How the Student Loan Calculator Works Last February, the Republican Raid on Student Aid cut $12 billion from federal student aid programs, primarily by raising rates student and parent education loans. Under this law, which will take effect July 1, 2006, the fixed interest rate on new education loans is 6.8 percent for student borrowers and 8.5 percent for parent borrowers. Under the Democratic plan, as introduced in H.R. 5150, the interest rate would be 3.4 percent for student borrowers and 4.25 percent for parent borrowers. All rates used in the Student Loan Calculator are for new student and parent federal education loans, beginning July 1, 2006. The savings shown is the difference between what you would pay under the current law’s rate and the Democratic plan. The average student borrower, who has $17,500 in debt, would save $5,600 under the Democratic plan. For more information on H.R. 5150, click here. Calculations and Assumptions The Student Loan Calculator assumes a fixed rate for the life of your loan. For simplicity’s sake, it also assumes that minimum payments are made throughout the life of the loan. This calculator uses a standard compounding interest calculation. [ loan amt * (rate/12) ] * [ {1 + (rate/12)} (# of years to repay * 12) ] For example, the monthly payment for an average 15 year loan (180 months) of $17,500 with a 6.8% interest rate: [ 17,500 * (0.068/12) ] * [ {1 + (0.068/12)} (15 * 12) ] The total repayment on the loan is calculated by multiplying the monthly payment by the number of months required to repay the loan. For example, the loan calculated above has a total repayment of $27,961.20 ($155.34 * 180 months). All calculations are an estimate based on the above equations, and may not reflect the actual amount computed by your lender.
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