How to Calculate Interest Payments on a School Loan

How to Calculate Interest Payments on a School Loan
••• Calculating payments image by Christopher Meder from

Making interest payments on a school loan before the repayment period begins is a simple way to reduce the financial burden of a student loan after college. If you qualified for a subsidized federal Stafford loan, the government makes your interest payments while you are in school. If your loan is not subsidized and you borrow, for example, $3,500, $4,500, $5,500, and $5,500 at 6.8 percent interest during the four years of college, you will have accrued $3,315 of interest by the time you begin repayment. This increases your monthly payment by $38.15 over 10 years of repayment.

Find the interest rate on your student loan. It should be listed on your loan statements and in your online account with the lender. If you are unsure who your lender is, talk to your school's financial aid office.

Convert the interest rate to a decimal by moving the decimal point two spaces to the left. For example, if your annual interest rate is 6.8 percent, move the decimal point to the left two spaces to get 0.068 as your interest rate.

Divide your school loan's interest rate by 365.25, which is the number of days in an average year. This gives you the interest charged to your account each day. For example, divide 0.068 by 365.25 to get 0.000186 as your daily interest rate.

Find the principal balance of your loan. The principal is the amount that you have borrowed, in addition to any interest that was capitalized if you have already begun your repayment term.

Multiply the daily interest rate by the number of days since your last interest payment, or if you have not made any, the number of days since the loan was disbursed. For example, if it has been 30 days since your last payment, multiply 0.000186 by 30 to get .00558 percent interest accrued during this time.

Multiply the above accrued interest rate by the principal amount to calculate the interest payment. For example, if your principal amount is $3,500, multiply .0058 by 3,500 to get an interest payment of $19.53 for that month. Of course, as you borrow more money, the interest payments will increase because your principal is higher.