Perhaps you are a dental school graduate with large sums of debt and you find yourself with no choice but to enroll in an income-based repayment program for your federal student loans. In many cases this could cause your payment to drop from around $5,000 a month to under $1,000. The difference in your payment typically causes unpaid interest to accumulate separate from your outstanding principal (the amount you originally borrowed).
Your annual interest is based on your outstanding principal. So if you borrowed $450,000 of student loans and your interest rate is 6.5%, your annual interest is $29,250. If five years has gone by and you accumulated $100,000 in outstanding interest, you are still only being charged based on your original principal amount.