Do you know how much you’re paying in student loan interest? The first time I calculated my student loan interest, I was furious. At that time, I had just graduated graduate school and I was looking for my first “big girl” job. I was $63,000 in debt and I had no idea how I was going to afford to pay $10 in interest a day. With or without a job, I found $10 a day unfair! And quite frankly, I felt blindsided by the entire debt repayment process. Half of my monthly payment would go towards student loan interest and it would take ten years to pay off my entire balance. This scared me into paying my student loans faster.
The Impact of Student Loan Interest
Student loan interest is important to any repayment plan because it’s the additional cost you pay on top of the principal (the total amount of money you borrowed). It’s the cost of doing business with your lender.
Interest is a percentage of your principal and since it’s charged daily, the longer you take to pay off your balance, the more interest accumulates.
Interest rates will vary depending on the type of loan you have, so it’s important to note all the different interest rates in your portfolio.
How To Use Your Daily Interest Rate
My daily interest rate is one of the metrics I use to keep track of my repayment progress. In less than three years, I’ve reduced my daily interest rate from $10 to $2.94.
How to Calculate Daily Student Loan Interest Rate
Here’s how to calculate daily interest on a student loan.
Step 1: Write down all of your principal and interest rates.
Step 2: Do the math.
1. Formula: Principal x Interest = Total Interest Dollar Amount
Loan #1: $5,000 x 0.045 = $225
Loan #2: $7,000 x 0.0655 = $458.50
** This formula calculates the total interest charged per year. So for Loan #1, you can expect to pay $225 in interest a year.
2. Formula: Total Interest Dollar Amount / 365 = Daily Student Loan Interest Amount
Loan #1: $225 / 365 days = $0.61 cents per day
Loan #2: $458.50 / 365 days = $1.25 cents per day
This formula calculates the daily interest charged on a loan. We divide by 365 because there are 365 days in a year.
Step 3: Add the daily interest amounts
Formula: Loan #1 Daily Student Loan Interest Amount + Loan #2 Daily Student Loan Interest Amount = Total Daily Student Loan Interest Amount
$0.61 + $1.25 = $1.86 Total Interest Per Day
There you have it, this is how you calculate the daily interest on all of your loans. In this example, you can expect to pay $1.86 in interest per day.
**Bonus Step 4: Figure out how much interest you will pay per payment
1) If you are making weekly payments: Total Interest Per Day x 7 days
$1.86 x 7 days = $13.02 to pay per week
2) If you are making bi-weekly payments: Total Interest Per Day x 14 days
$1.86 x 14 days = $26.04 to pay every two weeks
3) If you are making monthly payments: Total Interest Per Day x 30 days
$1.86 x 30 days = $55.80 to pay per month
How does your daily student loan interest make you feel? Do you feel comfortable with it? Are you feeling angry or frustrated?
If you’re feeling any type of emotion and want to do something about it, use these steps to know where you stand and continue to keep track of your progress. If need be, identify what you need to cut out of your life and reallocate that money towards your debt. And don’t forget, the road to repayment is long, but it’s doable.
Danielle is a travel finance strategist, author, speaker and podcaster. She paid off $63,000 of student loan debt in 4 years, bought a house at 27 and has traveled to 26 countries. She refuses to let her financial responsibilities hold her back from living life on her own terms.