Student Loan |
| How Student Loan Interest is Calculated Posted: 10 Nov 2010 09:52 AM PST Many students question on how student loan interest is calculated including to calculate student loan payments for federal student loans because most student loan interests vary from month to month and every year as well. Yes, the calculation has significant difference to most major credit card interest, even for home mortgages. In fact most student loans implement a method to calculate interest. This method is called Simplified Daily Interest Formula. So what is Simplified Daily Interest Formula and how does this method calculate student loans? This method is used to implement calculation for all federal guaranteed student loans. The formulas are: For instance, how student loan interest for amount $20,000 is calculated? It is easy, the daily interest will be (20,000*0.06)/365.25 = $3.2854. So for monthly interest, the amount will be $3.2854x 30 = $98.5620. Please keep in your mind it is typically 30 day a month. In addition, most financial providers does not include weekend or holiday in their performed calculation. But how student loan issuing by such provider is calculated? Most financial providers use interest rate factor, IRF to multiply the interest amount. But your student loan amounts will be not significantly increased because most providers use IRF, 0.001 to 0.003 For subsidized Stafford student loans, the interest will be reduced each year after July 1 unless the loans were disbursed before July 1, 2008. The formula of Monthly interest calculation of Stafford student loans is
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