How Is Student Loan Interest Calculated

Q: How is student loan interest calculated?

A:Interest on all student loans borrowed under ED’s programs is calculated on a simple daily basis. The following formula demonstrates how the simple student loan interest is calculated between payments: Average daily balance between payments x Interest rate x (Number of days between payments /365.25)

How interest accrues between payments made on June 5 and July 5, for example:
Average daily balance: $10,000
Interest rate: x .08
Days between payments (30/365.25): x .08214
Monthly interest: $65.71

The student loan holder first applies your payment to late charges or collection costs on your account (if any), then to the interest that has accumulated (accrued interest). The remainder of the student loan payment is then applied to the principal balance of the student loan. Just as the accrued interest varies monthly (depending on how many days elapse between the receipt of payments), the amount of a payment applied to accrued interest and the amount applied to principal also will vary monthly. A breakdown of how your student loan payments are applied should be on your billing statement. If not, ask your student loan holder or servicer for that information.