Your student loan interest is keeping you broke and here’s why.

John Cook
John Cook
Nov 25, 2018 · 4 min read

When I look back on the level of effort it took for me to acquire $170,000 of student loan debt, it’s quite frankly shocking at how easy it was. A ‘pre-entrance loan counseling’ online class, a couple of digital signatures, and like digital magic, the transaction was complete.

What I continue to struggle with is the understanding that although it is easy to get into student loan debt, the path out is difficult

One of the key metrics in quantifying the difficulty of conquering student loan debt is to understand the impact interest has on the loan…I mean really understand the impact.

Do you know how much interest accrues within each loan daily, weekly, or even yearly? Do you know how much of your payment is applied to interest vs. principal?

Here’s how to calculate your student loan interest, step by step. We’ll use my current outstanding principal student loan balance of $154,793.48

Image for post
Image for post

Step 1. List all of your individual student loans in excel

Some loan servicing providers like edfinancial organize individual student loans into ‘groups’ based on disbursement date. For example, group G above is actually two individual loans related to tuition for a fall semester at USC.

Keep it simple, the excel file just needs 2 columns: interest rate, outstanding principal .

Step 2. Calculate the daily interest rate of each loan group

Continuing with group G, the annual interest rate for that loan group is 7.00% This means the $36,000 loan I received now has a balance of $38,520 365 days after the disbursement date as outlined below.

Image for post
Image for post

In step 2 we need to calculate the daily interest rate which is 7.00% / 365

You can see in this example the daily interest rate on a 7.00% loan is .02% or 1/5 of one percent.

Image for post
Image for post

When we apply this to the $154,000 principal balance across my aggregate loan groups you can see my daily interest rate hovers between 0.014 and almost .020.

Image for post
Image for post

This means that for every dollar I give to the US Department of Education almost 2 cents is allocated to interest. This doesn’t sound like alot, but with big numbers it’s huge! Keep reading.

Step 3. Multiple the daily interest rate by the outstanding balance

Here’s where the numbers get shocking. I can actually see how much interest my student loans accrue everyday by multiplying the daily interest rate by the outstanding balance (in this example the ‘outstanding principal)

The $154,793 principal balance accrues over $27 a day in interest alone!

Image for post
Image for post
This is why I stopped going to starbucks!

Let that sync in, my first job in high school paid $5.75 hour (shoutout to mervyns #rip!).

Step 4. Multiply the daily interest amount by 30 days

This calculation will give you the approximate interest each loan group accrues in a 30 day window. My $154,000 of student loan debt will accrue approximately $815 of interest in 30 days.

Image for post
Image for post

When we wonder why our student loan amounts never go down in the beginning…this is it! Initial repayment plans have over 50% of the payment balance going towards interest. The only path to reducing the interest payment is by making additional payments to principal.

What about you?

The $27 daily interest and $815/monthly interest on my student loans is honestly mind numbing and at certain times doesn’t seem real. It’s insane to think that the amount of student loan interest I battle every month is more

For me it is the affirmation that the only way out of this trap is

How much student loan debt do you have? How much interest does it accrue every month, do you even want to know?

This story is published in — a publication dedicated to helping you fight student loan and consumer debt by providing real-life, practical advice.

Image for post
Image for post

Subscribe to receive .

Educated and Broke

Eliminate student loans, escape the debt trap and create wealth

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface.

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox.

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store