Proper way to calculate interest on loans while in school

[wired202808]

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Here's my question:

I take out 20K in 6.8% unsub Stafford loans during my D1, how do I calculate the total loan amount by the time I graduate from school?

Do I assume yearly compounding and simply go =20000*1.068*1.068*1.068*1.068

Thanks everyone.

 

[sacapuntas]

Interest = P r t

Interest = 20,000 * 0.068 * 4

= 5440

so your amount would be 25540 when you are done after 4 years.

 

[wired202808]

Interest = P r t

Interest = 20,000 * 0.068 * 4

= 5440

so your amount would be 25540 when you are done after 4 years.

Do they compound yearly?

Also with the Grad Plus I see some Origination Fees at 4% and the 7.9% interest rate, so does that mean that the total rate is 11.9%

Sorry for such basic q's. I never took out student loans.

 

[Timpson]

The federal government is now in charge of the student loan business. They set the interest rates. These rates change all the time. The hope is that we will all be able to consolidate at a lower rate like many people I know did in the early 2000s. Now, Stafford loans are @ 6.8% interest and grad plus are @ 8%. Chances are, at least half of your loans will be grad plus. Also, I think only like around 7000-8000 are subsidized stafford loans. It is very difficult to calculate interest on your loans because the financial markets are always changing.

 

[sacapuntas]

Do they compound yearly?

Also with the Grad Plus I see some Origination Fees at 4% and the 7.9% interest rate, so does that mean that the total rate is 11.9%

Sorry for such basic q's. I never took out student loans.

I believe they compound monthly and you actually figure using (1/12) of the interest rate and use months for the time, but I may be wrong on that. It hardly changes the value of interest though, compound yearly is a good approximation.

Origination fee means you pay 4% of the value of that loan up front (that is crazy high, am not looking forward to grad plus loans!). On my house it was a 0.5% origination fee.

So, if you were to take out a 20,000 loan with 4% origination fee it will cost you $800 up front and then 7.9% interest after that. I believe some/most lenders will let you roll that $800 into the loan.

So, for a 20,000 loan with the circumstances you said,

interest = 20800 * 0.079 * 4 = 6572.80 + the original 20800 = $27372 when you graduate.

If that doesn't make you go 😱 I don't know what will.

 

[wired202808]

The federal government is now in charge of the student loan business. They set the interest rates. These rates change all the time. The hope is that we will all be able to consolidate at a lower rate like many people I know did in the early 2000s. Now, Stafford loans are @ 6.8% interest and grad plus are @ 8%. Chances are, at least half of your loans will be grad plus. Also, I think only like around 7000-8000 are subsidized stafford loans. It is very difficult to calculate interest on your loans because the financial markets are always changing.

yes but i can use the current years #s as some sort of base. Its not good to turn a blind eye towards the interest rates, its good to have something in mind so you know what your level of expectation is.

 

[ginaych]

Do they compound yearly?

Also with the Grad Plus I see some Origination Fees at 4% and the 7.9% interest rate, so does that mean that the total rate is 11.9%

Sorry for such basic q's. I never took out student loans.

looks like stafford loan is compounded daily. so that means to calculate the total amount you owe after four years you will do:

P(1+i/365)^(365*4)

just minus original P to get the interest

 

[lillified]

Is that the formula for compound or simple interest?

 

[sacapuntas]

looks like stafford loan is compounded daily. so that means to calculate the total amount you owe after four years you will do:

P(1+i/365)^(365*4)

Good to know they compound daily,

I remember way back when I took my original business degree, we figured a bunch of different interest scenarios and compounding daily isn't as terrifying as it sounds. It doesn't make as much difference as you would assume it would.



Disclaimer on this thread:

I am in no way a financial source of info, I am doing my best to answer wired's questions based on experience from paying on my student loans and any #'s I said are only approximations that are probably fairly close to accurate.

 

[Duriel]

If I have really good credit and my mom cosigns with good credit would I be better off with a private loan?

 

[wired202808]

Good to know they compound daily,

I remember way back when I took my original business degree, we figured a bunch of different interest scenarios and compounding daily isn't as terrifying as it sounds. It doesn't make as much difference as you would assume it would.



Disclaimer on this thread:

I am in no way a financial source of info, I am doing my best to answer wired's questions based on experience from paying on my student loans and any #'s I said are only approximations that are probably fairly close to accurate.

Ye daily isnt that bad. I just want to know the closest approx possible.

So for Grad Plus do you say that interest rate is really 11.9% since the interest rate is 7.9 + 4.0 origination fee?

