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How to Calculate Your Student Loan Payments

06/10/2015 05:00 pm ET | Updated Jun 10, 2016

Once you get over the sticker shock that comes with a college degree, finding a student loan that will cover those costs is important. Just because you take out a loan for a certain amount, however, does not mean that you will owe that much. It typically ends up being much more. For example, a $25,000 student loan will could potentially cost you double if you take into account interest payments over the life of the loan.

Knowing how to calculate student loan payments is important for your overall financial stability. If you understand how interest is calculated over the duration of the loan period and how quickly it can add up, you might be able to save some money in the long run.

The Basics

Student loans can be calculated using a simple student loan calculator that reports monthly payment as well as total interest paid to get a clear picture of your loans.

If you take out a $25,000 loan at 6.5% interest for 20 years, your monthly payment would be $186. The total repayment on the loan, though, will be $44,734 assuming a fixed interest rate.

Benefits of Prepaying

If you prepay on your student loans, making payments before they go into repayment, you would significantly decrease the total loan repayment amount. To calculate how much you need to pay per month and how much money you would save, change the loan term and recalculate.

If you wanted to pay off your student loan debt in 10 years rather than the 20 you signed up for, complete the same formula as above, but use 10 years as your time period. You will then discover that you need to pay $284 each month. By just paying almost $100 extra each month, your total loan repayment is $34,064. This means you will have saved over $10,000 by simply paying an extra $100 per month.

Benefits of Reducing Your Interest Rate

You can also use this calculator to find out how much refinancing your student loans could save you. To do that, you would need to change the interest rate. For example, if you refinanced your $25,000 student loan at 5.5% for 20 years, your monthly payments would be $172 and your total repayment on the loan would be $41,273. Securing a loan for one percent less could save you $3,461 over the lifetime of the loan.

The tricky thing to understand about student loans is that interest accrues on your principal balance as soon as your accruement period begins. Some loan types, such as private loans and unsubsidized loans, begin accruement the day the loan is issued. To avoid being hit with a hefty interest fee after four or five years of school, it may be wise to make interest payments while in school and/or during a grace period.

Figuring out how to calculate student loan payments allows you the ability to manipulate the numbers and rates to allow for different repayment scenarios. Taking the time to crunch the numbers can help speed up your student loan repayment process and save you thousands of dollars.

If you want to see how much you could save by refinancing your student loans, visit Credible.

States With Highest Average Student Debt - TICAS - Class Of 2012