How to Calculate Principal & Interest Payments on a Student Loan

The cost of education is increasing for the average student. In order to keep track of costs and finances after graduation, it is important for students to determine their loan payment amounts. By breaking down a loan payment between principal and interest, a student can see the actual cost to borrow funds for school.

Instructions

1. Divide the interest rate by, one plus the interest rate raised to the power of the number of months of repayment, subtracted by one. For example an interest rate of 10 percent to repay in five years. 0.008333 / ((1 + 0.008333) ^ 60) - 1), which equals 0.012914. 0.008333 is the interest per month.

2. Add the interest rate to the number calculated in Step 1, then multiply by the principal of the loan. In the example, 0.008333 plus 0.012914, which equals 0.021247. The principal for the loan is $30,000, so month loan payments equal $30,000 times 0.021247, which equals $637.12 per month.

3. Multiply the interest rate by the carrying amount of the loan. In the example, the loan was subsidized so interest did not accrue, $30,000 times 8.33% which equals $250. This is the amount of interest.

4. Subtract the amount of interest from the total payment to arrive at principal payments. In the example, $637.12 minus $250, which equals $387.42 of principal.

References

• 1728: Loan Payment Formula
• FinAid: Loan Calculator