Student Loan Interest Calculator
Understand exactly how much interest you're paying on your student loans. Calculate daily accrual, see the impact of capitalization, and discover strategies to minimize your interest costs.
Interest Calculator
Loan Details
Deferment Period (Optional)
For unsubsidized loans during school
Typically 6 months after graduation
Interest Capitalization Alert
$813.70 in interest will accrue during your deferment period and capitalize (be added to your principal) when repayment begins.
This increases your loan balance from $30,000 to $30,813.699, causing you to pay interest on the capitalized amount.
Total Loan Cost Breakdown
Detailed Cost Breakdown
Interest Accrual Over Time
Savings if You Pay Interest During Deferment
You save $813.70 by paying interest during deferment!
How Student Loan Interest Works
Student loan interest is the cost you pay to borrow money for your education. Understanding how interest accrues and compounds is critical to making informed decisions about your loans and potentially saving thousands of dollars over time.
Interest on student loans typically accrues daily based on your outstanding principal balance and your annual interest rate. The more you understand about how this works, the better equipped you'll be to minimize your total costs.
Key Interest Concepts
Daily Interest Accrual
Interest accrues on your loan every single day, even when you're not making payments. The daily interest amount is calculated as:
For example, a $30,000 loan at 6% interest accrues about $4.93 per day ($30,000 × 0.06 ÷ 365).
Simple vs Compound Interest
Simple Interest: Calculated only on the original principal balance.
Compound Interest: Calculated on principal plus accumulated unpaid interest (capitalization).
Most student loans use simple daily interest, but unpaid interest can capitalize at certain times, effectively turning it into compound interest.
Interest Capitalization
Capitalization occurs when unpaid interest is added to your principal balance. This increases your loan balance and causes you to pay "interest on interest."
Common capitalization events: End of grace period, leaving deferment/forbearance, leaving income-driven repayment, or defaulting on your loan.
Subsidized vs Unsubsidized
Subsidized loans: Government pays interest while you're in school (at least half-time), during grace period, and deferment periods.
Unsubsidized loans: Interest accrues from the day funds are disbursed, even while you're in school.
Fixed vs Variable Rates
Fixed rates: Stay the same for the life of the loan, providing payment predictability.
Variable rates: Can change based on market indices, potentially increasing or decreasing your payments over time.
Payment Application Order
When you make a payment, it's typically applied in this order:
- Outstanding fees and charges
- Accrued interest
- Principal balance
When Interest Accrues on Federal Loans
| Loan Status | Subsidized Loans | Unsubsidized Loans |
|---|---|---|
| In School (at least half-time) | No interest accrues | Interest accrues |
| Grace Period (6 months after graduation) | No interest accrues | Interest accrues |
| Deferment | No interest accrues | Interest accrues |
| Forbearance | Interest accrues | Interest accrues |
| Repayment | Interest accrues | Interest accrues |
The True Cost of Interest: Real Examples
Example 1: Bachelor's Degree Loan
Loan Details:
- • Principal: $30,000
- • Interest Rate: 5.5%
- • Term: 10 years (standard)
Results:
- • Monthly Payment: $326
- • Total Paid: $39,121
- • Total Interest: $9,121 (30% of principal!)
Example 2: Graduate School Loan
Loan Details:
- • Principal: $80,000
- • Interest Rate: 7.0%
- • Term: 20 years (extended)
Results:
- • Monthly Payment: $620
- • Total Paid: $148,761
- • Total Interest: $68,761 (86% of principal!)
Example 3: Medical School Loan
Loan Details:
- • Principal: $200,000
- • Interest Rate: 6.8%
- • Term: 25 years
Results:
- • Monthly Payment: $1,386
- • Total Paid: $415,757
- • Total Interest: $215,757 (108% of principal!)
Key Takeaway
The longer your repayment term and the higher your interest rate, the more you'll pay in total interest. In some cases, you can end up paying more in interest than the original amount you borrowed! Understanding these costs is the first step to minimizing them.
Strategies to Minimize Interest Costs
1. Pay Interest While in School
For unsubsidized loans, interest starts accruing immediately. If possible, make interest-only payments while in school to prevent capitalization.
