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This calculator analyzes many different types of loan discounts,
expressing them as the equivalent nofee interest rate discount starting when
the loan enters repayment. It also reports the total savings expressed
as a dollar amount and a percentage discount relative to the total
payments. It assumes that any discounts are applied to the loan and
not rebated to the borrower.
When loan fees are added to principal, the loan balance is increased
so that the initial loan balance is the specified amount.
To include a discount, check the box next to the discount and specify
the details. Be sure to indicate whether the discount requires prompt
payments or not.
Note that this calculator compares the discounted loan with the
terms of the undiscounted loan in order to calculate the savings. So
if a lender reduces the interest rate or rebates the loan fees, this
should be expressed using a discount and not by changing the base
interest rate and fees for the loan.
If a nonzero probability of missing a payment is specified, the
calculator will estimate the expected savings averaged across a
population of borrowers with the given probability of missing a
payment.^{1}
Some of these borrowers will receive the discount and some
will not, to varying degrees.^{2}
The calculator does not use Monte Carlo simulations to calculate the
expected value, but instead uses an approximation that derives a
reasonably close upper bound on the expected value. Most borrowers
will experience a probability of missing a payment somewhere between 1
in 36 (2.75%) and 1 in 12 (8.33%).
For the purpose of principal reductions, original balance is
defined as the original loan amount at disbursement, not including any fees
added to principal or capitalized interest added
during the inschool period. This is the discount one would use to
implement a loan fee rebate. The initial balance is defined
as the initial loan amount when the loan enters repayment, including
fees and capitalized interest. The current balance is defined
as the loan balance in effect at the time the discount is applied.
A principal reduction at disbursement is based on the original balance
and occurs relative to the inschool/grace period.
There are two types of interest rate reductions. Repayment period
interest rate reductions apply to the repayment rate and start
relative to when the loan enters repayment. Inschool/grace period
interest rate reductions apply to the inschool rate, start
relative to disbursement and end when the loan reaches the end of the
grace period. Repayment period rate reductions may be subject to a
prompt payment requirement, if so specified in the
discount. Inschool/grace period rate reductions are not subject to
prompt payment requirements, regardless of what is specified in the discount.