KfW Student Loan: How It Works

Once you've signed this loan, you receive money every month over a fixed period. After the agreed loan amount has been paid out, you have to pause for at least six months before you can start repaying. Below, we explain what to look out for during the payout, grace and repayment periods. During the payout phase, the student receives a fixed installment from KfW every month. You can choose when the contract starts, and the monthly amount can be between 100 and 650 euros. If your financing needs change later, the installments can be adjusted on two dates each year (April 1 and October 1).

Financing through a KfW student loan is available for a first or second degree over 14 semesters. For a doctorate, it's six semesters. Unlike BAföG, for example, interest accrues immediately during the payout phase. Students can negotiate a deferral of interest payments if they can show a Vordiplom (intermediate diploma), an intermediate exam or at least 90 ECTS credits. After the loan amount has been paid out, students now have to wait at least 24 weeks before they can start repaying the loan. Repayment can be deferred by at most 23 months. The grace period takes the pressure off the student to find a job immediately after graduating. However, interest keeps accruing on the full loan amount during the grace period.

[caption id="attachment_542" align="alignright" width="476"]Financing your studies Loan for students[/caption]

The Repayment Phase of the KfW Student Loan

Over a period determined in advance, borrowers have to repay the loan plus interest monthly over a maximum of 25 years. You can make extra payments or pay off the entire loan early at any time without penalty. Unlike classic installment loans, there is no prepayment penalty here. At the start of the repayment phase, you have the option to lock in a fixed interest rate for up to ten years. If you're unsure about the installment amount, KfW's needs calculator for students is available. The interest rate on the KfW student loan has two special features. The rate on this KfW loan is variable and fluctuates over the term. It is tied to the rate at which banks lend money to each other for six months.

From the second installment on, KfW deducts interest immediately. Each payout is reduced by the interest owed. Only after the first proof of academic progress, an intermediate exam or 90 ECTS credits can students apply for a deferral of interest. The annual effective interest rate isn't the only factor in the total cost of a loan. What matters is the choice of grace and repayment periods as well as how interest rates develop. A student loan is only advisable if your studies can't be financed any other way, through private support or part-time jobs.