About

Student loans function differently than standard consumer debt due to the unique mechanics of the Grace Period - the time between leaving school and starting repayment. Accuracy here is critical because interest accrual behaviors differ significantly between loan types. For unsubsidized loans, interest accumulates during school and is capitalized (added to the principal) upon graduation, creating a compound effect that often surprises borrowers. This tool models that specific behavior.

We provide a dual-scenario analysis: Current Path vs. Refinanced Path. This allows users to determine if consolidating variable federal loans into a fixed private loan offers a mathematical advantage, considering the trade-offs of losing federal protections. The calculator handles the logic for capitalization events and distinguishes between subsidized (government pays interest while in school) and unsubsidized (borrower is responsible) loans.

Formulas

The repayment calculation uses the standard amortization formula, but the Principal P is adjusted based on the loan type and grace period behavior.

1. Interest During Grace Period:

I_grace = P₀ × r × t_school

2. Adjusted Principal (at Repayment Start):

{

P₀ if SubsidizedP₀ + I_grace if Unsubsidized

3. Monthly Payment Formula:

A = P_adj r⋅(1 + r)ⁿ(1 + r)ⁿ - 1

Where P₀ is initial loan amount, r is monthly interest rate, and n is total payment months.

Reference Data

Loan Type	Grace Period Interest	Capitalization	Standard Rate (Approx)
Direct Subsidized	Paid by Gov	NO	5.50%
Direct Unsubsidized	Accrues Daily	YES (at end)	7.05%
Direct PLUS (Grad)	Accrues Daily	YES (at end)	8.05%
Private Loan	Accrues Daily	YES (varies)	4.00 - 15.00%
Refinance	N/A	NO (usually)	Market Dependent

Frequently Asked Questions

Capitalized interest is unpaid interest that is added to your principal balance. For unsubsidized loans, interest accrues while you are in school. When the grace period ends, this accrued amount is added to the original loan amount, meaning future interest is calculated on a higher balance (interest on interest).

Yes, significantly for unsubsidized loans. Since interest accrues during this time and is added to your principal, you effectively start repayment with a larger loan than you borrowed. For subsidized loans, the government covers this interest, so your balance remains the same.

Refinancing can lower your interest rate, but it converts federal loans into private loans. This means you lose access to federal benefits like Income-Driven Repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). The calculator shows the financial savings, but the loss of protections is a personal risk decision.

Student loans typically use a simple daily interest formula: (Principal Balance × Interest Rate) / 365.25. This amount accrues every day. The calculator estimates this monthly for simplicity.