Friday 20 November 2015

How Does Student Loan Interest Work?

Several months before graduating from college, I and a group of my classmates gathered in one of the prettiest rooms on campus. On this particular day, the room was filled with financial aid office employees poised to give lots of boring PowerPoint presentations.
Each of us were handed a shiny, new folder with a photo of a college senior in a cap and gown, holding a diploma. I remember looking at that photo and thinking, “I made it!”
Then I opened the folder and saw that the inside pocket was filled with papers listing all the loans I had taken out over the previous four years. Instead of listening to what the nice financial aid people were talking about during the hour-long presentation, I sat there and added up my total student debt amount. When I left the room that day, it felt like I had a $36,000 monkey on my back.
The amount owed was given to me in understandable, black-and-white numbers: $36,000. However, this was just the principal. Understanding the interest that was being charged and coming to grips with how much interest I would be paying over the course of the loan payoff was complicated and painful.
I had no idea how student loan interest worked the day that I entered that financial exit interview, but I would like that to not be the case for you.
Below, I’ll help you answer the question “how does student loan interest work?” based on my own experience paying off over $40,000 of student loan principal and interest charges:
Federal Vs. Private Student Loan Interest Rates
The first thing you want to do is to divide up your student loans into two categories: federal and private. This is because these two types of loans are treated differently in a variety of ways (such as in the consolidation process, repayment options, and interest accruement.
Federal student loans are sourced through the US Department of Education and will be called Direct Subsidized Loans and Direct Unsubsidized Loans, Direct PLUS loans, or Federal Perkins Loans. Private student loans are sourced from banks, credit unions, state agencies, or your school itself.
The interest rates on federal student loans are prescribed by law and are usually no higher than 8%. There are no limits on interest rates for private student loans, which means they can vary depending on the lender and the borrower.
Several months before graduating from college, I and a group of my classmates gathered in one of the prettiest rooms on campus. On this particular day, the room was filled with financial aid office employees poised to give lots of boring PowerPoint presentations.

Each of us were handed a shiny, new folder with a photo of a college senior in a cap and gown, holding a diploma. I remember looking at that photo and thinking, “I made it!”

Then I opened the folder and saw that the inside pocket was filled with papers listing all the loans I had taken out over the previous four years. Instead of listening to what the nice financial aid people were talking about during the hour-long presentation, I sat there and added up my total student debt amount. When I left the room that day, it felt like I had a $36,000 monkey on my back.

The amount owed was given to me in understandable, black-and-white numbers: $36,000. However, this was just the principal. Understanding the interest that was being charged and coming to grips with how much interest I would be paying over the course of the loan payoff was complicated and painful.

I had no idea how student loan interest worked the day that I entered that financial exit interview, but I would like that to not be the case for you.

Below, I’ll help you answer the question “how does student loan interest work?” based on my own experience paying off over $40,000 of student loan principal and interest charges:

Federal Vs. Private Student Loan Interest Rates

The first thing you want to do is to divide up your student loans into two categories: federal and private. This is because these two types of loans are treated differently in a variety of ways (such as in the consolidation process, repayment options, and interest accruement.

Federal student loans are sourced through the US Department of Education and will be called Direct Subsidized Loans and Direct Unsubsidized Loans, Direct PLUS loans, or Federal Perkins Loans. Private student loans are sourced from banks, credit unions, state agencies, or your school itself.

The interest rates on federal Education Loan Calculator are prescribed by law and are usually no higher than 8%. There are no limits on interest rates for private student loans, which means they can vary depending on the lender and the borrower.



Thursday 19 November 2015

Paying off Education Loan in India

Education is perhaps an individual’s most precious resource today. In fact, nowadays education is at times equated to an investment, which in all truth it is. However, if we purely take perspective at education as an investment point of view, the price of education at times requires you to take loans from banks or other sources, which require you to pay off the debt after your “investment” or education starts bearing fruits. As easy as loan grant sounds, the more difficult it can be to pay off. However with careful planning and timely repayments, one prevents himself/herself from coming under what is called “debt pressure”.

Should you prepay your education loan?