Example: On a $20,000 unsubsidized loan at 6%, paying $100/month in interest during 4 years of school prevents $4,800 in interest capitalization.
2. Make Extra Principal Payments
Any payment that reduces your principal balance also reduces the amount of interest that accrues each day. Even small extra payments compound over time.
Example: Adding $50/month to a $30,000 loan at 6% saves $2,011 in interest and pays off 20 months early.
3. Choose the Shortest Term You Can Afford
Shorter repayment terms mean higher monthly payments but dramatically less total interest paid over the life of the loan.
Example: A $40,000 loan at 6% costs $13,310 in interest over 10 years vs $26,581 over 20 years - a $13,271 difference!
4. Refinance to Lower Interest Rates
If you have good credit and stable income, refinancing can significantly reduce your interest rate. Just be aware you'll lose federal loan protections.
Example: Refinancing a $50,000 loan from 7% to 4.5% saves over $9,000 in interest on a 10-year term.
5. Make Bi-Weekly Payments
Paying half your monthly payment every two weeks results in 26 half-payments (13 full payments) per year instead of 12, reducing principal faster.
Example: This strategy on a $30,000 loan at 6% saves $1,450 in interest and pays off 18 months early.
6. Avoid Capitalization Events
Try to avoid leaving deferment, forbearance, or changing repayment plans unnecessarily, as these trigger interest capitalization.
Example: $10,000 in accrued interest that capitalizes becomes part of your principal, increasing future interest charges.
7. Set Up Autopay for Rate Discounts
Many lenders offer a 0.25% interest rate reduction for enrolling in automatic payments. This may seem small but adds up over time.
Example: A 0.25% reduction on a $40,000 loan saves approximately $500 over 10 years.
Interest During Different Loan Phases
In-School Period
For unsubsidized and private loans, interest accrues from day one. A $25,000 loan at 6% accrues about $1,500 per year. Over 4 years of school, that's $6,000+ in interest before you even graduate.
Action: If possible, make interest-only payments ($125/month on this example) to prevent this interest from capitalizing.
Grace Period (6 months post-graduation)
Interest continues to accrue on unsubsidized and private loans during the grace period. This 6-month period adds another $750 to the above example.
Action: Start making payments during grace period if possible, or at least make interest-only payments.
Repayment Period
Interest accrues daily on all loans in repayment. Each payment covers accrued interest first, then principal. The more principal you pay down, the less future interest you'll owe.
Action: Make extra principal payments whenever possible to reduce the balance generating daily interest.
Deferment and Forbearance
Interest accrues on most loans during deferment and all loans during forbearance. When these periods end, unpaid interest typically capitalizes, increasing your principal balance.
Action: Use deferment/forbearance only as a last resort. If you must use them, try to at least pay the interest.
Frequently Asked Questions
How is student loan interest calculated?
Student loan interest is typically calculated using simple daily interest. The formula is: (Outstanding Principal × Annual Interest Rate) ÷ 365 = Daily Interest. This amount accrues every day until you make a payment.
Is student loan interest tax deductible?
Yes, you can deduct up to $2,500 of student loan interest paid per year on your federal tax return, subject to income limitations. This deduction is available even if you don't itemize deductions. The deduction phases out for higher incomes.
What happens to interest when I consolidate loans?
When you consolidate federal loans, any outstanding accrued interest is capitalized (added to your principal). The new interest rate is the weighted average of your old rates, rounded up to the nearest 1/8th of a percent. Private loan consolidation (refinancing) may offer lower rates.
Can I pay just the interest on my loans?
Yes, you can make interest-only payments at any time, especially during school, grace periods, or deferment. This prevents interest from capitalizing and increasing your principal balance. Contact your loan servicer to ensure payments are applied correctly.
What is capitalized interest and why is it bad?
Capitalized interest is unpaid interest that gets added to your principal balance. This is problematic because you then pay interest on the capitalized interest (interest on interest), significantly increasing your total loan cost over time.
Take Control of Your Student Loan Interest
Understanding interest is just the beginning. Use our other tools to create a complete repayment strategy.