Ok, so I took out a student loan to cover my tuition. The amount I needed was approximately $23,000.

I'm looking over paperwork now for it, and I'm confused. Well, maybe not confused, just in denial. I had 2 disbursements. The first was for $13,096. The APR for that is 8.385%. They say that the dollar amount that the credit is costing me is $19,092.80. I have to make 240 payments at $134.12. The total amount I will pay after all payments are made is $32,188.80.

That's just the first disbursement. The second one will be $21,664.80. So, in total, I will be paying $53,853.60 over 20 years. Does that not seem ridiculously insane? Or, is that normal and I am just totally naiive and got rooked into an expensive loan? That feels so wrong and unfair, to be paying $30,000 on TOP of the amount I actually needed.

I mean, I'm planning on buying a house and now there's no way I will be able to do that with this kind of debt. I wont even be able to save up barely. I was planning on $23k, not $53k. This is a huge kick in the head.

My husband says I should declare bankruptcy. Thing is, my mom is my cosigner. I don't wanna mess her credit up as well as mine. I'm just concerned about making all these payments.

 

bankruptcy won't help. It ruins your credit, PLUS you can't get out of student loans... Bankruptcy won't get rid of your Student Loans. Tell Jed bankruptcy sucks as an option, unless he has excellent credit that you can rely on for every purchase over the next 7+ years

Give me all of your information: total amount of loans, total amount of payments, length of loans (20yrs), frequency of payments (monhtly), percentage rate of loans, etc.

The good thing is, I can help you out!! Depending on your financial situation. I'll give you my scenario...

I have $23,000 in student loans. My interest rate is 5.15 or something like that. Anyways, when I consolidated to get that rate, they put me at a 20 year loan. My payments were $152/mo. and it was going to take me FOREVER to pay it off (til I was 43 years old!).

So, my situation:

Principal: $23,000
Interest Rate: something between 5% or 5.25%
Length: 20 years
Payments: $152 Monthly
Total Interest Paid over the next 20 years: $13,500 ON TOP of my $23,000 loans.

Here's what I'm doing:
Payments: $152/mo. PLUS an extra $250 make my monthly payments $402.
Which means every month I'm putting $250 extra towards the principal balance.
I will pay off my loan in just over 6 years, paying a TOTAL of ONLY $3,400 in interest.

Pretty sweet, huh? Saves me over $10,000 and I'll be rid of that debt in only 6 years.

Now, your situation is a little different. You have a higher monthly payment, which means you might not be able to put nearly as much towards your extra payments. If you would like, you can PM me (if you don't want to post it) the extra amount you'd be willing/able to pay every month.

Or, you can just post your specific information (like I did above) and I can calculate different amounts of extra payments and the different lengths of time before it's paid off.

 

Hey, I PMed you. But I don't mind posting my info. I gotta run right now but when I come home later I will post the specifics.

I could definetly pay more. I wasnt sure how that worked. So basically you are saying that if I pay more ahead of time, that I can avoid paying a lot on interest?

My payments will be roughly $200 a month over 240 months. So I could pay at least $300 a month I'm sure, I don't and won't have a car loan, or any credit cards. The only other payment I will have in the future will be a mortgage, but that wont be for at least a year. My car insurance is around $100 a month. So yeah, $300 shouldn't be too hard. And when I could, I would pay more.

Like I said I'll post the specifics when I get home. Thanks so much, youve at least lifted my mood a bit for now, lol.

 

i'll wait for your specific info and I'll return with even more specific info.

Imagine this: Your payment of $200/mo. includes principal and interest. Let's say hypothetically that $150 goes towards interest and $50 towards principal. If you pay $100 extra that month, that will be TWO future payments of $200 you won't have to make. Does that make sense? It's all about reducing the principal as fast as possible.

 

anything that you pay ON TOP OF your monthly payment must go towards the principal. not the interest. this is actually a very good practice to do if you get a mortage. it could turn your 30 year mortgage into, say, a 17-22 year mortgage saving you thousands and thousands of dollars in interest.

i've deferred my student loans for 2 years due to other debts but they're all but taken care of now. i haven't even opened my direct loan envelopes in a year. haha

 

Do you have Sallie Mae for your loans? I know that when I finished school I was left with 2 loans (my mother picked one up since i had good grades). There are consolidation services that can give you a little better rate. I agree with Majik, pay as much as you can per month. People get suckered in to paying low amounts over a LONG time and sometimes they pay 2/3 of the original loan in interest including the interest. I know that i can log in and change my payment schedule and manipulate how much I pay per month.

I know there are services out there to help but its been a while since i have dealt with all of that. Im sure Majik or your financial aid advisor can help more.

 

If the interet rate is at 5% or so you could just keep the money and bet on interest rates going back up within the next 7-10 year. Then you could use that money into CDs then and keep it in stock now. Then you could use that loan as a basis of making money.

 

Alright, took me a while but here's what I've got.

The loan was broken into 2 disbursements. When I got it originally, it was from a completely different company, but now somehow its with Bank of America. Unless it's changed hands yet again, who knows. I have to start paying 11/2008.

1st half

Amount financed: $13,096
Percentage Rate: 8.385%
Finance charge: $19,092.80
Total of payments: $32,188.80
Number of payments: 240
Amount of payments: $134.12


Second half

Amount financed: $8,730
Percentage rate: 8.801%
Finance charge: $12,934.80
Total of payments: $21,664.80
Number of payments: 240
Amount of payments: $90.27

Now, I have a variable rate on both. It says it's a LIBOR index adjusted quarterly. So that means it can go up whenever it wants to.

