How Are Student Loans Calculated

Student loans are more than just a monthly payment. They can be a huge burden on your finances, and they can make it difficult to keep up with other expenses and to save for the future.

But how do student loans work? What determines how much you’ll owe after graduation? Here’s what you need to know about student loans in order to get a handle on your debt situation.

How Student Loans Are Calculated

Student loan payments are determined by a few factors: your income, the amount of money you borrowed, and the interest rate. The higher your income, the lower your payments will be, but if you have no income or too little income, then your payments may not be enough to cover all of your payments.

The amount of money that you borrow also plays into how much you’ll owe once you graduate. If you borrow less than $5,500 per year (or $23,000 total), then most of your college education will be covered by grants or scholarships instead of loans. However, if you borrow more than this amount, then it’s likely that some portion of those loans will not be paid off by grants or scholarships alone—which means that there will be additional debt waiting for

How Are Student Loans Calculated

Learning how to calculate student loan interest will help you understand what you’re really paying for college debt. Interest on federal student loans and many private student loans is calculated using a simple daily in terest formula.

To calculate the amount of student loan interest that accrues monthly, find your daily interest rate and multiply it by the number of days since your last payment. Then, multiply that by your loan balance.

Using a student loan calculator can help you create a student loan repayment strategy that’s right for you. With some basic information about your existing or prospective student loan, the Bankrate student loan calculator shows you the monthly loan payment you can expect, how long it’ll take you to repay your entire loan and how much interest you’ll pay overall. Enter the details of your student loan into the calculator below to see your personal results.
Loan amount
5,000
Loan term in years
5
Or
Loan term in months
60
Interest rate per year
6
CALCULATE
Monthly Payments

$ 96.66

Total Principal Paid
$5,000
Total Interest Paid
$799.84
COMPARE LOAN RATES

What you need to know for this calculator

Before using the student loan calculator above, come prepared with a few pieces of information about your loan.

Loan amount

Loan amounts vary depending on whether you’re exploring a federal or private student loan. The loan amount you’re offered might also be limited based on your enrollment level (e.g., undergraduate versus graduate or professional student) or degree program.

Federal student loan amounts

Undergraduate students:

• Direct Subsidized Loans: Up to $5,500 annually.
• Direct Unsubsidized Loans: Up to $12,500 annually.

Graduate students:

• Direct Unsubsidized Loans: Up to $20,500 annually.
• Direct PLUS Loans: Up to the school’s reported cost of attendance, minus other financial aid received.

Parents of dependent undergraduate students:

• Parent PLUS loans: Up to the school’s reported cost of attendance, minus other financial aid received.

Private student loan amounts

Loan amounts for private student loans can vary by lender. Each lender sets its own borrowing criteria, annual borrowing limits, interest rates and repayment terms. In general, private student loan lenders offer loan amounts that cover the gap between a school’s cost of attendance and any other financial aid a student receives. Some lenders also impose lifetime borrowing limits, which may be up to $150,000 or more for some degrees. Regardless of whether you borrow federal or private student loans, borrow only the amount you need per school year after exhausting all grant and scholarship options. If you must take out loans to finance educational gaps, consider maximizing federal student loan limits before turning to a private student loan, as federal student loans come with additional benefits like income-driven repayment plans and standardized hardship programs.

Loan term

Your loan term is the amount of time you have to repay the loan in full. For federal student loans under a standard repayment plan, the default loan term is 10 years. However, student loans that are under an alternative payment plan offer terms from 10 to 25 years. Like private student loan amounts, private student loan repayment terms vary by lender. Terms for private student loans can be as short as five years and as long as 20 years. A shorter loan term can help you save more money on interest charges during your repayment period but result in a larger monthly payment. Some lenders offer lower interest rates as an incentive for a short term length. On the flip side, a longer term for your student loans will lower your monthly payment but will accumulate more interest charges over time. Before borrowing student loans, make sure you know all of the term options your lender offers so you can choose the right path for your financial needs.

Interest rate

The interest rate you’re offered depends on the type of lender you’re pursuing and your financial picture. Federal student loans offer the same interest rate to all borrowers, regardless of credit score or income. Private student loans, on the other hand, will often do a credit check and set interest rates according to your creditworthiness. The higher your credit score, the lower your interest rates. Keep in mind that the lowest interest rates advertised on lender websites may not be available to you. To find out what interest rates you’ll receive, take advantage of lenders’ prequalification features, if available. Prequalification allows you to input basic details about yourself and your desired loan in exchange for a snapshot of the rates and terms offered.

student loan forgiveness

If you are employed by a U.S. federal, state, local, or tribal government or not-for-profit organization, you might be eligible for the Public Service Loan Forgiveness Program. Keep reading to see whether you might qualify.

Qualifying for PSLF
To qualify for PSLF, you must

be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service);

work full-time for that agency or organization;

have Direct Loans (or consolidate other federal student loans into a Direct Loan);

repay your loans under an income-driven repayment plan*; and

make 120 qualifying payments.

