Sponsored Newspapers In Education Content
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When you pay back debt, including your student loans, you will be paying more than the loan’s principal
balance, or the original amount of money that was taken out. On top of paying back the principal, you will
have to pay the compounding interest. Interest is the fee for borrowing money and accrues over time. The
interest fee is dependent on the interest rate of the loan and the amount borrowed. Compound interest is
like “interest on interest.” It accrues on top the loans principal as well accumulated interested.
Student Loan Repayment
When repaying student loans, there are several different repayment plans available. Federal student loan
servicers work with borrowers to come up with a repayment plan that works best for their situation.
• Standard repayment plan
This payment allows borrower to pay off loans in 10 years with a fixed monthly payment of at least $50.
• Graduated repayment plan
An up-to-10-year plan, payments start low at first and gradually get higher as the borrower’s salary is
expected to increase.
• Extended repayment plan
Allows borrowers up to 25 years to pay, on either a fixed or graduated monthly payment plan.
• Income based repayment plans
These plans base your monthly loan payments on your discretionary income.
For example, here are three options for an approximately $50,000 federal student loan:
LEVEL
GRADUATED
EXTENDED
LEVEL
Years
10 years
10 years
25 years
Monthly Payment
$613
$424–$918
$379
Total Interest Paid
$21,000
$25,722
$61,479
Total Amount Paid
$73,443
$77,676
$113,433
Payoff Date
2025
2025
2040
The balance of the loan changes a lot with the three different payment plans. Did you notice how much
each loan gains in interest due to compound interest? The extended plan more than doubles the loan
due to compound interest! While student loans can be stressful, they can help you advance your future.
There are a few other things you can do to cut down your student debt load:
• Apply for scholarships and grants; that’s money you don’t have to pay back!
• Understand your loans and loan terms before you commit.
• Look around at different colleges, they all have different tuition costs.
• Try not to take out more debt than your expected first year’s salary.
• Low monthly payments usually mean you pay much more money in the long run.
• Pay attention to interest rates! Pay on your interest while going to school.
• If you can lower your principal balance instead of just paying interest fees, the loan will not
accrue as much interest.
• Federal student loan services will work with you on a payment plan that works with your
needs and ability to pay.
DEBT AND COMPOUND INTEREST
