Student Loans: How Much You Really Pay

Student Debt is Good Debt – Is It Really?

How much do you really pay for that student loan?

A 46-year-old mom just called me the other day and said her student loan, that originally totaled $40,000 when she borrowed these funds, is now up to $94,000, 20 years later.

Her grim outlook: I’ll be paying this back for the rest of my life. Why? It’s called compounding of the interest on the loan and/or loan deferment, if there is a period of time you apply to not make your loan payments, amongst other actions that can be taken.

So how much do you really pay for that student loan?

Let’s take a look.

Amount Borrowed: $30K of unsubsidized federal student loans at an interest rate of 4.53% (Current rate for 2019-2020 academic year.

Standard Repayment (10 Years): Total Repaid $37,311, 120 Months Repayment Period, $311 Per Month

Graduate Repayment (10 Years): Total Repaid $39,161, 120 Months Repayment Period, $175 – $525 Per Month

Extended Repayment (Stretches to 25 Years): Total Repaid $50,027, 300 Months, $167 Per Month

Income-Driven Repayment (4 Repayment Options – Example Uses Revised Pay as You Earn): Total Repaid $37,356, 110 Months Repayment Period, $261 – $454 Per Month

Ways to Save:

• Make payments during the 6-month grace period

• Make interest-only payments while you are in college

• You can let your servicer automatically deduct payments from your bank account

• Prepay your student loans when you can – There is no penalty

• Note: All of the above options can save a portion of interest on your loan from being compounded, meaning there is interest on the interest

Lesson here is, if you take out a student loan you will be paying much more than the amount you originally took out. Understand how you can reduce the total amount to pay off your loan. As I have said many times before, applying this to other steps in your college admissions journey, don’t put off until tomorrow what you can do today.