Student loans or free money
So all the details are done…we are settling into life with a child in college and by golly, I got the Federal Loan to pay all the expenses! Wonderful, what a relief. My husband and I could not have done it any other way. The first year was very manageable. When the second semester of the first year was upon us and the final disbursement was made the bill the expense was very manageable. I thought, "Wow - this was really easy."
Unfortunately, as the years went on, and I needed additional loans and then to also include my daughter, the monthly amounts began to increase. Somehow when you borrow money you forget that somehow you will need to pay it off - is it really free? It is shocking to see just how much you really will owe when you see the accrued interest over the years of the repayment.
My monthly payment for my one federal loan was $439.40. When my daughter transferred from a private college to a state university midyear, they had their own federal loans so I needed to take a separate federal loan for this second semester, and when she enrolled the following year, the school gave me a second federal loan from another organization.
So, I am paying:
Federal loan #1: $439.40 [$68,784.50 (6.5% interest)]
Federal loan #2: $120.00 (1 semester)
Federal loan #3: $120.00 (full year)
All totaled: $679.40
So, in reality this is not free money. It certainly would be a super car payment for a deluxe model, but can you imagine forking this amount every month - it is killing my budget. I often ponder getting a second job to help with the expense.
The good news is, the loan companies can work with you to lower your monthly payments should they become overbearing. I called the loan company on my largest federal loan and spoke to a representative regarding how I could lower my monthly payment. I was able to set a 5-year grace period lowering my payment to 374.42 for the next five years. This saves me $67/month on that loan. Not factored in is the loan I borrowed this year that I could have consolidated with the larger loan. However, the representative advised me that the interest rates may be reduced this year and told me to not consolidate this loan. Therefore this loan is being kept separate and I would have had to pay $130 per month but again used the 5-year grace period lowering my payment to $96.68.
$439.40 and $130 totals $569.40. However with the 5-year grace period, I will instead be paying $374.42 and $96.68 which totals $471.10. This is approximately $30 more than I was originally paying for the one loan.
The bad news is the payments will now be applied towards the interest than principal, and after the five-year grace period I will have to pay:
- 288 payments of $470.42
- 1 payment of $432.62
For the unconsolidated loan:
- 72 payments of $228.27
All in all, I have lowered my monthly payments for the next five years in the hopes that my financial situation will enable me to meet the higher payments that will come due.
Since I am now 57 years old I question whether I will ever be able to retire. If I plan to retire, I will need to sell my house and use the equity to pay off the student loans and hopefully have enough to buy something smaller.
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