| I suppose? The above mentioned method is really inaccurate. Student interest is calculated daily. Here is a top search result for calculating student loan interest. They suggest not to do a yearly approach like you suggest. It even mentions doing a daily compounded function. I added a [LEAP] where the author left the reader hanging. ---
To understand how compound interest works, let’s look at an example. Consider a Direct loan with a $10,000 balance and a 4.45% interest rate. First, you figure your daily interest rate by dividing 4.45% by 365 to get 0.012%. On $10,000, that works out $1.20. That $1.20 is added to your loan balance, bringing it to $10,001.20. That’s your new balance, and when interest is compounded the following day, you’ll pay interest on that total amount. [LEAP] By the end of the year, you’re looking at paying $455.02 in interest, rather than the $445 you’d pay if your interest was compounded just once a year instead of daily. https://studentloanhero.com/featured/how-student-loan-intere... |
> By the end of the year, you’re looking at paying $455.02 in interest, rather than the $445 you’d pay if your interest was compounded just once a year instead of daily.
They used the wrong percentage and got $445/year. That's off by $10/year. Still, it's close enough to use for yearly financial planning and for judging if the loan is worthwhile. It should be sufficient to prevent any surprises like the article author's.