How is student loan interest calculated?

Most student loans (including all federally guaranteed loans) use a method of interest accrual known as simple interest. The difference between simple interest and compound interest (the type of interest that accrues on most major credit cards) is that simple interest is only calculated on the principal balance, not on the previously accrued interest.

To calculate your daily interest accrual, use the following formula: (Current Principal Balance x Interest Rate) ÷ 365.25

This formula says to multiply your current principal balance by the interest rate and then divide the result by 365.25 (the number of days in one year). The result is your daily interest accrual, or how much interest you would pay for one day. You can multiply this number by a specific number of days to calculate your interest accrual over a certain amount of time.

Example:

• Current principal balance: $20,000.00
• Interest rate: 4.50%
• Days of interest needed: 30

Just plug in the numbers to calculate the approximate 30 day interest accrual:
[(20,000 x .045) ÷ 365.25] x 30 = $73.92