Calculating Student Loan Interest

Your student loans accrue interest every day. The only exception to this is that Stafford subsidized loans do not accrue interest while you are on a deferment. For example, when you are on an in-school deferment any subsidized fund you have will not have any interest accruing.

Unsubsidized, PLUS and GradPLUS loans will all accrue daily interest at all times. At the end of any deferment or forbearance if this interest is not paid, the interest will become part of your principal balance.

If you want to know your daily interest, here's a simple formula to calculate it:

Principal balance x interest rate / 365.

That's your principal balance multiplied by your interest rate and divided by the number of days in the year. Viola! Your daily interest.

As your principal balance lowers, your daily interest will also lower. This is why there is no prepayment penalty on these loans - if you pay off your entire balance plus the amount of interest that you've accrued as of that day, you will not pay another dime for that loan.

Now to define some terms!

You will know which loans are "subsidized" and "unsubsidized" by your financial aid awards package. They designate these totals on the package for you. You can also call up the servicing agent and ask.

You can also call or check your account online for the amount of interest due. If at all possible, make payments toward your interest while on a deferment or forbearance. It can save you thousands in the long run.

Deferments and forbearances are ways to pause your payments. If you are ever struggling to make payments on your account, call your servicing agent immediately! Chances are they CAN lower or pause your payments. You will spare yourself the hassle of delinquency and could even avoid default. Honestly, defaulting on student loans takes effort! Call as soon as you have a problem and you can avoid all of the pain.