Going to college takes a bunch of money these days! Invariably, most
students end up with an amount due after their graduation and this
amount will be more than the original borrowed amount. This is due to
the fact many student loan include a deferment period. After all, how
affordable would a student loan be if the student had to come up with
monthly payments while he was in college?
This article talks about the student loan deferments and how they
affect the bottom line. Namely, how much the student will be liable for
after his education.
What is a deferment period?
When student loans are made, the first payment will not be due until
after graduation or until the student quits school. This means the
student can spend 4 years in college, graduate, get a job and then
start paying back the loan.
One aspect of this type of loan that cannot be overlooked is during the
deferment period the loan is accumulating interest. This means a loan
of $20,000 can become $30,000 by the time the student starts to pay it
off. This is a dirty deal, but it comes under the heading, "there is no
such thing as a free lunch."
The difference between a straight loan and a deferred one
Let's look at how this works. If a person takes out a regular loan for
$20,000 at 7% for 7 years, or 84 payments, and he is going to start
paying on the first month, his payment will be $301.85 each month.
If a person takes out a deferred student loan for $20,000 at 7% for 7
years, or 84 payments, but the first payment isn't due for 4 years, the
total amount owed will have become 2,6441.08 by the time the first
payment is due and the monthly payment will be $399.07. So, this is
another wrinkle the student has to contend with to get that
ever-important sheepskin.
It is important to get an accurate idea what the payments will be after
graduation, you have to use a student loan calculator that includes an
entry for the deferment period or else you won't be getting the actual
amount owed or monthly payment due when the payback period begins.
Another example
Let's take another example. The student gets a loan for $35,000, which
has a 10-year payoff period. The payments start after a 4 years and the
interest rate is 7%. Here's the way the numbers look for this loan.
When the payments come due the total loan will have ballooned to
$46,271.89 and the payment will be $537.26.
Now let's complicate things a little more. The student may have to take
a separate loan for each of the years he is in school. The lender may
allow different deferment periods for each loan. So, he may end up with
$20,000 deferred for 4 years, $20,000 deferred for 3 years, $20,000
deferred for 2 years and well, you get the idea.
In short, when dealing with student loans, don't forget the deferment
aspect to it. It can make a huge difference in the final numbers.
Article Source: DesireToRetire.com
Ed Lathrop is a successful Real Estate investor, commodities futures broker and is an expert in the field of mortgages and other types of lending. He has developed The Student Loan Site, a Website that deals with all aspects of student loan debt and a student loan calculator. You may visit these free sites at:Student Loan Debt and Student Loan Repayment Calculator