Is that accurate?

 

[letsdoitbama]

The 4% is just for the origination, so the way I see it that's a one time fee basically added to the principle. From there, grad plus compounds at 7.9% all the while you're in school, so by the time you begin repayment it's definitely not what you borrowed to begin with. Keep in mind you get 6.8% up to a max of $47000. The 6.8% loan also has only a 1.5% origination fee.

 

[ginaych]

oops okay so i made a mistake. looks like the loan is not compounded while you're in school and in grace period. the interest just accrues starting day1. so to calculate the interest of the $ borrowed in D1 after 4 years:

P*i*4

then after the grace period the unpaid interest will be capitalized (Pnew) and the compounding starts (assuming daily):

Pnew(i/365)^365 for one year

 

[letsdoitbama]

see bereno's fancy excel loan calculator thing. It's spot on, however doesn't account for variable interest rates with some of your loan at 6.8 and the other at 7.9, so I kind of averaged them. Also doesn't account for origination fees.

 

[wired202808]

oops okay so i made a mistake. looks like the loan is not compounded while you're in school and in grace period. the interest just accrues starting day1. so to calculate the interest of the $ borrowed in D1 after 4 years:

P*i*4

then after the grace period the unpaid interest will be capitalized (Pnew) and the compounding starts (assuming daily):

Pnew(i/365)^365 for one year

Can you create something in Excel where I can plug and play? I really want to try to get the best estimate possible.

 

[Bereno]

see bereno's fancy excel loan calculator thing. It's spot on, however doesn't account for variable interest rates with some of your loan at 6.8 and the other at 7.9, so I kind of averaged them. Also doesn't account for origination fees.

Yeah, I am going to try and update it with a few more options... I just don't want it to get too cumbersome to use.

I will update my old thread when I get the time.

 

[wired202808]

So far I found something like this.

https://www.studentloan.com/paymentcalculator/index.htm

While it doesn't incorporate the origination fee it was pretty spot on!

 

[Bereno]

Also as a side note, I have always not considered the origination fee using educational loans. I was under the impression that this fee was taken from the dispersed amount.

Example:
$10,000 loan with 4% origination fee.
Amount dispersed: $10,000.
Fee: $400
Money received: $9,600.

Consequently, the loan amount is still $10,000 regardless of fees, so I have not included them in my calculator. If anyone has any updated info on this, please let me know!

 

[wired202808]

Also as a side note, I have always not considered the origination fee using educational loans. I was under the impression that this fee was taken from the dispersed amount.

Example:
$10,000 loan with 4% origination fee.
Amount dispersed: $10,000.
Fee: $400
Money received: $9,600.

Consequently, the loan amount is still $10,000 regardless of fees, so I have not included them in my calculator. If anyone has any updated info on this, please let me know!

So then wouldnt you need to take out 10,500 in order to cover the origination fee and still get around $10,000?

That makes the origination fee into a worse off fee, almost like a punishment. Since you'll need to take out 500 more to cover the 400 fee.

 

[FLOSS UR TEETH]

Also as a side note, I have always not considered the origination fee using educational loans. I was under the impression that this fee was taken from the dispersed amount.

Example:
$10,000 loan with 4% origination fee.
Amount dispersed: $10,000.
Fee: $400
Money received: $9,600.

Consequently, the loan amount is still $10,000 regardless of fees, so I have not included them in my calculator. If anyone has any updated info on this, please let me know!

I thought that it was more like you pay 10,400 for a 10,000 loan upfront due to origination fee....

 

[letsdoitbama]

I thought that it was more like you pay 10,400 for a 10,000 loan upfront due to origination fee....

sounds about right

 

[wired202808]

I thought that it was more like you pay 10,400 for a 10,000 loan upfront due to origination fee....

You're wrong. Bereno is right.

"Origination fees are a processing fee retained by lenders. Stafford loans typically do not have origination fees, but a guarantee fee is likely. The fee is usually 1% of your loan amount. The 1% is taken from the amount you were awarded and therefore, what you actually receive will be the awarded amount minus the fees."

http://www.staffordloan.com/staffor...fewer-stafford-loan-funds-than-i-expected.php

So you have to take out a higher amount just to cover the fee. ie. in order to receive 10,000 with an origination fee of 4% you need to take out 10000/(1-.04) = 10,417

The worst part is that you might need to take out the $417 from the grad plus loans. 🙁 damn all these sneaky fees.

 

[dantemac]

The proper way to calculate interest is watch it accrue every month online. Every dental student says it's a b*tch 😉