higher education

How to Calculate How Much You Are Paying in Student Loan Interest Each Month

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The federal reserve estimates that 31% of all U.S. adults have student loans and today, Americans hold over $1.7 trillion in student debt. 

This record-breaking total includes both the principal (the original sums of money borrowed) and interest (the amount owed in exchange for borrowing) owed on outstanding student loans. 

Many may not realize that when they pay their student loan bill each month, they aren't just paying back the total they borrowed — they are also paying down the interest they have accrued on their loan.

And while pandemic relief policies have put a pause on mandatory federal student loan payments, this pause is not expected to last forever. 

Here's how to calculate how much you are paying in student loan interest each month:

In 2019, the typical student debt total was between $20,000 and $24,999 and federal student loan interest rates currently range between 2.75% and 5.30%

For this exercise, let's assume you have $20,000 in student debt and your annual interest rate is 3%. 

Step 1) Calculate your daily interest rate

Divide your annual interest rate (3% or .03) by 365 to find your daily interest rate.

For example: .03 / 365 = 0.00008

Step 2) Determine how much interest your loans accrue each day

Multiply your student debt total by this daily interest rate to determine how much interest your loans accrue each day. 

For example: $20,000 x 00.00008 = $1.60

Step 3) Find out how much this totals each month

Take this figure and multiply it by the number of days since your last payment. If you are making monthly payments, this should be 30 days. 

For example: $1.60 x 30 = $48.00

The typical monthly payments for a person who owes $20,000 with 3% interest using a 10-year fixed-interest repayment plan is about $193. This means that $48 of this payment would be going towards interest while the remaining $145 would go towards repaying the principal. 

This math shows just how significantly interest can impact your monthly student loan payments — and millions know just how much those payments impact their finances. Even before the pandemic hit and unemployment spiked, more than 20% of student loan borrowers were behind on their payments.

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