How the Student Loan Calculator Works
A student loan is money you borrow to pay for school, and repay later with interest. Two things make it different from many other loans. Interest can start to build up while you are still studying, and repayment often starts months or years after you borrow. The Student Loan Calculator shows your monthly payment and the total cost, and it shows what happens to the interest that builds up in school.
What you enter
- Loan balance: the total amount you borrowed.
- Interest rate: the yearly rate on the loan. Federal loan rates are set each year, and private loan rates depend on the lender. Check your loan papers for the exact rate.
- Repayment term: the number of years you will take to repay. The standard plan for federal loans is 10 years. Longer plans have lower payments.
- Years still in school (optional): if the interest is not paid while you study, it builds up, and it is added to the balance when repayment starts.
- Extra payment each month (optional): an amount you add to every payment, which goes to the loan balance.
How the results are worked out
If interest builds up in school, the calculator first adds it to the balance. Then the monthly payment is worked out with the standard loan formula. Here r is the monthly rate (the yearly rate divided by 12) and n is the number of monthly payments:
interest in school = balance x yearly rate x years in school balance at repayment = balance + interest in school payment = balance at repayment x r / (1 - (1 + r)^-n)
Each month, the interest is the balance times r, and the rest of your payment reduces the balance. Early payments are mostly interest.
A worked example
You owe $35,000 at 6.5%, and you repay it over 10 years, starting right away.
| Result | Amount |
|---|---|
| Monthly payment (120 payments) | $397.42 |
| Total interest | $12,690.15 |
| Total you repay | $47,690.15 |
| Interest in the first year | $2,199.34 |
Of the $47,690 you repay, about 27% is interest.
How the balance falls
Start ████████████████████████████████████████ $35,000 Year 2 ██████████████████████████████████ $29,689 Year 4 ███████████████████████████ $23,642 Year 6 ███████████████████ $16,758 Year 8 ██████████ $8,921 Year 10 $0
The balance falls slowly at first, and faster later, because more of each payment goes to principal as the interest shrinks. After 4 years you have repaid only about a third of the loan.
The effect of the repayment term
A longer term lowers the payment, but you pay much more interest. The same $35,000 at 6.5%:
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 10 years | $397.42 | $12,690 | $47,690 |
| 15 years | $304.89 | $19,880 | $54,880 |
| 20 years | $260.95 | $27,628 | $62,628 |
| 25 years | $236.32 | $35,897 | $70,897 |
Chart: what you repay, by term
The green part is the $35,000 you borrowed. The amber part is the interest.
10 years █████████████████████████████████████████ $47,690 15 years ███████████████████████████████████████████████ $54,880 20 years █████████████████████████████████████████████████████ $62,628 25 years ████████████████████████████████████████████████████████████ $70,897
Going from 10 to 25 years cuts the payment by $161 a month, but it more than doubles the total interest.
The effect of the interest rate
The same $35,000 over 10 years at different rates:
| Rate | Monthly payment | Total interest |
|---|---|---|
| 4.5% | $362.73 | $8,528 |
| 5.5% | $379.84 | $10,581 |
| 6.5% | $397.42 | $12,690 |
| 7.5% | $415.46 | $14,855 |
| 8.5% | $433.95 | $17,074 |
Interest that builds up in school
Many student loans, such as unsubsidized federal loans and private loans, charge interest while you study. If you do not pay it, it is added to your balance when repayment starts. This is called capitalization, and after that you pay interest on the interest. Take the example above, but with 4 years in school, and the loan at $35,000 the whole time:
- The interest that builds up is about $35,000 x 6.5% x 4 = $9,100.
- Your balance at the start of repayment is $44,100.
- Your payment over 10 years is $500.75, which is $103 a month more.
- The total interest is $25,090, which is the $9,100 from school plus $15,990 during repayment.
If you paid the interest as it built up, which is $189.58 a month, you would pay $21,790 in total interest, not $25,090. That is $3,300 less, and the balance would stay at $35,000.
Repay right away (no school) ████████████████████ $12,690 Pay the interest in school ███████████████████████████████████ $21,790 Let the interest add up ████████████████████████████████████████ $25,090
The amber bars are the total interest, and the red bar is the most expensive choice. Note that the first bar has no school years, so it is only a comparison.
The effect of an extra payment
In the first example, adding $100 to every payment:
| Result | No extra | $100 extra |
|---|---|---|
| Paid off in | 120 months | 89 months |
| Total interest | $12,690 | $9,186 |
The extra $100 saves $3,504 in interest, and finishes the loan 31 months early.
Tips
- Pay the interest while you study, if you can. Even small payments stop the balance from growing.
- Pay extra on the loan with the highest rate first. It saves the most money.
- Tell your lender that extra payments are for the principal. Otherwise they may be applied to the next payment.
- Choose the shortest term that you can afford. A longer term feels easier now, but costs much more.
- Look at your options for federal loans, such as income-driven plans, deferment and forgiveness programs. They can lower your payment, and the rules change from time to time.
What this calculator does not include
- Income-driven repayment plans, where the payment depends on your income, and loan forgiveness.
- Loans with a rate that changes, and loan fees that are added to the balance.
- The exact interest on each loan, which depends on the day it was paid out. The in-school interest here is an estimate.
- A rate discount for automatic payments, and tax benefits such as the student loan interest deduction.
This tool gives an estimate for general information only. It is not financial advice. Your loan servicer sets the real balance, rate and payment.