This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
Paying later still costs something
A deferment lets you postpone loan payments for a while: during school and the six-month grace period for student loans, during a period of unemployment, or at the start of some professional or business loans. Payments stop, but interest usually does not. What happens to that interest decides how much the deferment really costs.
Three ways interest can be handled
- Interest paid as you go: you pay only the interest each month during the deferment. The balance stays the same, and the deferment costs exactly the interest you paid.
- Interest added each month: unpaid interest joins the balance every month, so interest earns interest. This is common on private loans.
- Interest added once at repayment: interest accrues as simple interest and is capitalized when repayment begins. This is how unpaid interest on US federal Direct Unsubsidized Loans is treated after the grace period.
On federal Direct Subsidized Loans, the government pays the interest during school, the grace period and approved deferments, so the balance does not grow at all.
The formulas
With a monthly rate i = annual rate ÷ 12, a deferment of d months and a balance P:
- Interest paid as you go: balance after deferment = P, monthly interest = P × i
- Interest added monthly: balance = P × (1 + i)ᵈ
- Interest added at the end: balance = P × (1 + i × d)
The monthly payment afterward is the standard amortized payment: balance × i ÷ (1 − (1 + i)⁻ⁿ) for n months.
Example
A $30,000 unsubsidized student loan at 6.5%, borrowed at the start of a four-year degree, deferred 54 months (school plus the grace period), then repaid over 10 years:
- Interest accrued during the deferment: $8,775
- Balance when repayment starts: $38,775
- Monthly payment: $440.28
- Total interest: $22,834
- Extra cost compared with repaying right away over 10 years: about $11,957
How to reduce the cost
- Pay the interest while in school, even in small amounts, to stop it from being capitalized.
- Use the grace period to make at least a few payments.
- Borrow only what you need, and accept subsidized loans first if you qualify.
- Check whether your employer or a public service program helps with repayment.
Limits
The calculator uses a fixed rate and a standard repayment plan. Real student loans are often disbursed in several installments, which lowers the interest during school, and income-driven repayment plans set payments by income. Use your loan servicer’s figures or the official StudentAid.gov loan simulator for decisions.