## Only 6% Interest

The interest on a student loan is calculated by multiplying the loan balance with the annual interest rate and the number of days since the last payment divided by the number of days in the year. Loan payments are applied first to interest, second to principal. This has several consequences:

If the payment is less than the interest that has accrued since the last payment, the loan is said to be negatively amortized. If the unpaid interest is capitalized – added to the principal loan balance – interest will start being charged on the interest balance, not just the principal balance. This increases the cost of the loan faster and faster.

Interest rate is a simple interest calculation which ensures that the principle amount is evaluated by 6% annually and divided by the loan term(months/years) to ascertain the installments you will be making on the interest per month.

However the interest on a student loan is calculated by multiplying the loan balance with the annual interest rate and the number of days since the last payment divided by the number of days in the year. Loan payments are applied first to interest, second to principal. This has several consequences:

If the payment is less than the interest that has accrued since the last payment, the loan is said to be negatively amortized. If the unpaid interest is capitalized – added to the principal loan balance – interest will start being charged on the interest balance, not just the principal balance. This increases the cost of the loan faster and faster.