What students need to know about interest rates when borrowing
One interest rate is simple, or nominal, interest. It’s straightforward. If you borrow $1,000 at five percent simple interest per year, you’ll pay back $1,050. But many loans use an annual percentage rate (APR), not simple interest.
Let’s say you take out a $100,000 mortgage at five percent. However, your closing costs are $5,000, which is added to the amount of the mortgage. That means you’ll be paying interest on $105,000, an APR of 5.25 percent. Over the life of a mortgage, you’ll pay thousands more than you would with simple interest. Lenders are required to disclose the APR on any loans you take out.
KHEAA is a public, non-profit agency established in 1966 to improve students’ access to college. It provides information about financial aid and financial literacy at no cost to students and parents.
The agency also helps colleges manage their student loan default rates and verify information submitted on the FAFSA. For more information about those services, visit www.kheaa.com.
In addition, KHEAA disburses private Advantage Education Loans on behalf of its sister agency, KHESLC. For more information, visit www.advantageeducationloan.com.