Comments on: How Student Loan Interest is Calculated and Why it Varies from Month to Month

By: Mady

Mady — Thu, 26 Jan 2012 15:08:17 +0000

Hi,

I recently graduated last year and am in the process of paying off my student loans. I am utterly confused as to why the balance keeps going up instead of going down when I pay my payments on time or before time. I called up Sallie Mae and they say this is due to interest. If anyone can explain the financing procedures that would be much appreciated, thank you.

By: Matt Jabs

Matt Jabs — Mon, 19 Dec 2011 01:57:50 +0000

Hi Sara, the only way to know for sure is to call your loan servicer and work it out with them. It is possible they made a mistake so if you go over the details with their support reps, you will be able to work it out and get the final answer.

By: Sara

Sara — Sat, 17 Dec 2011 00:48:46 +0000

I stumbled across your website trying to figure out interest calculations and have a couple questions. I have a Wells Fargo student loan from 2005 (original balance $13,775) and upon review today, my balance has decreased to $11,639. So I started to wonder how in the heck my balance only went down a little over $2,000 in 6 years! I went through my promissory note and while I’m not 100% certain I understand their legal jargon (why can’t they put notes in layman’s terms?) interest isn’t capitalized after the deferment period, just added to the total interest paid. The term length is 180 months regardless of how long I’m in deferment.

I came across your calculation tool and used it to figure how much of my principal is being paid each month. I gathered up all my statements and went from month to month calculating. So please let me know if I’m doing it right… I took the amount of days between my last payment received and current payment received, multiplied by the principal of the loan, multiplied by the interest rate factor. Sometimes I would pay the amounts due within 28 days, sometimes it was 38 days. Should I use a 30 day interest period across the board?

Anyway, my numbers are different from what my statements are saying. It appears that more of my payments should be applied to principal but are going to interest. It is small amounts, maybe $2 here and $5 there, but that can add up over the lifetime of the loan! What I’m worried about is that if this is happening then that means I’m being charged more interest than I should be since my principal isn’t decreasing properly and, my 180th payment could me some exponentially large amount due to these calculations.

Am I looking at this right? Is there something that needs to be done?

Some more information:
I have not had any late fees in the past year.
I am in full repayment.
My interest rate is variable but has been at a steady 9% for the past 18 months.

What am I missing? Thanks.

By: Matt Jabs

Matt Jabs — Wed, 14 Dec 2011 15:19:55 +0000

Way to persist Mike!

By: Mike R

Mike R — Wed, 14 Dec 2011 01:54:45 +0000

Thanks to Matt for this subject and all those who added to it. By studying comments here and fully reviewing the Sallie Mae website, I got smart enough to call Sallie Mae and persist when answers were incomplete. There definitely are varying levels of customer service. My 7th call connected with a senior Advocate who had greater access to loan history which solved the dilemma. The senior Advocate clearly had more experience and authority and sent me a hard copy of the full history which was incomplete on the website account. One’s chances of success are greatly improved in knowing what questions to ask and persist until you have clarity. Still, it took 6 weeks from my first call to full resolution.

By: damian

damian — Sun, 11 Dec 2011 15:30:20 +0000

Actually I just talked with my student loan vendor, and was told that every month the interest is calculated off the current principle amount NOT the original principle amount so I have to totally agree with Danielle on this one. My original loan was 35,000 but my interest is being calculated by 39,454, because that is the loan plus interest fees. So it is compounded.

By: Matt Jabs

Matt Jabs — Tue, 22 Nov 2011 16:13:44 +0000

Yep, and remember that no matter when you pay you will always pay the same interest amount because there is 365 days of interest charged regardless of when you send payments. (Late payments not included of course because then fees will be tacked on.)

By: Rich

Rich — Tue, 22 Nov 2011 14:02:01 +0000

remember the calculation is based on the due date. So if you have a due date of October 31 and you pay on October15 the next bill is calculated for interest of 16 days in october and the 30 days in November. Making the bill higher even though they do put the early payments toward your principal the bill is still higher because the bank has to assume you will not pay until the Nov 30 due date. This is a hard lesson

By: Matt Jabs

Matt Jabs — Wed, 19 Oct 2011 20:41:48 +0000

That I cannot answer. I would say call your loan provider and perhaps your representatives.

By: maybelfort

maybelfort — Wed, 19 Oct 2011 20:40:14 +0000

Seems that the way interest is calculated is plain wrong and adverse to students. Wondering if there is any consideration to change the way it is calculated. Seems to me if calculated the same as a mortgage, it would be easier for students.

By: Matt Jabs

Matt Jabs — Tue, 18 Oct 2011 23:13:50 +0000

Although it seems like there may be, after running the numbers there is no advantage. I also spoke extensively with my loan provider to ask the question and they confirmed my hunch.

By: Bill

Bill — Thu, 22 Sep 2011 22:39:01 +0000

Is there any advantage to make multiple payments per month versus only one payment? For example, if my monthly payment is $1,000, should I make a payment of $250 every week instead of one monthly payment of $1,000?

By: Matt Jabs

Matt Jabs — Wed, 27 Jul 2011 03:19:38 +0000

Hi Heather, I never created a spreadsheet for this calculation, I simply used a calculator and plugged in the numbers. Commentator Julie created a spreadsheet but I never received a copy of it. You should be able to plug in your numbers and find your answer.

By: Heather

Heather — Mon, 25 Jul 2011 20:00:22 +0000

Julie S.

Is there anyway you could e-mail me the spreadsheet you made, except blank? I read all the comments, but I’m having a hard time visualizing how to setup a spreadsheet using this information. If there is anyway you could send me a blank spreadsheet setup the way you use it, I would greatly appreciate it. Could you title the e-mail loan spreadsheet?

Thank you,
Heather

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By: Matt Jabs

Matt Jabs — Fri, 25 Feb 2011 03:59:43 +0000

Are they all the same interest rate? If so, the only benefit to knocking one out before the others is to see less loans under the group. If that motivates you then you can go for it. To accomplish this you’ll need to continue paying your minimum payments plus extra principal payments with specific instructions to apply toward that individual loan (the smallest first.)

By: ohricky

ohricky — Fri, 25 Feb 2011 02:36:33 +0000

Does anyone know if it’s possible to apply a payment towards a particular loan? In my Sallie Mae account, have a single billing group encompassing 7 loans of varying amounts; I’m wondering if there’s any benefit to knocking any of those specific loans out.