Student Loan Interest Calculator: Step-by-Step Instructions

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Learning how to calculate student loan interest will help you understand what you’re actually paying for college debt. Interest on federal student loans and many private student loans is calculated using a simple daily interest formula.

To calculate the amount of student loan interest that accrues monthly, find your daily interest rate and multiply it by the number of days since your last payment. Then multiply that by your loan balance.

How to Calculate Student Loan Interest

To see how to calculate student loan interest in practice, get out your pen and paper and follow the following example. You are not a mathematician? Our Student Loan Interest Calculator below does the math for you.

For this example, let’s say you borrow $10,000 at an annual interest rate of 7%. On a standard 10-year repayment plan, your monthly payment would be around $116.

1. Calculate your daily interest rate (sometimes called the interest rate factor). Divide your annual student loan interest rate by the number of days in the year.

0.07/365 = 0.00019 or 0.019%

2. Calculate the amount of interest your loan accrues per day. Multiply your outstanding loan balance by your daily interest rate.

$10,000 x 0.00019 = $1.90

3. Find your monthly interest payment. Multiply your daily interest amount by the number of days since your last payment.

For a student loan in a normal repayment state, interest accrues daily but is generally not compounded daily. In other words, you pay the same amount of interest per day for each day of the payment period — you pay no interest on interest accrued the previous day.

Student loan interest calculator

Compounding increases interest costs

In most cases, you will repay all accrued interest each month. But there are a few scenarios where unpaid interest accumulates and is In capital letters, or added to the principal balance of your loan. Compounding makes you pay interest on top of the interest, which increases the total cost of the loan.

For federal student loans, capitalization of unpaid interest occurs:

  • When the grace period ends on an unsubsidized loan.

  • After a period of abstention.

  • After a suspension period, for unsubsidized loans.

  • If you leave the revised Pay as You Earn (REPAYE), Pay as You Earn (PAYE) or Income-Based-Repayment (IBR) plan.

  • If you do not recertify your income each year for the REPAYE, PAYE and IBR plans.

  • If you are no longer eligible to make earnings-based payments under PAYE or IBR.

  • Annually, if you are on the Income Contingent Reimbursement (ICR) plan.

For private student loans, interest capitalization typically occurs in the following situations, but check with your lender to confirm.

  • At the end of the grace period.

  • After a period of adjournment.

  • After a period of abstention.

To avoid interest capitalization, make interest-only student loan repayments while you are in school before entering reimbursement and avoid entering deferment or abstention. If you are on an income-based repayment plan for federal student loans, remember to certify your income each year.

When do I start earning interest?

Interest on student loans generally accrues daily, as soon as your loan is disbursed. In other words, student loans generally accrue interest while you are in school.

Subsidized federal loans are the exception – the government pays accrued interest while the borrower is in school, so borrowers generally do not have to start paying interest on subsidized loans until the end of the term. six-month grace period.

How student loan repayments are applied

Student loan servicers typically apply payments in the following order:

Using the previous example, with a monthly payment of $116 – and assuming there are no fees – $57 would go towards interest and $59 would go towards principal.

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