Scenario 1: Student Loans & Repaying your Debt

Last week we talked about Student Loans. We know that student loans can help us finish college and get a job that we want. We also know that paying off student loans can be hard. One reason it is so hard to pay off that loan is because it is always growing due to the interest.

Look at this chart of the average student loan debt and what happens to your total balance that you end up paying if you stick to the monthly payment plan versus paying off your debt earlier. Look at the years paid off, the extra payments made, the interest you are paying in those total years, and the total amount borrowed. All three are different. Answer the questions at the bottom of the chart.

• What happens when you pay off your debt on the plan that the loan provider gives you?

• What happens when you pay off more than the plan?

• Does compounding interest make it easier or harder to pay off debt?

• If you can pay more, do you think that that is a better option than staying on the monthly payment plan? Why or why not?

• Can you think of a reason why someone may choose to not pay extra on their student loans? You can look online to see if you read/watch anything about this.

Amount Interest Monthly Extra Interest Paid by Borrowed Rate Payments Payments last payment Total Paid Back $37,171 4.29% $8,607 $45,778 Option 1: Pay off Debt in 10 years $381/mont $0/month h $37,171 4.29% $41,366 Option 2: Pay off debt in 5 years $381/mont $308/mont $4,195 h h $37,171 4.29% $39,681 Option 3: Pay off debt in 3 years $381/mont $721/mont $1,685 h h Amount Interest Monthly Extra Interest Paid by Borrowed Rate Payments Payments last payment Total Paid Back $37,171 4.29% $8,607 $45,778 Option 1: Pay off Debt in 10 years $381/mont $0/month h $37,171 4.29% $41,366 Option 2: Pay off debt in 5 years $381/mont $308/mont $4,195 h h $37,171 4.29% $39,681 Option 3: Pay off debt in 3 years $381/mont $721/mont $1,685 h h