How This Calculation Works
The student loan calculator uses the standard amortization formula to determine monthly payments. Each payment covers the month's interest first, with the remainder reducing the principal.
Monthly payment = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the principal, r is the monthly interest rate, and n is the total number of payments.
Common Mistakes to Avoid
- Ignoring interest during grace period. Unsubsidized loans accrue interest while you are in school. This interest capitalizes (gets added to principal) at repayment, increasing total cost.
- Only paying the minimum. Even $50 extra per month can save thousands in interest and shave years off repayment.
- Choosing the wrong repayment plan. Income-driven plans reduce monthly payments but extend repayment to 20–25 years, dramatically increasing total interest.
Worked Example
Scenario: $35,000 loan at 5.5% over 10 years.
Monthly payment: $380.
Total interest: $10,550.
Total cost: $45,550.
With $100 extra/month: Paid off in 7 years, saving $3,200 in interest.