The Dirty Little Secrets About Student Loans

Going to college has become a common dream for many young people in this country. A college degree affords more opportunities and usually higher wages. What has not become common is the ability to graduate without student loan debt.

For most, this debt will inevitably get consolidated into a student loan, likely through Sallie Mae, the nation’s leading provider of educational funding.

This is important to know because many student loans are stretched over long periods of time. This time gets very expensive. For example, a 27000 dollar loan, with a 5.5 percent interest rate will cost over 19000 dollars in interest, even if 100 dollars + the interest is paid each month.

In the end, for me, this means that there is about a 12 year repayment period. The interest on this money for the 12 years is staggering.

What about people with larger amounts of student loan debt? My cousin and her husband have close to two hundred thousand dollars in student loan debt. Even at a low interest rate, that same debt, even stretched out, will cost more than a small home. And toward the end of the repayment, the monthly payments on this loan will look more like a mortgage.

Pay Down the Principal

Obviously, like any debt, one option is to consider paying down the principal. Even small amounts each month can improve the overall cost of the loan by reducing the amount of interest paid over the entire life of the loan. Be careful before you start attempting this, however. Some lenders have a policy of applying excess payments to advance the next payment date rather than reducing principal.

To make sure that you don’t get any unexpected surprises:

* Make sure that your lender will honor your additional principal payments.
* Check that there are no penalties for paying off the loan early.
* Ensure no changes or special notes are needed on the check or payment stub before the check is sent.

Increasing Tuition Costs

The cost of tuition is skyrocketing. And there is not much that you can do about it. It is unlikely that the standard of a four year college degree will be going away at any time soon. And it may well be that a master’s degree becomes the new standard that is required in order to compete in the job market.

Personally though, with these prices, I think we are a bit of a ways away from that. The productivity difference between someone who graduated high school versus the person who has a bachelors or other advanced degrees is noticeable in many cases, which is why it is becoming a standard for many advanced positions and often even entry level positions. The difference between master’s degrees and bachelor’s degrees is a little more difficult to pinpoint. Again, this is all my opinion.

But in regard to the cost of tuition, it doesn’t matter.

If you are a parent or other relative of a loved one and you already are saving for retirement, it might be worth putting some money away. Even if you cannot start contributing to a child’s account now, Upromise offers programs that will allow you to get “cash back” for a child’s education when they get to college. This can be big bucks if used a lot and you get friends and family to sign up and contribute.

Related Link: Emergency loans : for life’s emergencies, online personal loans