Education loan is basically an amount bank has paid on your behalf. So with every passing day, this loan accrues some interest. You pay this loan in EMIs because you cannot pay off all the loan amount i.e. principal and interest at one go. So one way to limit the interest that you will pay on education loan is to pay it off as early as possible. But education loan also helps you save Tax under section 80E. We have created an excel sheet that will help you decide when to pay off the education loan.

If you cannot prepay the loan, follow these tips while paying EMI on the education loans in India:

1)  Start Early:

Don’t wait till your graduation, to start planning on the repayment. Have a repayment model ready as soon as the first phase of education (generally the first semester) is over. This will enable you start saving early and gradually ease off the pressure of the interest which piles up and by the time of moratorium period ends, you would have already started with the repayment. If you have some savings already in your account when you graduate, you could start paying the loan even before the moratorium period begins. Do keep in mind that your loan is accruing interest even during the moratorium period.

2) Set a comfortable EMI. Don’t be over ambitious:

Setting a lower EMI for a longer duration might just be a better option than ambitiously trying to pay off the loan early. Paying off the loan early is always the better option, but not by compromising on other important needs like lifestyle expenses or training costs for furthering professional skills.

3) Prefer a loan from Government Bank (or PSU Banks):

PSU banks typically offer loans at lower rates than private banks. They are also more lenient when it comes to prepayment of the loan. E.g. Andhra bank does not levy any charges for partial or full repayment while HDFC banks charges penalty proportionate to the amount of loan outstanding.

4) Speed up the repayment using the tax benefits:

Education loans provide you tax benefits and the amount that you save can actually be used quite significantly for paying off your debt faster. One way to do this is calculate the amount that you save exclusively from taxes and deposit it biweekly along with the ongoing EMI. This might seem insignificant in the short run but saves you almost 3-4 months during the final payment which results into about 25-30% lesser interest being paid.

5) This is the best of all strategies. Even if you add ~100 extra every month for just 2 years consistently, you can save up to ~20,000 in interest and you will end up finishing an 110 month loan in 106-107 months saving 4 months.

6) Pay off some part using bonus:

Every year, you will get bonus at the end of the year. You can use this bonus to pay off part of your loan.

The key is to plan and stick to the model that you have decided. Once you are earning in lakhs, a few thousands in the long run won’t matter.

Calculate when to pay off your education loan

Once you take the Education Loan Calculator India, you have to start planning how you would pay it off. Should you wait for the entire loan tenure or pay it off before that? How much money will you save and how much tax benefit will you forgo? And as such how much tax would you save through this loan?

1)  A1-11 are input cells. Enter the details of the loan you have taken here.

2)  Once you enter the data, you will see that excel will calculate the formulae and fill the columns E to L with data.

3)  Column G indicates the tax you would save every month if you keep paying EMIs.

4)   Column H indicates the total value of the entire tax benefit you would forgo if you pay off the loan in corresponding month. This is basically the current value of all the tax savings you would have got in the future.

5)  Column I is the prepayment penalty for paying off the loan.

6)   Column L is money saved by paying off the loan early.

7)   There are two graphs that show money saved if you pay early. The first graph shows two lines rad and blue. Actual money saved is the difference between these two lines.

8) The graphs clearly show that you would get maximum benefit by paying off the loan as early as possible. i.e. the tax benefit forgone and prepayment penalty by paying off the loan does not exceed the interest saved by paying off the loan.

Friday 13 November 2015

New Features: Student Loan Calculators

We just launched 6 new student loan calculators to help you save money while paying off your student loans!
Why did we create these student loan calculators? So far, we’ve provided lots of great content, strategies, and tips on repaying your student loans, like this blog post: “10 Questions to Ask Before Refinancing Your Student Loans”, but it is hard to translate education and content into decisions without doing the math to understand the financial impact.
We believe our student loan calculators can help you build a student loan repayment strategy that saves you money, time, and frustration.

Without further ado, here are the 6 new student loan calculators:

1) Student Loan Comparison Calculator

The student loan comparison calculator is great for current college students who need to compare in-school student loans and graduates who want to compare student loan refinancing offers. You can compare multiple student loans side by side to help identify the total financial impact before making a big financial decision

2) Student Loan Prepayment Calculator

Want to payoff your student loans early? The student loan prepayment calculator solves for how much in extra payments you will need to pay to get out of debt by X date. For example, imagine you currently have a 20 year repayment term on $45,000 of student debt and you want to payoff your student loans in 10 years. By increasing your monthly payment by $177, you will payoff your student loans in 10 years and save $19,932 in interest.

