How student loan repayment is calculated
Student loan repayment uses the same amortization maths as any instalment loan. Each monthly payment is split between interest on the outstanding balance and reduction of the principal. Early payments carry a larger interest component because the balance is highest at the start; over time the interest share falls and principal repayment accelerates.
The standard repayment plan divides the loan into 120 equal monthly payments over 10 years. The extended plan stretches the term to 25 years, which lowers the monthly payment but increases total interest substantially. A graduated plan starts with a lower payment that increases at set intervals, typically every two years.
When the interest rate is zero, the monthly payment is simply the balance divided by the number of months. For any positive rate, the standard amortization formula is applied.
M = L x r / (1 - (1 + r)^(-n))
M is the fixed monthly payment, L is the loan balance, r is the monthly interest rate (annual rate / 12), and n is the total number of monthly payments.
Total interest = (M x n) - L
Total interest is the sum of all payments minus the original loan balance. This represents the true borrowing cost.