Overview
When you make a loan payment, your payment is divided between paying down the principal (the original amount borrowed) and interest (the cost of borrowing). Understanding how this works can help you manage your loan more effectively.
Note: Relief Loans do not accrue interest, so this article does not apply to that loan type.
How Interest is Calculated
Simple interest is used to calculate your interest payments. This means:
Interest is applied only to the unpaid principal balance.
Interest does not accrue on any unpaid interest.
Interest accrues daily on the outstanding principal balance.
How Payments Are Allocated
Your loan payments are made in equal monthly installments, but the way your payment is applied changes over time:
At the beginning of your loan: A larger portion of your payment goes toward interest because the principal balance is still high.
As you pay down your loan: More of your payment is applied to the principal, and less goes toward interest.
Because interest accrues daily, the amount of interest in each payment depends on the number of days since your last payment.
Paying early? Fewer days of interest will have accrued, so more of your payment will reduce the principal.
Paying late? More days of interest will have accrued, reducing the amount applied to principal.
Checking Your Payment Breakdown
You can review how your payment is applied, including how much interest has accrued, by visiting the loan summary page on your dashboard.
💡Please note that if your payments are being made through a Chapter 13 bankruptcy, you will need to contact your attorney or trustee for updated claim and account balances. How your payments are allocated may be changed by disbursements received through your attorney or trustee.
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