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Getting a Jump on Interest

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If you have some extra cash from earnings, gifts or your own savvy shopping skills, you may want to invest in your financial future by making an interest payment on your student loans.

Here’s an example situation:

Private student loan amount:$10,000

Interest rate: 7%

Repayment term: 10 years

Extra payment made: Beginning of first year of a four-year college career

Simple interest is calculated based on a $10,000 principal balance x interest rate x term of 54 months (48 months in-school + 6-month grace period). The total repayment amount includes interest accrual over the life of the loan and is based on making a single interest-only payment before the repayment period begins. Savings over the life of the loan is equal to the monthly reduction in payment amount multiplied by the 120 payments made over the life of the loan.
  Amount of Single Interest-Only Payment
  $0.00 $100.00 $200.00 $300.00
Loan Amount + In-school interest $13,150.00 $13,010.67 $12,871.34 $12,732.01
Monthly Student Loan Payment $152.68 $151.52 $150.36 $149.20
Total Repayment Amount $18,321.60 $18,182.40 $18,043.20 $17,904.00
Savings Over the Life of the Loan $0.00 $139.20 $278.40 $417.60

Now, let’s assume you need to take out $10,000 in private student loans at the same rate for each of four years, and you are able to make one-time payments each of those years.

Calculations are the same as above except interest accrues over 36 months + 6-month grace period for a loan taken out the second year of college, 24 months + 6-month grace period for a loan taken out the third year of college and 12 months + 6-month grace period for a loan taken out the fourth year of college.
  Amount of Single Interest-Only Payment
  $0.00 $100.00 $200.00 $300.00
Savings Over the Life of the Loan $0.00 $556.80 $1,114.80 $1,671.60

The information above shows how making one-time interest-only payments can help reduce your student loan burden.


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