Student Loan Payoff Calculator

How Student Loan Interest Works

Most student loans use simple daily interest, which means interest accrues each day based on your outstanding balance. Each month, the interest that has accrued is added to your balance first, and whatever is left from your payment goes toward reducing the principal.

The Formula

For each monthly payment period:

• Interest charge = current balance × (annual rate ÷ 12)
• Principal paid = monthly payment − interest charge
• New balance = current balance − principal paid

Early in your loan's life, most of your payment covers interest with little reducing principal. As the balance falls, the interest portion shrinks and the principal portion grows — this is the same mechanics used by mortgages and other amortizing loans, which you can also explore with the amortization schedule calculator.

The Power of Extra Payments

An extra payment applied directly to principal has a compounding effect: it reduces the balance on which future interest is calculated, which means every subsequent payment has a larger principal component. Even an extra $50 per month can save thousands in total interest and cut years off your repayment timeline. Try the extra payment field above to see the impact on your own loan.

Federal Loan Repayment Plans

Federal student loans offer several repayment plan options beyond the standard 10-year plan:

• Graduated Repayment — Payments start low and increase every 2 years. Total payment is higher than the standard plan.
• Income-Driven Repayment (IDR) — Payments are capped as a percentage of discretionary income (10–20%). Suitable if income is low relative to debt.
• Extended Repayment — Stretches the term up to 25 years, lowering monthly payments but significantly increasing total interest paid.

If you're also working toward credit card payoff, consider the avalanche method: pay minimums on all debts and put any extra money toward the highest-interest balance first.

Student Loan Interest Deduction

U.S. taxpayers may deduct up to $2,500 of student loan interest per year from their taxable income (income limits apply). This partially offsets the cost of interest, effectively reducing the real interest rate on your loans.

Frequently Asked Questions

What if my payment doesn't cover the monthly interest?

If your monthly payment is less than the interest accruing each month, your balance will grow even as you make payments — this is called negative amortization. The calculator will alert you if this is the case. To escape negative amortization, you need to increase your payment above the monthly interest amount.

Should I pay off student loans or invest?

It depends on your interest rate. If your loan rate is below your expected investment return (historically around 7% for index fund investing), it may make mathematical sense to invest extra money rather than prepay the loan. Federal loans also offer forgiveness and income-driven plan options that make prepaying riskier. High-rate private loans generally benefit more from aggressive repayment.

What's the difference between subsidized and unsubsidized loans?

On subsidized federal loans, the government pays interest while you're in school and during deferment. On unsubsidized loans, interest accrues from the moment the loan is disbursed. This calculator handles both equally — just enter your current balance after any capitalized interest is added.

Can I refinance to get a lower rate?

Yes. Private refinancing can lower your interest rate if your credit score has improved significantly since you took out the loan. However, refinancing federal loans into private loans permanently removes access to income-driven repayment, forbearance, and loan forgiveness programs.