Annual Percentage Rate

Annual Percentage Rate, or APR, is the total cost of your loan at a yearly rate, incorporating the variable interest rate, supplemental fee, and accrued interest.

Variable interest rate:
Rate used by lenders to calculate a borrower’s monthly payments.
Supplemental fee:
Fee assigned by lenders to cover the risk of lending unsecured money.
Accrued Interest:
Interest that builds up while a student is deferring his or her payments. Since the student does not make any interest payments while the loan is in deferment, interest accrues and is added onto the loan amount.

Questions & Answers on APR

Is APR used to calculate monthly payments on a loan?

APR is not used to calculate monthly interest payments. The Variable Interest Rate is used to calculate monthly interest payments.

Why is APR higher than the Variable Interest Rate?

APR is higher than the Variable Interest Rate because it incorporates variable interest rate, supplemental fee, and accrued interest.  If an applicant did not choose the deferment option and had a 0% supplemental fee, APR would be identical to the Variable Interest Rate.

Why would the exact same applicant have a higher or lower APR according to the amount of years they choose to pay back the loan?

The shorter the term of the loan the higher the APR. This is because an applicant is taking less time to pay back the supplemental fee and accrued interest (which are the two factors that make APR differ from the variable interest rate).

Example

An applicant has been approved for a loan of $1,000 with a 5% supplemental fee ($50).

If the applicant selects to pay the loan off in 2 years he/she will pay $25 per year to pay off the $50 supplemental fee ($50/2 years). If the applicant selects to pay off the loan in 5 years he/she will pay only 10 dollars a year to pay off the supplemental fee ($50/5 years). 

Since APR is the annual cost of credit, the APR will be higher on the 2-year loan because they are paying more money yearly to pay off their additional fees

Why would the exact same applicant have a higher or lower APR depending on if they choose to defer their payments or if they choose to begin repayment immediately on the loan?

When a student selects to defer their payments he/she is choosing to postpone payments until up to 6 months after finishing training.  If training takes 6 months, the interest that accrues during this period is added on to the loan amount.  This increases their loan amount, which results in a higher APR.