How Much is Student Loan Interest Really Costing You?

The rising student loan debt is one of the greatest financial problems plaguing millennials, especially millennial women.  As of 2014, women account for 55 % of students enrolled in four-year colleges in the United States, according to the Federal Education Department and the figures continue to lean in favor of higher educated women.  With the average student loan debt at a little over $30,000 and growing, how are we ever going to eliminate student loan debt at all? The answer lies first in understanding the numbers.

How To Calculate Your Real Student Loan Interest from Top Millennial Finance Blogger, Danielle YB Vason of She Makes Cents

By definition, a loan is something that is borrowed that is expected to be paid back with interest.  The operative word in that definition is “interest”.  When you borrowed money from the government or your loan provider, you were given this money with the expectation that they will get their money back from you.  In fact, they expect you to take your take, defer, and get off track because their business is in the interest and not the actual repayment of the original loan.  Let me say that again for you.  They make their money on the interest because you are expected to pay back what you originally borrowed.  Student loan interest accrues daily once you are in your repayment period, which usually begins 6 months after your graduation date.  So what does that mean exactly?

How Does Student Loan Interest Add Up?

I will use my student loan numbers to help you visualize why interest will keep you in debt if you don’t start to get aggressive.  The exact math on this chilling realization is why millennials have a record amount of debt and a lower amount of home ownership.  I have two loans that were consolidated for a collective original loan amount of $24,422.77 back in 2007.  As of today, I have paid $21,189.89, which means that if this were an interest-free loan, I would only be $3232.88 away from having the loan paid off completely.  However, because of interest, I still owe $16,738.90.    How’s that you ask? Well, in the 10 years that have had this loan, interest has accrued daily. If you have studied your loan, you will notice that your daily accrual rate will change over the life of the loan.  If you are paying down your debt, your daily rate will eventually reduce as a result of the reducing current balance.  However, if you are one of those out of sight out of mind people who knows you have student loan debt that you have ignored, paying a reduced payment when you really can afford to pay more, or continually delaying your payment period, your daily rate is increasing…well, daily.

How To Beat Your Student Loan Debt

Currently, my student loan interest in accumulating at $3.09 per day/ $1127.85 per year, which is the lowest it has ever been.  To beat the system, you must pay your debt down at a faster rate than it is growing.  At $3.09 per day/ $92.70 per month, my snowball must be more than the monthly interest to make a difference.  Now that you have seen my numbers, it is time to look at yours.  To calculate your daily interest rate you must have the following numbers ready: your current balance and your interest rate.How To Calculate Your Real Student Loan Interest from Top Millennial Finance Blogger, Danielle YB Vason of She Makes Cents

In the past two months, I have watched my current balance drop at a faster rate than usual. That is because I have started making my regular monthly payment as well as an extra payment of money saved from the 52 Week BINGO money challenge. I was motivated to get a little more aggressive with paying down this loan when I set a  micro goal for myself to have my loan under the $15,000 mark by the end of my birthday month (August).  Coming up with a plan to beat your student loan debt first starts with the numbers.  If you don’t already know your numbers, I urge you to look up your current balance and interest rate, calculate much your interest accrues daily,  and as soon as you can, start making an extra payment above your monthly interest rate to get your debt moving in the right direction.  Instead of focusing on just how much you have left to pay, pat yourself on the back for how far you have come on this debt journey.  You can do it!  You have to do it so you may as well do it as quickly as possible so you can put that money saved toward your next baby step toward financial freedom. - OOTD | Student Loan Interest

{Invest In Your Future} 3 Smart Ways to Save for Your Education Without Going Broke!

Education Is Not A Debt Sentence!

sdfThe opening date for FASFA is just around the corner and a reminder that it’s time to cough up some money for next year’s tuition.  Gosh, I have been out of college for almost seven years and I am still paying for my education.  I respectfully declined a full music scholarship and a full academic scholarship from a well-known school once I got an accepted to the number one HBCU in the country, Spelman College.  Although my premium education came at a hefty price tag, I still believe it was one of the best life decisions I have made thus far.  No matter how you look at it, college is expensive and the inflation for tuition fees is increasing at an alarming rate.  As an result of the yearly increase,  parents and students alike are  getting creative in how they pay for higher education.  According to the US Department of Education, the average annual cost of public school increased 6.5 percent each year over the last decade. That means that by 2030, annual public tuition will be $44,047 and the total cost for a four-year degree will be more than $205,000.  I don’t even have children and that number makes my head hurt…especially when I hope that my hypothetical future daughter will continue the Spelman College legacy.  If the price of a four-year degree from a public institution is projected to cost almost a quarter of a million dollars, then I can only image how much a private college will be.  You need to get an education to make more money, but you can afford to pay for the education; hence the newest  Debt Crisis No One Is Talking AboutGrants and scholarships are the best ways, in my opinion, to pay for your education because you don’t have to pay them back.  If grants and scholarships aren’t an option for you, your child, or any student you know who is struggling to fund their education, maybe one of these options will work!

529 Plans & Registered Education Savings Plan

imagesJP7KGLQRA 529 plan is a college savings plan sponsored by a state or state agency for anyone with a Social Security number or a Tax ID.  Money saved under a 529 Plan can be used for education-related expenses like tuition, books and room and board for most US schools and select schools abroad.  According to Clark Howard, another one of my favorite money gurus, “529 plans must be sponsored by a state even though residents of most states can put their money in any state plan. Just because you invest in the plan of a state where you don’t live, that doesn’t mean your child will have to eventually go to school in that state.”  While you can get access to the money at any time, doing so for any non-education related reason will result in you paying a penalty fee.  Otherwise, you pay no federal taxes on the account’s earnings and you may qualify for state tax benefits as well.    The earlier you start contributing to a 529 Plan the more your money will compound over time.   529 Plans offer tax incentives, are tax tax-deferred, and allow multiple people to contribute.  Seriously, there is nothing better than FREE money!

Passport to an Affordable  College Education

This may sound extreme, but lower tuition costs in other countries are luring American students to top-rated British and Canadian colleges.  According to NBC News, “The total amount of student loans owed went over a trillion-dollar mark late last year, surpassing total credit card debt in this country for the first time. More and more American families are finding a solution to the high cost of higher [education] by looking to our north [Canada]”.  The number of Americans attending Canadian universities has risen 50 percent in the past decade, and the reason is obvious: cost.  Study abroad programs are a very popular option for students so I don’t think that actually attending school outside of the US would be far-fetched for some… especially if your choice is between attending a school that you can afford or not attending school at all.

Start a Website

Go Fund Me to College She Makes CentsI have a childhood friend, Amber, that I lost touch after moving to a new neighborhood at nine years old.  It wasn’t until Facebook became the go-to source of information that we were able to “find” each other again and reconnect.  Earlier this year, a link popped up in my Facebook timeline about Amber and her dream to attend Harvard.  I clicked the link and was more than impressed with what I saw.  Amber created not one but two websites to get the word out about her financial goals to fund her dream school.  Amber created her own website “Get Amber To Harvard” to tell the story of her educational journey and her financial goals and  an online donation website on the site, Go Fund Me.  On her GoFundMe site, Amber has already raised $22,480.00 of the $70,000.00 goal.  Check we say Cha-Ching!!

Would You Go to College Abroad to Save Money?


Email SMC: