How To Calculate Monthly Student Loan Payments – If you’re a recent graduate or college dropout, you might be surprised how much of your monthly student loan payment goes toward just interest on your debt. To understand why this is the case, you must first understand how that interest is accrued and how it is applied to each payment. You can do this by doing the math yourself and digging deeper into your student loan balance and payments. To calculate student loan interest, calculate the daily interest rate, then identify the daily interest rate, then convert it to a monthly interest amount. From there, you’ll have a better understanding of what you’re paying each month.

Figuring out how lenders charge interest for a given billing cycle is actually quite simple. All you have to do is follow these three steps:

How To Calculate Monthly Student Loan Payments

How To Calculate Monthly Student Loan Payments

First, you take the annual interest rate on your loan and divide it by 365 to determine the amount of interest that accrues on a daily basis.

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Let’s say you owe $10,000 on a loan with 5% annual interest. You would divide that 5% rate by 365: 0.05 ÷ 365 = 0.000137 to get a daily interest rate of 0.000137.

Then multiply the daily interest rate in step 1 by the outstanding principal. Let’s use the $10,000 example again for this calculation: 0.000137 x $10,000 = $1.37

This $1.37 is the interest you are assessed each day, meaning you are charged $1.37 in interest on a daily basis.

Finally, you’ll need to multiply that daily interest amount by the number of days in your billing cycle. In this case, we’ll assume a 30-day cycle, so the amount of interest you’d pay for the month is $41.10 ($1.37 x 30). The total for a year would be $493.20.

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Interest starts accruing like this from the moment your loan is paid off unless you have a subsidized federal loan. In this case, you are not charged interest until the end of your grace period, which is six months after you leave school.

With unsubsidized loans, you can choose to pay off any accrued interest while you’re still in school. Otherwise, the accrued interest is capitalized, or added to the principal amount, upon graduation.

If you request and receive a forbearance—essentially, a break in your loan repayments, usually for about 12 months—keep in mind that while your payments may stop while you’re in repayment, interest will continue to accrue during that period and will eventually be attached to your principal amount. If you suffer economic hardship (which includes unemployment) and enter deferment, interest will only continue to accrue if you have an unsubsidized or PLUS loan from the government.

How To Calculate Monthly Student Loan Payments

Student loan repayments have been paused and interest has been set at 0% during the COVID-19 pandemic. This is still true as of February 2023, but may change when one of two things happens first: 60 days pass after the department is allowed to implement the student loan forgiveness plan or the litigation is resolved; or after June 30, 2023, 60 days have passed.

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The calculation above shows how to calculate your interest payments based on what is known as the simple daily interest formula; this is how the US Department of Education works on federal student loans. With this method, you only pay interest as a percentage of the principal balance.

However, some private loans use compound interest, which means that the daily interest is not multiplied by the principal amount at the beginning of the billing cycle – it is multiplied by the outstanding principal

So, on the second day of the billing cycle, you don’t apply the daily interest rate — 0.000137, in our case — to the $10,000 of principal you started the month with. Multiply the daily rate by the principal and interest amount that accrued the previous day: $1.37. It works well for the banks because, as you can imagine, they collect more interest when they bundle them this way.

The above calculation also assumes a fixed interest rate over the life of the loan, which you would have with a federal loan. However, some private loans come with variable rates, which may increase or decrease depending on market conditions. To determine your monthly interest payment for a given month, you would need to use the current rate you are being charged on the loan.

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Some personal loans use compound interest, which means that the daily interest rate is multiplied by the initial principal amount for the month plus

If you have a fixed-rate loan — either through the Federal Direct Loan Program or a private lender — you may find that your total monthly payment remains the same, even though the unpaid principal, and therefore the interest, decreases from one month to the next.

This is because these lenders amortize or spread the payments evenly over the repayment period. While the interest portion of the bill continues to decrease, the principal amount you pay each month increases by a corresponding amount. Consequently, the total bill remains the same.

How To Calculate Monthly Student Loan Payments

The government offers a number of income-based repayment options designed to reduce payment amounts at the start and gradually increase them as your wages increase. At first, you may find that you are not paying enough on your loan to cover the amount of interest that has accrued during the month. This is what is known as “negative depreciation”.

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With some plans, the government will pay all, or at least some, of the accrued interest that isn’t covered. However, with a conditional income repayment plan, unpaid interest is added to the principal amount each year. Note that it stops capitalizing when your outstanding loan amount is 10% more than the original loan amount.

The more money you pay toward just the principal on your student loans, the less interest you’ll pay over the life of the loan. However, this is not always feasible. If you can’t put extra money toward your student loans each month or year, you might want to see if you can refinance your student loans to get a lower interest rate.

Refinancing isn’t always ideal, as it could cause you to lose some of the protections offered by federal student loans. But, if you have private student loans, then refinancing could help you secure a lower interest rate. Consider the best student loan refinance companies and then decide what’s best for your financial situation.

Interest rates on federal student loans are set by federal law, not the US Department of Education. They are set based on the 10-year Treasury yield, plus an additional percentage.

Student Loan Interest Calculator: Estimate Payments

Depends. Consolidating loans can simplify your life, but you need to do it carefully to avoid losing the benefits you currently have on the loans you carry. The first step is to find out if you are eligible for consolidation. You must be enrolled in less than half-time status or not in school and currently making loan payments, or be in the loan grace period and not in default.

Yes. Individuals who meet certain criteria based on filing status, income level and amount of interest paid can deduct up to $2,500 from their taxable income each year.

Determining your student loan interest amount is a simple process—at least if you have a standard repayment plan and fixed interest rate. If you’re interested in reducing your total interest payments over the life of your loan, you can always check with your loan servicer to see how different repayment plans will affect your costs.

How To Calculate Monthly Student Loan Payments

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The offers that appear in this table are from compensated partnerships. This compensation may affect how and where ads appear. does not include all offers available on the market. Want to pay off your student loans faster? With our student loan repayment calculator, you can see how quickly you can be out of student debt!

This calculator doubles as a Student Loan Supplemental Payment Calculator, so you can see how long it will take you to pay off your student loans by adding supplemental payments, refinancing your student loans, or both!

What is your interest rate? (%) Enter the weighted average interest rate of all your current federal student loans.

Additional Payment Amount Enter any additional payments in addition to your current monthly payment. If you do not pay extra, put “0”.

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Would you like to see what happens if you refinance? Select “Yes” if you want to consider refinancing your student loans at a lower interest rate. If not, select “No”.

Interest rate you want to get by refinancing (%) Enter your desired interest rate if you are able to refinance your student loans. Note that this does not guarantee a rate. For currently available interest rates from lenders, see the table below.

Paying off your student loan debt as soon as possible can result in many benefits.

How To Calculate Monthly Student Loan Payments


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