How College Loan Interest Rates are Calculated

The amount of interest charged on college loans is calculated as simple daily interest. Simply put, the outstanding principal balance is multiplied by the interest rate and divided by 365 days to calculate one day's interest amount. So, if you have a $10,000 loan, with a 7.00% interest rate, the formula would be $10,000 x 0.07/365 and the amount of interest that accumulates for one day would be $1.92.