How the student loan interest calculator works
On a Direct Unsubsidized Loan, interest starts the day the money is paid out and keeps going through school and the grace period. On a Direct Subsidized Loan, the government pays the interest while you're in school at least half-time and during the grace period. (studentaid.gov)
The calculator assumes each year's loan is paid out at the start of the school year, school ends 9 months into your final year, and repayment starts after the grace period. Interest before repayment is simple interest on each year's loan:
Interest = Loan × rate × months until repayment ÷ 12
A first-year loan in a 4-year program with a 6-month grace period gets 51 months of interest. A final-year loan gets 15. Real loans are often paid out in two halves per year, so actual interest can be a little lower.
Capitalization: federal vs private
Capitalization means unpaid interest gets added to your principal, so you start paying interest on interest. Since July 1, 2023, federal Direct Loans no longer capitalize interest when you first enter repayment. The interest is still owed, and your payments cover it before they touch principal. Capitalization still happens in a few cases set by law, such as when a deferment ends on an unsubsidized loan. (Final rule, 87 Fed. Reg. 65904, Nov. 1, 2022)
Many private loans do add unpaid interest to the balance when repayment begins. Check your loan agreement, then pick the matching option above.
Federal student loan rates for 2026-27
| Loan | Borrower | Fixed rate |
|---|---|---|
| Direct Subsidized and Unsubsidized | Undergraduate students | 6.52% |
| Direct Unsubsidized | Graduate and professional students | 8.07% |
| Direct PLUS | Parents and graduate or professional students | 9.07% |
For loans first disbursed July 1, 2026 through June 30, 2027. Source: U.S. Department of Education, Electronic Announcement GENERAL-26-33 (June 4, 2026).
Worked example
You borrow $5,500 a year for 4 years at 6.52%, for $22,000 in total, with a 6-month grace period and a 10-year repayment term.
As an unsubsidized loan, it builds up about $3,945 in interest before your first payment. Under federal rules that interest isn't added to the balance, and the monthly payment is about $292.08. Total interest comes to about $13,050.
As a subsidized loan, nothing builds up before repayment. The payment is $250.03 and total interest is about $8,004. That's $5,046 less.
If the same unsubsidized interest were capitalized, as many private loans do, total interest would be about $13,383.
Common questions
Does interest build up on student loans while I'm in school?
On Direct Unsubsidized and PLUS loans, yes. Interest starts when the loan is paid out. On Direct Subsidized Loans, the government pays the interest while you're enrolled at least half-time and during your grace period.
Is unpaid interest capitalized when repayment starts?
Not on federal Direct Loans entering repayment for the first time. A Department of Education rule that took effect July 1, 2023 ended that capitalization event. You still owe the interest, and payments go to it first. Many private lenders do capitalize at repayment, so read your loan terms.
Should I pay the interest while I'm still in school?
If you can, it helps. Every dollar of interest you pay early is a dollar you don't owe later, and on a private loan it keeps that interest from being capitalized. Even small monthly payments during school make a difference.
Who qualifies for subsidized loans?
Direct Subsidized Loans are for undergraduate students with financial need, as determined by the college from your FAFSA. Graduate students can't get them. Your aid offer shows which type you were offered.
What are the 2026-27 federal loan rates?
6.52% for undergraduate Direct Subsidized and Unsubsidized Loans, 8.07% for graduate Direct Unsubsidized Loans, and 9.07% for Direct PLUS Loans, for loans first paid out from July 1, 2026 through June 30, 2027.