How To Calculate Student Loan Interest

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How to calculate student loan interest

Interest payments add up, but having a number provides more perspective. Some borrowers want to know how much interest gets added to their balance each day. Knowing this information can inspire you to make more frequent payments and help with budgeting. This article will explore how to perform this calculation, factors that determine your interest, and strategies to help lower your interest rate.

How interest accrues on student loans

Lenders charge interest to make a return on their investment. Interest accrues on student loans based on the principal and the interest rate. Paying off your principal and scoring a lower interest rate will minimize interest’s impact on your loan. Holding off on payments or making the minimum can prolong your student debt because interest blocks a borrower’s access to principal payments.

3 steps to calculate student loan interest

Calculating your interest can help you with budgeting and inspire you to pay off your balance more quickly. You can determine your interest payments by following these steps.

1. Find your daily interest rate

Lenders provide an interest rate on your loan. You can view this rate in your dashboard and perform a calculation to determine your daily interest rate. Borrowers must divide their interest rate by 365 to determine their daily interest rate. A borrower with a 7% rate would have to divide by 365 to arrive at a daily interest rate of 0.019178%. 

2. Calculate the amount of interest your loan accrues per day

After determining your daily interest rate, the next step is multiplying it by the loan’s remaining balance. This calculation reveals how much interest accrues on your loan every day. Each time you pay off the principal, you reduce interest accumulation on your loan. If the borrower in this example has a $50,000 loan balance, the daily interest accrual comes to $9.59. Performing the calculation below helps you arrive at the daily interest accumulation:

Loan balance * daily interest rate = Daily interest accrual

$50k * 0.019178% = $9.589 per day, rounded up to $9.59

3. Identify your monthly interest 

Calculating monthly interest is the easiest part. Just take the daily interest accumulation and multiply it by 30. While some months have 31 days, and February has 28 or 29 days, depending on the year, 30 is the simplest number for these calculations. For the ongoing example, a daily $9.59 accrual results in a $287.70 monthly interest payment. You will have to pay more than $287.70 each month to reduce future interest payments.

Factors that impact the amount of student loan interest

Knowing your daily and monthly interest gives you a better perspective, but what if you should lower those payments? Whether you are looking at student loans for the first time or planning to refinance your loan, these factors will impact your monthly loan payments.

1. Type of student loan 

The type of loan impacts your interest rate, but it’s far from the only factor. According to a report from Education Data, the average interest rate of federal student loans is 6.36%. Private student loans have lower interest rates. 

2. Credit score

Your credit score is a critical number lenders will look at during the loan application process. Your credit report and score give lenders a snapshot of your ability to keep up with financial obligations. A higher credit score makes you less risky for the lender and can entitle you to a lower interest rate.

3. Total amount borrowed 

Lenders set interest rates based on how much risk they incur on the loan. A higher loan amount increases the lender’s risk and may result in a higher interest rate. Borrowing less money for your student loan can reduce your interest rate and monthly payments.

How to lower Your student loan interest rate

Lowering your interest rate can make a big difference in your monthly payments. Saving $50 to $100 per month through a lower interest rate can help many borrowers. These strategies can reduce the impact of student loans on your monthly budget.

1. Improve your credit score

A higher credit score can help give you more options with student loans and other financial products. If you have good credit before you apply for a loan, you can end up with more favorable terms. 

If you are working on building up your credit or improving your credit score, MoneyLion is here to help! Credit Builder Plus (CB+) is our powerful credit-building membership, and it’s designed to help our members build or repair their credit, save, establish financial literacy and track their financial health.

CB+ can help you build or improve your credit with access to a Credit Builder Plus loan. A Credit Builder Plus loan is a small loan that is held in a secure account while you make monthly payments. As you make payments, CB+ reports them to the major credit bureaus, which can help boost your credit score with on time payments. Plus, you get access to some of the loan funds as soon as they are approved, so you can use them for whatever you need.

CB+ is a smart way to help improve your credit while paying off your debt. By improving your credit score, you can qualify for lower interest rates on future loans or refinancing options. And by paying off your Credit Builder Plus loan on time, you can reduce your debt-to-income ratio, which could also improve your credit score.

2. Consider refinancing your student loans

Lenders won’t change fixed interest rates on your current loans if you build good credit. But a higher credit score and lower debt-to-income ratio can help you qualify for better terms on a refinance. A loan refinance replaces your old loan with a new one. That means a new monthly payment and a different interest rate. Depending on your finances, you may qualify for a lower interest rate through a refinance.

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3. Try making extra payments

Monthly interest payments are a function of your interest rate and principal. Refinancing your loan can change the interest rate, but you don’t have to wait for a refinance to lower your payments. Making extra payments on your principal lets you reduce the balance without contending with interest.  

Managing Student Loan Payments

Your monthly interest payment is a barrier between your cash and your progress toward the principal. Paying more than the monthly interest payment will reduce your principal and result in lower interest payments moving forward. Making extra payments can speed up your path to becoming debt free.


Is student loan interest tax deductible?

Student loan interest is tax deductible. The limit may vary from each year. It is best to consult a professional for tax advice.

Can student loan interest be deferred?

Student loan interest can be temporarily deferred.

What is the maximum interest rate for student loans?

The maximum interest rate depends on the type of loan. New undergraduate loans have a fixed interest rate of 5.50%. Private lenders change their maximum interest rates based on the Fed and other factors.

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