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Student Loan Debt Management

How To Figure The Cost Of A Loan

Average Student Loan Cumulative Amount (Federal Perkins and Direct)
This chart shows the average cumulative student loan amount for undergraduate students graduating from IUPUI between July 1 and June 30 in each year.

Academic Year














Source: IU University Institutional Research and Reporting (UIRR)

Note: These Loan Debt Amounts use Constant 2016 Dollar Mean Loan Debt figures, i.e. each student's loan debt at graduation is adjusted using the annual average Consumer Price Index for the prior year, with 2016 as the base year.

Figure Future Payments Every Year
Visit NSLDS to see the total amount you have borrowed in the Federal Direct & Perkins Loan programs (NSLDS does not record private loan borrowing). Use one of the following techniques to calculate what your monthly payments are likely to be. Limit borrowing so that repayment of student loans and consumer debt payments require 15 percent or less of future take-home income.

Example: If you earn $24,000 a year, you will take home about $18,720 after taxes, or $1,560 a month. The most you should spend on payments toward student loans, credit cards, and a car loan is 15 percent of that, or $234.

Web Calculators
Some websites have calculators to test different amounts and payment plans. When using these calculators, make sure to calculate the figures using the accumulated principal expected at graduation. This means that if you are planning to capitalize interest on an unsubsidized loan, you will need to figure out the interest charged while in school, add it to the principal, and use that total in the calculator. The following site has a useful calculator: Federal Student Aid Repayment Calculator

How To Save Thousands Of Dollars In Loan Payments
Borrow Less and Save More
Because of the way interest works, a small change in the amount borrowed can mean a big savings in the total cost of the loan.

For example, Lisa, a junior, borrows $2,700 at 8.25% (this is an arbitrary rate not necessarily reflecting currently available student loan interest rates) with a Direct Subsidized loan. If she makes $50 monthly payments after graduation, she will pay the following:

Interest: $686
Total repayment: $3,386

If Lisa reduced the loan to $2,000, she would save more than the $700 difference in principal. With $50 monthly payments, she would pay:

Interest: $347
Total repayment: $2,347

By reducing the loan by $700, Lisa would save $339 in interest and reduce her repayment by $1,039. She would also spend less time paying off the loan - 4 years instead of 5.5 years. In addition, she may be able to find grant money by searching for a scholarship at the Office of Student Scholarships.

Get A Job Instead Of A Loan
For example, Michael, a dependent freshman, is deciding between accepting a $2,625 Federal Direct Unsubsidized Loan or taking out a smaller loan and working to make up the difference. His interest rate is 8.25% (this is an arbitrary rate not necessarily reflecting currently available student loan interest rates) and he expects to make $50 monthly payments after graduation.




Money Available


Total Loan Cost













Option 1: Michael borrows $2,625 for this year. It will take 5.5 years to pay it off, and he will pay $642 in interest.

Option 2: Michael takes a job that will earn $1,500 and borrows only $1,125. He will still have $2,625 for the year. It will take him 2 years to pay off the loan. He will pay $101 in interest.
Amount saved by working: $2,041

Option 1 got Michael $2,625. However, it will cost him $3,267 in the near future--a LOSS of $642 ($2,625 - $3,267). In option 2, Michael also got $2,625. Since he earned most of it, his borrowing will cost only $1,226. He comes out $1,399 ahead ($2,625 - $1,226).

Stick with Federal Subsidized Loans
Subsidized loans are offered to undergraduate students who show financial need. With a subsidized loan, the government will not charge interest until six months after you graduate or drop below half-time enrollment. This means if you borrow $5,000 while in school, upon graduation you will still owe just the $5,000. Once your 6-month grace period has expired, you start making payments and the interest begins accruing.

Capitalized Interest
On a federal unsubsidized loan, the government starts charging interest as soon as the loan funds are disbursed to the school. You can pay the interest while in school, or capitalize it--have it added to the principal. After the unsubsidized loan credits your account, the lender will send a quarterly bill for the interest accrued. Paying the interest while in school will help you reduce payments later.
When capitalizing interest, you do not pay the interest while in school. Instead, the lender adds the interest to what is owed each month once you are in repayment. This gets expensive! When the interest is added to the principal, the principal grows. The next time the interest is figured, it is based on a larger principal, so the interest for that period is higher.
The following chart shows two options:

• Pay the interest while the student is in school, or
• Have the interest capitalized--added to the principal--until graduation.

The chart shows figures for a $2,625 unsubsidized loan at 8.25% (this is an arbitrary rate not necessarily reflecting currently available student loan interest rates), paid back with $50 monthly payments on the standard repayment plan. The borrower attended school for 9 months, and then had a 6-month grace period.

Type of Interest

Loan amount in school

Interest charged in school

Interest Paid

Principal to be repaid

Total repayment

Interest expense

Not capitalized














Difference: $140

If you do not capitalize the above loan, you will pay $230 over the 9 months while in school (about $26 a month). After graduation, it will take 5.5 years to pay off the loan at $50 a month, for a total interest expense of $873.

If you do capitalize the loan, you will not pay any interest while in school. The interest will be added to the loan principal. After graduation, interest will be figured on this higher principal. It will take a little over 6 years to pay off the loan, for a total interest expense of $1,013.

Repay Quickly
The sooner loans are paid off, the less interest will be paid. There is no penalty for paying a Direct Loan early.