# How to calculate outstanding Graduate Plus Loan balance currently in deferment?

Can someone tell me what I'm doing wrong here?

If I have a \$56,500 loan and the interest rate is 7.9% how much will I owe after 8 months?

I thought this would be fairly simple. I would compound the interest monthly:

``````After month one = 56500 * (1 + 0.079/12)
After month two = (56500 * (1 + 0.079/12)) * (1 + 0.079/12)
etc...
``````

Since I'm doing this in Excel, I just refer to the month one cell in the month two formula. After 8 months - I have an answer of `\$59,545`. But the bank says I actually owe `\$58,889.08`

I'm at a loss for how they got their number. I tried my calculations with the interest compounding daily:

``````After day one = 56500 * (1 + 0.079/365)
After day two = (56500 * (1 + 0.079/365)) * (1 + 0.079/365)
etc...
``````

And I get an answer of `\$59,641.07`

Which leads me to believe I'm doing it wrong. I'm trying to make calculations about the loan over the next 30 years and, as you can imagine, the margin of error I have in eight months extrapolated to 30 years is probably huge.

Can anyone tell me what I've done wrong?

Edit: the loan above is in the context of a Grad Plus Loan (a student loan that is currently in deferment). Perhaps that information will help.

• It could always be a bank error in your favor...
– Alex Becker
May 22, 2012 at 14:12
• It might be a good idea to make payments on the loan :)
– David Mitra
May 22, 2012 at 14:17
• There are many ways of expressing interest rates. If the 7.9% is effective annual rate instead of the nominal rate then your method will definitely over estimate the amount owed. If it is effective APR (with fees included) then even more so. You need to find out more about the loan for the question to be answerable here (or at money.SE): you need to know what kind of rate is quoted to you, you need to also know the compounding period.
– Willie Wong
May 22, 2012 at 14:23
• @David Mitra - it's a student loan that is currently in deferment. I'm trying to figure out how much the loan will be at graduation and how the interest will accrue later.
– Rob P.
May 22, 2012 at 14:38
• @Willie Wong - Thank you for your response. I know it's a Grad Plus Loan - but I can't for the life of me find any more information; not even on the website where I can manage the loans. It just says 'Interest rate 7.9%' I will keep looking
– Rob P.
May 22, 2012 at 15:56