My payments on this loan will be $224.39. If I pay exactly $300 a month, it will take me 177 months to pay it off, or 15 years. I'd rather get it down to at most, 10 years. If I pay $375 a month, that would take me closer to 12. To get it down to 10 years, I'd have to pay about $450 a month. Which, at my current salary, is quite a bit. It's doable now that I'm living home, but once I move out again, not so much, especially once I have a mortagage. Maybe in 5 or 6 years, then I can pay it off quicker.

For right now, I don't want to start paying it before November if I don't have to for a few reasons. Everything is up in the air right now in regards to when I'm moving back to Canada, it may be before November or after November. I have no real idea right now. Right now I'm saving as much as possible for everything, moving, immigration fees, stuff like that.

So, if I refinance this loan at a lower rate, how would that help me? More in the long run after I have paid off the principal, right? And then, after the principal is paid, the less interest I have, the quicker I can pay it off? Let's say I start off paying $300 a month. It will take me then about 6.5 years to pay off the principal. Then whatever interest is left after that I would start paying. So, if I get a loan at say 6%, would it be a lot less interest than the previous rates I had?

I'm pretty new to financing and managing debt, its a great learning experience. I appreciate all the help I can get!

 

Loan #1:
hm... my worksheet shows payment of $112.70 and only $13,951 interest over the loan. Not sure why their numbers are different, unless they're compounding differently or it's accruing interest already.

On Loan #1, if you pay an additional $150/mo. it'll cut your 20 year loan (240 month) down to 5 years (62 months). You'll only py $3,100 in interest.
On Loan #1, if you pay an additional $100/mo. it'll cut your 20 year loan (240 month) down to 6 years 9 months (81 months). You'll only py $4,086.73 in interest.
On Loan #1, if you pay an additional $50/mo. it'll cut your 20 year loan (240 month) down to 10 years (119 months). You'll only py $6,216 in interest.


Loan #2 shows monthly payments at $77.43 - again, it may already be accruing interest or it could be assuming the rate will be higher. It shows Total Interest at $9,853.74.

On Loan #2, if you pay an additional $150/mo. it'll cut your 20 year loan (240 month) down to 4 years (46 months). You'd only pay $1,560.24 in interest.
On Loan #2, if you pay an additional $100/mo. it'll cut your 20 year loan (240 month) down to 5 years (62 months). You'd only pay $2,138.95 in interest.
On Loan #2, if you pay an additional $50/mo. it'll cut your 20 year loan (240 month) down to 8 years (96 months). You'd only pay $3,443.13 in interest.

I would try to find a way to consolidate the loans and get a lower rate, or even if you can't get it lower, get a FIXED rate. You don't want it to shoot up to 14% or higher.

If you pay on the first one before it's due, it's going to reduce your principal.
Scenario:
Month 1: You have $10,000 principal balance. You pay the bill and it's $175 interest and $25 principal. Then you pay an extra $150 towards principal, for Month 2, you'll only be paying interest on the $9,825 instead of $9,975 (so you'll save yourself from paying interest on that $150). Because you made that $150 payment, you'll pay the loan off 6 months faster (6 regular payments will reduce the principal by $150 total... so you just saved yourself 6 months). These are general numbers, and every month your amount paid on interest will slowly drop and your amount paid on principal will slowly increase.

Look at the rough sketch below. That's from my worksheet for your first payment. Notice in Month #2 that your interest is calculated based on the ending balance of Month 1. Also notice that if you hadn't put $100 towards Extra Principal Payments, your principal would have only decreased by $21.19. It's like you just made 5 months worth of payments ($550) but only $100, and it reduced the principal by the same amount.

#.... Date ....... Beginning Bal.. Payment.. Xtra Princ... Total... Princ. PD... INT PD.... Principal Still Owed
1... 11/1/2008... $13,096.00,,, $112.70... $100.00... $212.70...$121.19... $91.51... $12,974.81
2... 12/1/2008... 12,974.81,,, 112.70... 100.00 ........ 212.70..... 122.04 ... 90.66... 12,852.77

Also notice that the amount PaiD towards Principal went up and the amount PaiD towards INTerest went down with the second month. Because the first payments you're required to make go 80% or more towards interest, that's the best time to try to pay down the balance. It's like a snowball effect, if you pay down the interest by $100 the first month, that's $100 less that they'll be able to charge you interest on FOR EVERY MONTH AFTER that payment.

I just wrote a lot of information really quick, so if it doesn't make sense, let me know and I'll try to clarify.

 

Wow, no, that makes total sense. I am so glad you clarified all of this for me. I had a general idea of how it all worked, but as you can imagine when I saw that I owed $53,000 I was in shock. That's how they make their money though I guess, they make it look like you owe so much money, and then give you the lowest possible monthly payment so it doesn't feel like you are paying that much.

I'm pretty sure the loan is earning interest because I capatilized it while I was in school and deferred it till 6 months after graduation. I definetly will refinance it at a fixed rate. Hopefully I can do that with citibank.

One more question, the loan is both in my name and my mother's name. So if I am on time with my payments, will this help improve my credit at all, or will it only effect hers? I'm pretty sure it is having an effect on mine, because it is showing up on my credit report, and it says it's in good standing.