Why student loans cost more than they look
Unlike most consumer loans, many student loans start charging interest before you make a single payment. While you are in school and during the grace period after graduation, interest quietly accrues on the balance. When repayment begins, that accrued interest is capitalized — added to the principal — so it becomes part of the balance you then pay interest on.
This calculator grows your original loan through the grace period to find the capitalized balance, then computes the level monthly payment that retires that larger balance over your chosen repayment term.
Reading the results
The monthly payment is what you will owe once repayment starts. The balance after the grace period is your original loan plus the interest that capitalized before payments began — often noticeably higher than what you borrowed.
Total interest is everything you pay above the original principal, and the chart splits your total cost into the principal, the interest that capitalized during the grace period, and the interest charged during repayment.
Cutting the lifetime cost
Capitalization is the lever most worth managing:
- Pay even small amounts of interest during school or the grace period to stop it from capitalizing onto your principal.
- A shorter repayment term raises the monthly payment but reduces total interest substantially.
- Refinancing to a lower rate can help once you have stable income and good credit, though it may forfeit federal protections.
- Extra payments applied to principal shorten the loan and lower the interest you pay.
Important caveats
This is a simplified estimate. Federal loans offer income-driven repayment plans, deferment, forbearance and potential forgiveness that change the numbers, and subsidized loans may not accrue interest during certain periods. Variable-rate and private loans behave differently. Check your loan servicer for your exact terms before making decisions.
Formula
r = annualRate/100/12; balanceAfterGrace = P·(1+r)^graceMonths; payment = B·r / (1 − (1+r)⁻ⁿ)Frequently asked questions
- What does capitalized interest mean?
- Interest that builds up before repayment starts is added to your principal. You then pay interest on that larger balance, raising your total cost.