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About the Student Loan Refinance
Student loan debt in the United States now exceeds $1.7 trillion, spread across more than 43 million borrowers. For many graduates, the monthly payment is the largest single financial obligation outside of rent or a mortgage, and the repayment timeline extends a decade or more. This calculator helps you model different repayment scenarios, understand the true cost of your debt, and identify strategies to minimise total interest paid.
How the calculation works
The calculator uses the standard loan amortisation formula to compute monthly payments and the full payment schedule for a given loan balance, interest rate, and repayment term. The key output is total interest paid over the life of the loan, which is often startling: a $45,000 loan at 6.5% repaid over 10 years costs $15,741 in interest. Extending to a 20-year term cuts monthly payments but increases total interest to $34,128 — nearly doubling the interest cost.
Federal repayment plan options
Federal student loans offer multiple repayment plans beyond the standard 10-year plan. Income-Driven Repayment (IDR) plans — including SAVE, PAYE, IBR, and ICR — cap payments at 5%–20% of discretionary income and forgive remaining balances after 10–25 years of qualifying payments. The right plan depends on your income trajectory, loan balance, and whether you qualify for Public Service Loan Forgiveness.
Public Service Loan Forgiveness
PSLF forgives remaining Direct Loan balances after 120 qualifying monthly payments while working full-time for a qualifying employer — federal, state, local, or tribal government agencies, or eligible 501(c)(3) nonprofits. Under PSLF, the forgiven amount is not taxable. For borrowers with large balances and careers in public service, PSLF can be transformatively valuable. Borrowers pursuing PSLF should file the Employment Certification Form annually rather than waiting until the end.
Refinancing federal loans: benefits and risks
Refinancing federal student loans into a private loan can lower your interest rate significantly if your credit score and income have improved since graduation. The trade-off is permanent: once federal loans are refinanced into private loans, you lose access to IDR plans, PSLF eligibility, federal forbearance, and income-driven forgiveness. Refinancing is rarely appropriate for those with large balances relative to income who might benefit from IDR or PSLF.
The impact of capitalised interest
Capitalised interest is unpaid interest that is added to your principal loan balance, so you then pay interest on the increased balance going forward. Capitalisation events occur when loans exit deferment or forbearance, when you switch repayment plans, or at certain IDR anniversary dates. A $50,000 loan that accrues $5,000 in unpaid interest during a deferment becomes a $55,000 principal balance after capitalisation. Making interest-only payments during school or grace periods prevents capitalisation from inflating your principal balance.
Frequently Asked Questions
Should I pay off my student loans or invest?
The mathematical answer depends on the interest rate. Federal student loan rates typically range from 5%–8%. If your loan rate is below 6% and you have an employer 401(k) match, you should absolutely capture the match first. At rates above 7%, paying down debt is likely better than investing in a taxable account. Roth IRA contributions may be worth prioritising even alongside medium-rate debt because of the permanent loss of contribution room.
What is capitalised interest and why does it matter?
Capitalised interest is unpaid interest added to your principal loan balance, so you then pay interest on the increased balance going forward. A $50,000 loan that accrues $5,000 in unpaid interest during a deferment period becomes a $55,000 principal balance after capitalisation — you then pay interest on $55,000 going forward. Avoiding unnecessary deferment and making interest-only payments during school or grace periods prevents capitalisation from meaningfully inflating your principal balance.
Is student loan interest tax-deductible?
Federal law allows a deduction of up to $2,500 per year in student loan interest paid, subject to income phase-outs. For 2024, the deduction phases out for single filers between $75,000 and $90,000 MAGI, and between $155,000 and $185,000 for married filing jointly. This deduction is taken above the line — you can claim it without itemising, making it available to most borrowers in the phase-out range.
Disclaimer
Actual loan terms depend on creditworthiness, lender criteria, and market conditions, and may differ materially from these estimates.
This calculator is for informational and educational purposes only. Results are estimates based on the inputs you provide and assumptions that may not reflect your actual situation. It does not constitute financial, investment, tax, legal, or accounting advice. Verify results independently and consult a qualified professional before making financial decisions. Digital.Finance makes no guarantee of accuracy or completeness.