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Understanding the way interest accrues on your student loan is essential to understanding how your student loan works. Interest accrues on your student loan every single day, even if your account is not in repayment. Additionally, your payments satisfy only the interest currently accrued on the account; a payment cannot satisfy future interest.

For more on interest, read our Interest FAQ.

Interest Accrual Formula

When you sign for your student loan, the amount you agree to pay for the disbursement check and all applicable loan fees becomes your principal balance. Your promissory note explains how interest accrues on that principal balance. We use a simple formula to calculate your daily interest accrual:

Interest rate x Current principal balance ÷ Number of days in the year = Daily interest

For example, Sara Student has a $10,000 current principal balance and 6% interest rate this year. Using the formula:

0.06 x $10,000 ÷ 365 = 1.6438356… (Round to $1.64)

If this were a leap year:

0.06 x $10,000 ÷ 366 = 1.639344… (Round to $1.64)

How Payments Apply to Interest vs. Current Principal Balance

Interest accrues on your student loan from the day the loan is disbursed until the day you make the very last payment. The best way for you to manage the amount you owe toward interest vs. principal is to make your payments regularly and on time. The easiest way to do this is to sign up for Direct Debit, which automatically processes your payments every month on the exact due date.

Payments are applied to loans in one of two ways generally based on the terms of your loan agreement and, in some cases, based on your repayment plan. Below are the two ways in which your payment may be applied:

  • Accrued interest >> Late fee (if applicable) >> Current principal balance
  • Late fee (if applicable) >> Accrued interest >> Current principal balance

Sign in to Account Access to review the payment application order specific to each of your loans in the Loan Details section.

Whenever you make a payment, we count the number of days since we processed your last payment. Your new payment must first satisfy the amount of interest that accrued in this time. The remainder of your payment then counts toward the current principal balance. If your payment is late, we will pay off the late fee before we apply any funds to your current principal balance.