To ensure you’re on the right track, you should submit a Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application (PSLF Form) annually or when you change employers. We’ll use the information you provide on the form to let you know if you are making qualifying PSLF payments. This will help you determine if you’re on the right track as early as possible.

*This provision will be waived through October 31, 2022 as part of the limited PSLF waiver. Learn more.

Suspended Payments Count Toward PSLF and TEPSLF During the COVID-19 Administrative Forbearance

If you have a Direct Loan and work full-time for a qualifying employer during the payment suspension (administrative forbearance), then you will receive credit toward PSLF or TEPSLF for the period of suspension as though you made on-time monthly payments in the correct amount while on a qualifying repayment plan.

To see these qualifying payments reflected in your account, you must submit a PSLF form certifying your employment for the same period of time as the suspension. Your count of qualifying payments toward PSLF is officially updated only when you update your employment certifications.

Digital signatures from you or your employer must be hand-drawn (from a signature pad, mouse, finger, or by taking a picture of a signature drawn on a piece of paper that you then scan and embed on the signature line of the PSLF form) to be accepted. Typed signatures, even if made to mimic a hand-drawn signature, or security certificate-based signatures are not accepted.

Note: In-grace, in-school, and certain deferment, forbearance, and bankruptcy statuses are not eligible for credit toward PSLF.

Have questions? Find out what loans qualify and get additional information about student loan flexibilities due to the COVID-19 emergency.

Qualifying Employer
Qualifying employment for the PSLF Program isn’t about the specific job that you do for your employer. Instead, it’s about who your employer is. Employment with the following types of organizations qualifies for PSLF:

Government organizations at any level (U.S. federal, state, local, or tribal) – this includes the U.S. military

Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code

Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program.

The following types of employers don’t qualify for PSLF:

Labor unions

Partisan political organizations

For-profit organizations, including for-profit government contractors

Contractors: You must be directly employed by a qualifying employer for your employment to count toward PSLF. If you’re employed by an organization that is doing work under a contract with a qualifying employer, it is your employer’s status—not the status of the organization that your employer has a contract with—that determines whether your employment qualifies for PSLF. For example, if you’re employed by a for-profit contractor that is doing work for a qualifying employer, your employment does not count toward PSLF.

Other types of not-for-profit organizations: If you work for a not-for-profit organization that is not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, it can still be considered a qualifying employer if it provides certain types of qualifying public services.

Full-time Employment
For PSLF, you’re generally considered to work full-time if you meet your employer’s definition of full-time or work at least 30 hours per week, whichever is greater.

If you are employed in more than one qualifying part-time job at the same time, you will be considered full-time if you work a combined average of at least 30 hours per week with your employers.

If you are employed by a not-for-profit organization, time spent on religious instruction, worship services, or any form of proselytizing as a part of your job responsibilities may be counted toward meeting the full-time employment requirement.

Eligible Loans
Any loan received under the William D. Ford Federal Direct Loan (Direct Loan) Program qualifies for PSLF.

Loans from these federal student loan programs don’t qualify for PSLF: the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan (Perkins Loan) Program. However, they may become eligible if you consolidate them into a Direct Consolidation Loan.

Student loans from private lenders do not qualify for PSLF.

Under normal PSLF Program rules, if you consolidate your loans, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments you made on the loans before you consolidated them don’t count. However, if you consolidate these loans into a Direct Loan before October 31, 2022, you may be able to receive qualifying credit for payments made on those loans through the limited PSLF waiver. Learn more.

The PSLF Help Tool will tell you whether you need to consolidate some or all of your loans.

Qualifying Payments
A qualifying monthly payment is a payment that you make

after Oct. 1, 2007;

under a qualifying repayment plan;

for the full amount due as shown on your bill;

no later than 15 days after your due date; and

while you are employed full-time by a qualifying employer.

Most of the PSLF qualifying payment rules have been suspended through October 31, 2022. Under this temporary waiver, you may get credit for payments you’ve made on loans that would not normally qualify for PSLF. These payments will count even if you didn’t pay the full amount or on-time. However, only payments made after Oct. 1, 2007 can count as qualifying payments. For more information, visit the limited PSLF waiver page.

You can make qualifying monthly payments only during periods when you’re required to make a payment. Therefore, you can’t make a qualifying monthly payment while your loans are in

an in-school status,

the grace period,

a deferment, or

a forbearance.

If you want to make qualifying payments, but you’re in a deferment or forbearance, contact your federal student loan servicer to waive the deferment or forbearance. However, you can still receive credit toward PSLF during the COVID-19 payment pause.

Your 120 qualifying monthly payments don’t need to be consecutive. For example, if you have a period of employment with a nonqualifying employer, you will not lose credit for prior qualifying payments you made.

The best way to ensure that you are making on-time, complete payments is to sign up for automatic debit with your loan servicer.