Payment, payoff date & the cost of extra time
Payment, payoff date & the cost of extra time
Enter your current balance, the interest rate, and your repayment term in months (the standard federal plan is 120 months, or ten years). Add an optional extra monthly amount to see how much sooner the loan clears and how much interest that saves. The results show your required payment, the payoff time with extras applied, and total interest both ways.
If you hold several loans at different rates, run them separately. Averaging the rates produces a misleading total, because interest compounds on each balance independently.
The payment itself uses the standard amortisation formula:
Payment = P × [ r(1+r)n ] ÷ [ (1+r)n − 1 ]
Where P is the balance, r the monthly rate, and n the number of payments. On a $35,000 balance at 6.5% over ten years, that is about $397 per month and roughly $12,700 in total interest.
What makes student loans distinctive is daily interest accrual. Most federal loans accrue interest every day on the outstanding principal, calculated as balance × (rate ÷ 365). Your monthly payment first covers the interest accrued since the last payment; only the remainder reduces principal. This is why a payment that is even slightly below the accrued interest causes the balance to grow — negative amortisation.
Every extra dollar goes straight to principal, and principal is what generates future interest. Removing a dollar of principal today removes every future interest charge that dollar would have produced — which is why extra payments early in the loan are worth far more than the same amount later.
On that $35,000 loan at 6.5%, adding $100 a month clears it roughly two years and three months early and saves around $3,000 in interest. Adding $200 saves close to $5,000. The saving is not linear because you are compounding the effect of a shrinking balance.
One practical detail: tell your servicer in writing to apply extra payments to principal. By default many will treat an overpayment as paying next month's instalment early, which advances your due date without reducing the balance meaningfully.
Federal borrowers can usually choose between several structures, and the choice is a genuine trade-off rather than a free lunch:
Lower payments always mean more total interest. That can still be the right call — affordability today matters — but it should be a deliberate choice rather than a surprise.
Refinancing federal loans with a private lender can secure a lower rate if your credit and income are strong. It also permanently forfeits federal protections: income-driven repayment, deferment and forbearance options, and any forgiveness programme you might qualify for. Once federal loans are refinanced privately, that decision cannot be reversed.
For private loans already outside the federal system, there is far less to lose — refinancing there is mainly a question of whether the new rate justifies any fees.
The total-interest figure can be uncomfortable to look at, and it is worth holding it in proportion. It is the cost of borrowing spread over a decade, not a bill that arrives at once. The useful response is not alarm but a specific decision: whether an extra $50 or $100 a month is available, and whether it is better deployed here or in a retirement account earning a higher expected return than your loan rate. Below roughly 5%, that comparison often favours investing; above 7%, paying the loan usually wins.
Compare your loan rate to the return you expect from investing. Above roughly 7%, paying the loan is a strong guaranteed return. Below about 5%, investing often comes out ahead over long periods. Between those, either is defensible. Employer retirement matching should generally be captured first, since it is an immediate 100% return.
Not always. Many servicers apply overpayments to future instalments instead, which advances your due date without reducing the balance much. Instruct your servicer in writing to apply extra amounts to principal.
That is negative amortisation. If your payment is smaller than the interest accruing, the shortfall is added to the balance. It is most common on income-driven plans with a low calculated payment.
It can lower your rate, but it permanently removes federal protections including income-driven repayment, deferment, and eligibility for forgiveness programmes. That trade is difficult to reverse, so it deserves careful thought rather than a rate comparison alone.