3) Student Loan Refinancing Calculator

Refinancing your student loans can be a big money saver, both in the short term and long term. Depending on the new student loan term and rate, you can effectively lower monthly payments and reduce the total interest you will pay over the lifetime. Use the student loan refinancing calculator to see how much you will save. For example, if you have $45,000 in student debt at 8.5% interest rate, and you refinance the total debt amount at 5%, you will lower monthly payments by $80/month and save over $9,600!

4) Student Loan Deferment Calculator

Need to put your student loan payments on pause? With student loan deferment you cause pause your student loans for up to 3 years depending on the loan type. Keep in mind, most instances when you enter into student loan deferment you will accrue interest on your student loans during this time period. The student loan deferment calculator will calculate the total interest you will accrue during deferment.

5) Student Loan Payoff vs. Invest Calculator

Have some extra money left over at the end of the month? The student loan prepayment calculator calculates if it is wiser to invest or prepay your student loans with any additional payments you might be able to make with free cash at the end of month. Even an extra $50-$100/month can have a huge financial impact on your student loans and investments! The general rule of thumb is that it is wiser to contribute your extra free cash to the highest interest rate product. For example, if your student loan has an 8% interest rate, and you found an investment opportunity that yields 6% interest return, you should focus on paying off your student loans rather than investing

6) Student Loan Payment Calculator

Still in school or recently graduate and want to know how much your future monthly payments and interest will be? The Education loan payment calculator answers these questions and helps you decide if this is an investment (student debt) that you can afford.



Monday 2 November 2015

3 Student Loan Calculators That Can Help Save You Thousands

Seven in 10 college graduates in 2015 have some student loans when they graduate. So, unless you’re one of those lucky few, student loans are likely to be a part of your monthly expenses upon graduation. Fortunately, there are many student loan repayment calculators that can help ease the payoff process.
Borrowers are often unsure about what their payments will be or how long repayment will likely take. Here are three great student loan calculators for student loan borrowers to learn more about their payment and payoff options.

Top 3 Student Loan Calculators

Student Loan Payoff Calculator

Is a very quick way for students getting a loan for the first time or borrowers who have not entered into repayment yet.
Allows a borrower to see how much their payment will be depending on the interest and length of the loan.
Once a borrower puts in his or hers loans, the amount of interest paid will be displayed. This can be very useful to help see how much you could save by refinancing.

Student Loan Repayment Calculator

Several student loan calculators offered by You Can Deal With It are focused on eliminating student debt.
Student loan repayment calculator that shows how much you would likely pay on various federal income-based repayment plans.
Has a student debt calculator that compares how long it would take to pay off your loans with current payments and with additional (prepaying) payments.
Other calculators include, budget calculators, interest rate calculators and student loan consolidation calculators.

Student Loan Consolidation Calculator

This calculator offered by FinAid is intended to show borrowers how they can consolidate multiple loans into one loan.
It allows borrowers to enter in various student loan types including private loans, federal loans and PLUS loans. However, private loans can only be added to a private consolidation.
Consolidation calculator shows what payments and terms would be if they were consolidated into one loan.
Results generate repayment and estimated required income on a standard 10-year term, an extended repayment of 20 years and a graduated repayment program of 20 years.

Methods of Paying off Student Loans

As the Education Loan Calculator India  propose, there are several repayment strategies that can be adopted to help pay off your student loans faster. Seeing how prepayment can help reduce your total interest paid is one method that should be explored if you are the right financial state. Consolidation is a great way to ease the repayment process and adjust the term length of your loans accordingly. If you have federal or federal and private loans, though, refinancing is a great way to lower your interest rate and change your repayment terms completely as well as maximize for a lower monthly payment or a lower total repayment.


Source: https://educationloancalculator.wordpress.com/2015/11/02/3-student-loan-calculators-that-can-help-save-you-thousands/