Student Loan Calculator 2023: Free Tool and Guide

College tuition in the United States rises year after year, necessitating the use of student loans for many students. This can be daunting for students and families, making it difficult to understand the full scope of their financial situation.

It doesn’t help that a large number of graduates struggle with repaying their student debt. According to the Federal Reserve’s latest statistics, there is a total of $1.76 in student loan debt, and this number includes both federal and private student loans.

Fortunately, you can plan ahead by studying your options for educational loans and calculating the costs. This way, you can make better preparations for your post secondary education and your financial goals.

Federal Student Loan

A federal student loan is a type of financial aid that helps students pay for college. It is funded by the U.S. Department of Education and does not require a credit check or collateral to receive the loan.

Federal student loans have low, fixed interest rates and offer flexible repayment options, including income-driven plans and public service loan forgiveness programs. They also provide deferment, forbearance, and cancellation benefits in certain circumstances.

Types of Federal Student Loans

The two main types of federal student loans are Direct Subsidized Loans and Direct Unsubsidized Loans. Direct subsidized loans are based on financial need, while unsubsidized loans are not. Sometimes, these two are referred to as Stafford Loans, but these aren’t the official names.

Both types have a fixed interest rate that is set by the government each year. Additionally, there is an origination fee that you must pay when taking out a loan.

State Student Loan

A state student loan is a type of loan offered by individual states to help students cover the cost of attending college.

State student loans may be need- or merit-based, and have different interest rates, repayment terms, and eligibility requirements than federal student loans. They are typically used to supplement a financial aid package that includes other forms of aid such as grants and scholarships.

Unlike federal student loans, state student loans may require more stringent credit checks or collateral to qualify for the loan. Also, some states may provide other financial aid or related federal programs. Examples include forgiveness programs or lower interest rates for those who take out their entire loan from an in-state lender.

Private Student Loan

A private student loan is a type of financing that comes from private lenders, such as a bank or credit union. This may be used to pay for college tuition and expenses after federal financial aid received has been exhausted.

Private loans typically require borrowers to have established good credit history before they can qualify for them and usually carry higher interest rates than federal loans. Repayment terms vary depending on the lender but often include options for deferment, forbearance, and consolidation.

How to Calculate Student Loan Payments

Monthly loan payments are calculated using a variety of parameters, including loan amount, interest rate, loan period, and loan type. Here’s a general overview of how you can calculate loan or interest payments: 

Step 1: Gather loan details. Obtain the total loan amount, interest rate, and loan term. For example, let’s consider a loan amount of $30,000, a student loan interest rate of 6% per year, and a loan term of 10 years.

Step 2: Convert interest rate to monthly rate. Divide the annual interest rate by 12 to know how much interest it is monthly. For example, a 6% annual interest rate would be 0.06/12 = 0.005 monthly interest rate.

Step 3: Calculate number of payments. Multiply the number of years in the loan term by 12 to determine the total number of monthly payments. For example, a 10-year loan term would have 10 x 12 = 120 monthly payments.

Step 4: Use loan payment formula. Use the following formula to calculate the monthly loan payment:

Monthly Payment = (Loan Amount x Monthly Interest Rate) / (1 – (1 + Monthly Interest Rate)^(-Number of Payments))

Plugging in the values from our example:

Monthly Payment = ($30,000 x 0.005) / (1 – (1 + 0.005)^(-120))

Step 5: Calculate the loan payment. Use a financial calculator or spreadsheet software to solve the formula and calculate the monthly loan payment. In this example, the monthly loan payment would be approximately $333.78.

It should be noted that this is a simplified calculation and may not account for all factors, such as fees, grace periods, or deferment options, which may affect the actual total payment. Loan payments may also vary depending on the repayment plan you choose.

Loan Repayment Options You Should Know

Before you dive into calculating your student loan, it is also helpful to understand the different student loan repayment options available. Each of these loan options has its own benefits and drawbacks, so it pays to understand them in detail.

Standard Repayment Plan: This is the most common repayment plan, where borrowers make fixed monthly payments for up to 10 years. The amount of each payment is based on the size of their loan and the length of their repayment period.

Graduated Repayment Plan: With this option, borrowers start with lower monthly payments that gradually increase over time as their income increases, usually every two years for up to 10 years total.

Extended Repayment Plan: Borrowers can choose an extended repayment plan if they owe more than $30,000 in federal student loans. This plan offers fixed or graduated payments for up to 25 years.

Income-Based Repayment Plan (IBR): With this option, borrowers can cap their monthly payments at 10% or 15% of their income and have any remaining loan balance forgiven after 20 to 25 years depending on when the loan was taken out.

Pay As You Earn (PAYE) Plan: This is similar to IBR but with even lower payment caps and shorter repayment periods of 10–20 years based on when the loan was taken out.

Revised Pay As You Earn (REPAYE) Plan: This plan is available to all federal student loan borrowers and caps their monthly payments at 10% of their discretionary income, with any remaining total debt forgiven after 20–25 years.

Income-Contingent Repayment (ICR) Plan: This plan is offered only for Direct Loans, capping monthly payments at 20% of the borrower’s discretionary income with any current balance forgiven after 25 years.8. Student Loan Forgiveness Programs: These are special programs offered by the federal government, states, and some employers that can forgive all or part of a borrower’s student loan debt if they meet certain criteria.

Final Thoughts

A student loan payment calculator can help give a clear picture of your financial needs. This way, you can make an informed decision when considering taking out a student loan.

Additionally, use free tools available online to compare different lenders’ interest rates and repayment terms. If done correctly, taking out a student loan can help finance your college education without burning holes in your pockets!