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Thread: College is fun, but...

  1. #1

    Default College is fun, but...

    I decided to look at my loan accounts today...I realized that I will have $75,000 to pay back once I graduate this Spring. It's not like I'm freaking out, but it certainly twists a knot in the pit of my stomach. Even though I have all these plans to consolidate them under a more reputable, easy to communicate with credit union, apply for income-based payment plans, and starting out with a less-than-decent-but-still-okay salary right out of school, I still think about how this is going to affect me for the next 20 or so years. Sometimes I wonder if it's this kinda stuff that makes me wanna forget about everything and diaper up.

    I was wondering, those of you who took out loans for college, how do you with the stress? Is it really all that bad once you graduate and start having to pay back those loans? I guess I just need reassurance that life will go on and everything will be okay. Thanks for reading! :)

  2. #2


    There are a few things to keep in mind that might help. First, it can be intimidating, but there are actually a number of repayment plans and the loan payments can be capped at 10% of your total income if you desire, so they're not going to ruin your life even if you don't get a high-salary job (big chart if you want to read up).

    Second, the value of student loans has fluctuated historically, primarily because of their fixed interest rates. Before 2008, student loans had an interest rate considerably below market rates, so that one of the best investments you could make with your money was actually to pay them down as slowly as possible. These days because the federal funds rate is close to zero, the student loan rates are rather high and it's worth your while to pay them back more quickly if you've got some extra to spare. This varies with the economy though and it's quite likely that in a few years the loans will be at a good interest rate again and there won't be any reason to worry about trying to repay them faster than the minimum payment.

    Third, the value of money over time goes down and that's advantageous to you. What would really suck is if you had to pay $75,000 up front for education because very few people could afford that. And it might be true that your student loan payments will feel burdensome for a couple years when you get out of school. But a couple years after that they'll start to feel a bit lower, and 10 years out the combination of inflation and your own experience will mean that they become pretty insignificant. By the time you're near the end of year 20, they're barely anything at all. This is the same thing as our parents being able to buy milk and a loaf of bread for 50 cents when they were kids, but when you take a loan, it works in your favor instead.

  3. #3


    Yeah, I'm pretty sure I'm going for income-based repayment. I have a membership with Navy Federal, and they recently came out with an option to consolidate my loans. Should make things at least a little more simple :S
    Thanks for the words of reassurance, Archie. I just had one of those "oh jeez, what is life" moments. I just hope I can at least enjoy the work I do a little bit once I graduate.

  4. #4


    When I went to college, it wasn't as expensive, but then we made a lot less money. My first job was teaching at a private boarding school, so I had very few expenses. I put almost all of my salary against the loan and I made a lot of headway. I quit that job and the next job paid less and I had to pay rent, so I didn't do as well, but I bought very little for myself. By doing that I had it paid off in several years, much like paying off a car loan. Ironically, when I married, my wife still owed money on her college loan. Oh well......

  5. #5


    I owed about $35,000 by the time I finished. I didn't stress too much about meeting payments for it, but I did have a tendency for repeatedly thinking it over to figure out the quickest and cheapest way to pay it all off. I've never liked owing people money, so I tend to pay off my debts as soon as I can. My first job out of college only paid $35k/yr, which was less than I was hoping for, but I still managed fine. I put $350/mo towards the loans, which was $50 more than the minimum payment. That continued for about 2.5 years until I got laid off.

    Luckily for me, getting laid off was the best thing that ever happened for my career, since I found a new job 3 weeks later that paid much more. I put $500/mo towards loans for about a year after that, then decided to reduce my 401k contributions for a while so I could up loan payments to $800/mo. I also emptied out my savings account a few times to pay off individual loans once they got low enough (by default, I put 10% net pay into savings).

    Finally, in November of 2015, I paid off the last of it. I can now say that I am debt free. All in all, it took me about 4 years to pay it off.

    I guess what I'm getting at is that you shouldn't worry about it too much. Just figure out how much you can set aside for paying your loans and pay as much as you can towards the highest interest loans. After that, there's really not much else you can do to impact your payment plan unless you find more money somewhere.

  6. #6


    As a general point, I've seen a lot of people, here and elsewhere, say that they feel uncomfortable owing money on a loan and that they try very hard to pay it off quickly. This is not actually sound financial policy for an individual. What you should look at is what sorts of investments are available and use that to determine the best use of your money. For example, during the early 2000s, inflation was higher and the average investments, even in protected bank accounts, were 4-5%. Higher if you were willing to take some risk (though obviously buying repackaged home loans turned out badly, but lets not get into that). At that time, a safe long-term investment like high interest savings account was likely paying a better rate than the cost of the student loan. So a person who had loans should have made only the minimum required payment and invested any leftover money in a high-interest account instead.

    As a simplified example, let's say a student loan was charging 4% interest at the time, there was an investment account that paid 6% interest, you had $10,000 to use somehow either to pay off the debt or invest elsewhere, and the minimum payment for the loan is $1,000. If you put all $10,000 into paying down the loan in that scenario, you'd make $400 (because the bank would not charge you $400 of interest because you paid off part of the loan). On the other hand, if you put $1,000 into the loan and $9,000 into the investment account, you'd make $580 dollars: $40 from paying down the loan and $540 from the investment account. So you'd end up profiting $180 by not paying your loan more than required.

  7. #7


    So for that example ArchieRoni, would you suggest going and borrowing money at a low interest rate to invest at a higher interest rate?

  8. #8


    Quote Originally Posted by AAO View Post
    So for that example ArchieRoni, would you suggest going and borrowing money at a low interest rate to invest at a higher interest rate?
    That is sound advice, but if you tried it, you'd find that it would be pretty difficult to borrow the money. Student loans are pretty unique because you can only get them for education and they have special interest rates set by the government. Most of the time, the interest rate you'd get charged as an individual taking out a normal loan is going to be higher than what you'd make investing it, so it's not worth your while. And if you got into the business of finding good loans and finding even better investments...well, that's what investment bankers do for a living and it's pretty hard.

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