest for 10 years, a federal unsubsidized loan with 5.9% interest for 10 years, or a private loan with 7.0% interest and a term of 15 years? How much would you save over the other options? All payments are deferred for 6 months after graduation and the interest is capitalized.

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.