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How Paying Off Your Student Loans Could Save You Money

Many people simply pay the minimum due to relatively low payments, interest rates, and federal protections. But what if just a few percent in interest were enough to cost you thousands in the long run? Unfortunately, it’s true – even if your interest rate is low. Read on to find out how paying off your student loans could save you money.

One of the main reasons people continue to pay the minimum on their student loans is that they don’t realize how much it’s really costing them. But when you see the real numbers, you start to understand what this all actually means.

By the Numbers

To give an example, let’s say you’re the average student loan borrower. For the class of 2018, the average student loan debt is $29,800. We’ll also use the average interest rate for federal student loans in 2017-2018, which was 4.45%.

In addition, we’ll assume we will make payments for 25 years as many federal student loan payment plans are eligible for forgiveness at that point. If we plug all of these figures into Student Loan Hero’s calculator, we see that we pay $19,045 in interest alone and the total repayment amount is $47,945.

Now let’s make things even more “fun” and suppose we had funded our education with Parent PLUS Loans. Mainly because that was a large part of my loans, but also because I am not the only one.

Plus (Interest) Loans

The average interest rate for these loans is currently a whopping 7.6%. I went to a private school and my loans were near $100k. However, I also had some Perkins and Stafford loans. So, let’s just say we have $75k in Parent PLUS Loans paying for 25 years.

The result? Monthly payments are $559. As for the interest, that comes to a mind-boggling $92,739. That’s right – the interest is more than the original principle.

Currently, the retirement age is 66, so our money has 32 years to grow. Even if we don’t add a single dollar to the original $10,593, it will grow to $92,321 over 32 years if we assume a 7% rate of return. How crazy is that?!

Investing the Difference

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