This will most likely be a two-part post about college and student loans. This article will focus on the aftermath of student loan debt.
I have roughly 26k (according to my last net worth report) in student loans. Let me tell you IT SUCKS. I’ve had the Chase loan for almost 8 years and the My Great Lakes loan for almost 2 years. I wouldn’t call it a “good debt.” Although I earned my Master’s and have quite a bit of potential it has definitely been underwhelming to say the least. Talk to someone who has been paying off student loans for 10 years and then ask them if they still think it’s a “good debt.”
All complaining aside, I understand the value of education, and the pros and cons of college. This post is solely about paying of student loans. I’ve been tinkering and thinking all day of a way to knock out $4600 (Chase) worth of student loans. I was tempted to look at a personal loan to pay it off and up the minimum payment and lower the length of the loan to pay it off faster. Unfortunately, I have to do math to see if 4% with a personal loan would cost me less than 3.75% (variable). This post may or may not answer that question later. (If anyone has done this before, please leave me a comment so I can discuss this further with you). Well Chad, isn’t it simple that 3.75% is less than 4%…Well no.
Here’s Why Student Loans Suck More
How is interest calculated?
The amount of interest that accrues (accumulates) on your loan from month to month is determined by a simple daily interest formula. This formula consists of multiplying your loan balance by the number of days since the last payment times the interest rate factor.
Simple daily interest formula:
Outstanding principal balance
x number of days since last payment
x interest rate factor
= interest amount
What is the interest rate factor? The interest rate factor is used to calculate the amount of interest that accrues on your loan. It is determined by dividing your loan’s interest rate by the number of days in the year.
So what? Let’s break this down using a loan similar to my Chase loan (rounding numbers for ease). Let’s say my loan is $4500 with an interest of 5% paid 5 days ago.
I used this financial calculator and got the following results:
Using the financial calculator points something out for us. The Interest Rate Factor is also the Daily Interest Rate. That’s how much we are paying each DAY in interest. Multiply that over 10 years for the average student loan.
How Much I Will End Up Actually Paying
So if my original loan was $10,000 over 10 years. I end up paying more than 1.5x the principal (original balance). Still think you NEED that student loan?
This loan will cost me approximately $15,002.74. To borrow $10,000. Let’s drop some zeros. Would you borrow $10 to end up paying back $15, what about $100 and $150? Sucks huh?
The worst part is I still have another student loan that’s already gained over $1,000 in pure interest. Yes, I’m highly rethinking I needed or wanted my student loans. But fear not, my focus shall not fail. The best part about paying it all off? You don’t have to make minimum payments. That’s the largest “secret” to getting out of student loan debt faster. The faster you pay off your loans the less interest will accumulate.
Now all that negativity is done let’s get some success stories. So many blogs are out there. I paid $40,00k off in 24 months! Or some similar. One of my favorite bloggers, Whitney Hansen, has one of these success stories (she’s given me permission to link to her site, so go check her out, she also has an amazing podcast and Facebook group). Whitney is a straight bad*ss. She bought a house at 19 and has since paid for it, and got her Master’s degree for less than $500. Here’s how she knocked out $30,000 in a less than a year.
I hope one day to be one of these success stories. It might be closer to $40,000 in 5 or 6 years, but some people NEVER get out of debt. That scares the crap out of me. Especially since I want to retire before 60!
Still working on a student loan? Paid yours off recently or have one of those exciting success stories? Drop a comment below. Know someone thinking about taking on student loans? Share this article with them!