Loan Discount Analyzer
This calculator analyzes many different types of loan discounts, expressing them as the equivalent no-fee 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 non-zero 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 in-school 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 in-school/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. In-school/grace period interest rate reductions apply to the in-school 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. In-school/grace period rate reductions are not subject to prompt payment requirements, regardless of what is specified in the discount.
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