# Student Loan Interest Calculator: Step by Step

Use this student loan interest calculator to understand how much you're really paying for college. If you have unsubsidized loans, interest starts building while you're still in school.
Written by Teddy Nykiel
Edited by Cecilia Clark
Assistant Assigning Editor
Fact Checked
Co-written by Eliza Haverstock

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If you take out student loans, interest will increase the total amount you'll pay for college. Interest accrues daily on federal student loans and most private student loans, and it's generally 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.

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## Student loan interest calculator

For a student loan in a normal repayment status, interest accrues daily but generally doesn’t compound daily. In other words, you pay the same amount of interest per day for each day of the payment period — you don’t pay interest on the interest accrued the previous day.

## How to calculate student loan interest

To see how to calculate student loan interest in practice, follow along with pen and paper using the example below. Not a math person? Our student loan interest calculator above can handle the work for you.

For this example, say you borrow \$27,000 at a 5.50% annual interest rate. On a 10-year standard repayment plan, your monthly payment would be about \$293.

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

.055/365 = 0.00015, or 0.015%

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

\$27,000 x 0.00015 = \$4.05

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

\$4.05 x 30 = \$121.50

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## Capitalization increases interest costs

In most cases, you’ll pay off all of the accrued interest each month. But there are a few scenarios in which unpaid interest builds up and is capitalized, or added to your principal loan balance. Capitalization causes you to pay interest on top of interest, increasing the total cost of the loan.

For federal direct student loans and FFELP loans managed by the Education Department, capitalization of unpaid interest occurs:

For FFELP loans not managed by the Education Department, capitalization of unpaid interest occurs:

• student loan deferment

• After a student loan forbearance on any type of loan.

• After a grace period on an unsubsidized loan.

• If you leave or lose income eligibility for an Income-Based-Repayment (IBR) plan.

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

• At the end of the grace period.

• After a period of deferment.

• After a period of forbearance.

To avoid interest capitalization, make interest-only student loan payments while you’re in school before you enter repayment and avoid entering deferment or forbearance.  If you’re on an IBR plan for federal student loans, remember to certify your income annually.

## Unsubsidized vs. subsidized loans: When do I start accruing interest?

For unsubsidized federal student loans and most private loans, interest starts accruing as soon as your loan is disbursed. In other words, interest builds while you're still in school.

However, subsidized federal student loans work differently. The government pays the interest that accrues while the borrower is in school, so borrowers generally don’t have to start paying interest on subsidized loans until after the six-month grace period ends. Subsidized loans are only available to students with financial need.

## How student loan payments are applied

Student loan servicers typically apply payments in the following order:

1. Outstanding fees

2. Outstanding interest

3. Loan principal

Using the previous example, with a \$293 monthly payment — and assuming no fees — \$121.50 would go toward interest and \$171.50 would go toward principal.

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