Finance
Student loan calculator
Student debt behaves unlike other loans in one important way: it usually starts growing before you make a single payment.
Capitalisation is the part that hurts
On most unsubsidised student loans, interest starts accruing the day the money is disbursed — years before the first payment is due. When repayment begins, that accrued interest is capitalised: added to the principal. From that point you pay interest on the interest.
The effect is larger than people expect. Borrow $30,000 at 6.5% with four years of study and six months of grace, and roughly $4,400 of interest capitalises before you have made a payment. Your repayment is calculated on $34,400, not $30,000, and every month of the term is slightly more expensive as a result.
This is why paying even small amounts during study is disproportionately valuable. Money paid before capitalisation prevents compounding rather than merely reducing a balance.
Subsidised and unsubsidised
Some loans have interest paid by a government subsidy while you study and during grace. If yours does, nothing capitalises and the amount you borrowed is the amount you start repaying. The toggle above switches between the two, and the gap between them on a realistic loan is usually thousands.
Where a borrower holds both types, the practical rule is to direct any spare money at the unsubsidised balance first, since that is the one growing.
What extra payments do
Student loans are simple-interest amortising debts, so an extra payment goes straight against principal and permanently removes all the future interest that principal would have generated. The saving compounds: $100 a month extra on a $34,000 balance at 6.5% clears the loan years early and saves several thousand in interest.
One practical warning: some servicers apply extra money to next month's payment rather than to principal, which achieves almost nothing. If you overpay, check that the payment is being applied to principal, and say so explicitly if your servicer allows an instruction.
Income-driven plans are a different animal
This calculator models a standard amortising repayment — fixed payment, fixed term, balance reaches zero. Income-driven and income-contingent plans do not work that way. Payments are a percentage of income above a threshold, the term is typically 20-30 years, any remaining balance may be forgiven, and payments can be lower than the interest accruing, so the balance grows even while you pay.
If you are on such a plan, the numbers here will not describe your loan. UK Plan 2 and Plan 5 loans in particular behave far more like a graduate tax than like the debt modelled above.
Common questions
What does capitalised interest mean?
Interest that accrued while you were studying or in a grace period gets added to your principal when repayment starts. From then on you pay interest on that interest, which is why the balance you repay is larger than the amount you borrowed.
Is it worth paying interest while still studying?
On an unsubsidised loan, yes — disproportionately so. Payments made before capitalisation stop that interest joining the principal, so they save you compounding for the whole life of the loan, not just the amount paid.
Does this model income-driven repayment?
No. It models a standard fixed-payment amortising loan. Income-driven plans set payments from income rather than balance, run 20-30 years, and may forgive the remainder, so they need entirely different arithmetic.
Should I overpay my student loan or invest instead?
It depends on the rate and on whether forgiveness applies. On a high-rate private loan with no forgiveness, overpaying is a guaranteed return equal to the interest rate. On a low-rate loan headed for forgiveness, overpaying can be pure waste.