Student Loan Calculator

The label on the loan determines almost everything that follows: the rate structure, the options if you cannot pay, and whether interest accrues while you are studying.

• Federal subsidized - the government pays the interest while you are enrolled at least half-time. Interest does not accrue during school.
• Federal unsubsidized - interest accrues from disbursement. If you defer payments, the unpaid interest capitalises and is added to the principal, so you then pay interest on interest.
• Federal PLUS - taken by parents or graduate students, at a higher rate, with an origination fee.
• Private - rate set by creditworthiness, fixed or variable, fewer hardship options, and generally no income-driven repayment or forgiveness.

Note. Capitalisation is the mechanism that turns a manageable balance into a surprising one. On an unsubsidized loan of $20,000 at 5%, roughly $1,000 of interest accrues each year during school. If it capitalises at graduation, you start repayment owing about $23,000 rather than $20,000 - and future interest is charged on the higher figure.

Income-driven plans cap the payment at roughly 10-20% of discretionary income and forgive any remainder after 20 or 25 years. That forgiveness may be taxable as income in the year it happens - a large balance forgiven creates a real tax bill, so it should be planned for rather than discovered.

The trade is straightforward: a lower payment now in exchange for a longer term and more total interest. The calculator shows the cost of each timeline directly.

Doubling the term cuts the payment by 44% but raises total interest by 173%. Neither is automatically correct - if the standard payment crowds out rent or an emergency fund, the longer plan is the responsible choice despite costing more.

Note. Interest keeps accruing under an income-driven plan even when the payment does not cover it. If your payment is below the accruing interest, the balance grows rather than shrinks. That is a valid strategy if forgiveness is the goal, and a costly one if it is not.

Refinancing replaces existing loans with a new private loan at a new rate. The rate can be considerably lower. The protections cannot be restored once surrendered.

• What you gain - a lower rate, a single payment, and a fixed or variable term of your choosing.
• What you lose - income-driven repayment, federal forbearance and deferment, and eligibility for Public Service Loan Forgiveness and other federal forgiveness programmes.
• Variable rates start lower and can rise. On a long term this is a bet on the rate path.
• Refinancing privately is irreversible for federal benefits. Do not refinance federal loans unless you are confident you will never need an income-driven plan or forgiveness.

1. Pay interest while still in school on unsubsidized loans. Even small amounts prevent capitalisation and keep the starting balance at what you actually borrowed.
2. Attack the highest-rate loan first while making every minimum. Capitalise nothing - direct extra payments to the costliest balance.
3. Check for employer or state programmes before refinancing; some require federal loans.
4. Do not skip the tax deduction. Student loan interest up to the annual limit is deductible for eligible borrowers, which is a guaranteed reduction in cost.
5. Compare investing against prepaying. A guaranteed 5.5% return from eliminating debt is attractive compared with an uncertain market return of similar size - particularly for a borrower who values certainty.