Calculating Interest on Student Loan Payments
Student loan payments can be a big burden to your budget and you want to know where every penny of your payment goes. You may notice that the amount of interest that you pay on your student does not stay the same from month to month. You may find it surprising because you expected the amount of interest to go down at steady increments each month as the balance that you owed went down. This is because the interest is accrued on a daily basis. The amount is based on the balance of your loan and the number of days between payments along with the rate of interest that you are charged.
The amount of interest that you are paying on your student loan depends on where you got the loan and the interest rate that you agreed on. In the past, some of the student loans from many providers were given at a variable rate of interest, meaning that the interest rate and the amount that you pay each month were not locked in as they are in a fixed student loan.
How to Calculate Interest
You can figure out how much interest you will be paying for a month by using the Simple Daily Interest formula. Find the interest rate factor by dividing the interest rate of the loan that you are making payments on by 365.25. Multiply the number of days between the payments that you have made by the outstanding balance on the principal of the original loan. Multiply this by the interest rate factor.
It's a lot easier to calculate the amount of interest if you convert the interest to a decimal before you attempt to divide. Simply move the decimal point two places to the left. For instance, if the fixed interest on your student loan is 5.13%, the amount you would divide the interest rate factor by would be .0513.
Now you can easily calculate how much of your payment is being applied to the balance of the loan. Subtract the amount you will be paying in interest for the month from the remaining balance on your statement and the Principal Balance Outstanding, or PBO will be the amount that will be accruing interest during the coming month.
There are a lot of interest calculators available online that you can bookmark to find easily each month if remembering math formulas isn't part of your skills. You can also set up a spreadsheet that you can use each month to figure out how much money is being applied to the principal of your loan. Using these methods of calculation will help you figure out how much money you can save by making larger monthly payments. Even making one double payment will lower your outstanding balance to reduce the amount of interest that you will be paying out.
If you have misplaced your paperwork and find that you have the need for up to date information on your student loan, you can access your data from the U. S. Department of Education's National Student Loan Data System, also known as NSLDS. You will be able to find out what type of loan you are obligated to repay along with the amounts that have been disbursed, any outstanding principal and interest on each of your loans as well as the total amount of your combined federal student loans. You can also find out who your loan servicer is when you access the data system. By calculating interest on late student loan payments yourself, you have the ability to double check the information your lenders have.
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