If you're considering a master's in the US or UK, you'll meet two very different loan systems. The US system works like normal debt. The UK system works more like a graduate tax.
US federal loans: simple daily interest
daily interest = principal × annual rate ÷ 365
- Interest accrues daily on the principal.
- If you don't pay interest (e.g. during school or deferment), it accumulates.
- At certain events, unpaid interest capitalises, meaning it's added to principal. After that, you pay interest on interest.
Illustrative: $40,000 at 7% accrues about $7.67/day, or ~$2,800/year. If that's unpaid for two years and then capitalises, your principal becomes ~$45,600.
Rates for new federal loans are set annually. Private loans vary by lender and credit.
UK student loans: income-contingent
- You repay a percentage of income above a threshold, collected via payroll.
- Interest is linked to inflation (RPI), sometimes plus a margin depending on plan and income.
- Unpaid balances are written off after a set number of years.
So the size of your balance matters less than your income over time. Two graduates with the same balance can repay very different amounts.
The UK also offers a Postgraduate Master's Loan for eligible students, with its own terms.
For international students
International students usually can't access US federal loans or UK government loans. Options include scholarships, private lenders, and home-country loans. That's why fully funded programmes matter so much. See Best Scholarships for a Master's in AI and Erasmus Mundus vs Chevening.
Calculate it yourself
- US: model daily interest and capitalisation, and use my Compound Interest calculator to see how capitalisation behaves like compounding.
- UK: model income growth × repayment rate over the write-off period. The balance is secondary.
- For an EMI-style fixed repayment loan, my EMI calculator gives monthly payments.