# How to Calculate Student Loan Interest

If you’ve recently graduated or left college, you might be surprised at how much of your monthly student loan payment goes just to the interest portion of your debt. To understand why that is, you first need to understand how that interest accrues and how it’s applied toward each payment. You can do this by calculating it yourself and digging deeper into your student loan balance and payments. To calculate your student loan interest, calculate the daily interest rate, then identify your daily interest charge, and then convert it into a monthly interest amount. From there, you will better understand what you're paying every month.

### Key Takeaways

• To calculate your student loan interest, calculate the daily interest rate, then identify your daily interest charge, and then convert it into a monthly interest amount.
• Make sure you understand how interest accrues and how it's applied to your student loan payments.
• Federal loans use a simple interest formula to calculate your finance charges, while some private loans use compound interest, which increases your interest charges.
• Certain private lenders have variable interest rates, which means you may pay more or less interest at a future date.
• Interest generally starts accruing when the loan is disbursed except for subsidized federal loans.

## 3 Steps to Calculate Your Student Loan Interest

Figuring out how lenders charge interest for a given billing cycle is actually fairly simple. All you have to do is follow these three steps:

### Step 1: Calculate the Daily Interest Rate

You first take the annual interest rate on your loan and divide it by 365 to determine the amount of interest that accrues on a daily basis.

Say you owe $10,000 on a loan with 5% annual interest. You’d divide that 5% rate by 365: 0.05 ÷ 365 = 0.000137 to arrive at a daily interest rate of 0.000137. ### Step 2: Identify Your Daily Interest Charge Next, multiply your daily interest rate in Step 1 by your outstanding principal. Let's use the example of$10,000 again for this calculation: 0.000137 x $10,000 =$1.37

This $1.37 is the interest you're assessed each day, meaning, you're being charged$1.37 in interest on a daily basis.

## The Bottom Line

Figuring out how much you owe in interest on your student loan is a simple process—at least if you have a standard repayment plan and a fixed rate of interest. If you’re interested in lowering your total interest payments over the course of the loan, you can always check with your loan servicer to see how different repayment plans will affect your costs.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
1. U.S. Department of Education. "Biden-Harris Administration Continues Fight for Student Debt Relief for Millions of Borrowers, Extends Student Loan Repayment Pause."

2. Consumer Financial Protection Bureau. "Tips for Paying Off Student Loans More Easily."

3. Federal Student Aid. "Consolidating Student Loans."

4. Internal Revenue Service. "Student Loan Interest Deduction."

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