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UNDERSTANDING STUDENT LOANS
IN REAL TERMS

We have all heard the statistics: Tuition keeps rising, while student debt continues to increase. In fact, the United States now has more total student loan debt than credit card debt. The good news? Borrowers are eager to provide students with loans to make their college aspirations a reality. The bad news? Those same students will graduate with thousands in loan payments. Unfortunately, students often do not recognize the full impact of taking on additional debt. Let’s get nerdy and put an average debt load in terms anyone can understand.

Copyright Nerdwallet
All Rights Reserved 2012

Let’s start with some background on student debt:

Average Student Debt

The Average Credit Card Debt In The US Is: $15,956

Average in 2010: $25,250
Public Schools: $22,420
Private Non-Profit: $30,690

Students Accumulating Debt

2/3 of all students graduate with student loan debt

Public Schools: 62%
Private Non-Profit: 72%

Interest Rates

Federal Loans: 3.4% Stafford Subsidized, 5% Perkins, 6.8% Stafford Unsubsidized
Private Loans: 3.4%, 9.5% Average, 13.5%

Note: Variable Interest Rate Private Loans Can Vary From 3 – 17%

Repayment Costs

So how much will your payment be?

$19,695 Private Loans
$25,250 (in 2010) Mix of Federal/Private Loans Above With Conservative 5.1% Effective Interest Rate
$5,555 Federal Loans

10 Years at 5.1% Interest Rate    $282 Monthly    $8,559 Total Interest Paid

VS

20 Years at 5.1% Interest Rate    $183 Monthly    $18,634

How much is $183/month, really?

Lease A Brand New Car Every Three Years

2012
2015
2018
2021

Buy A New iPod Every Month For 20 Years

That’s A Total Of 240 iPods

Buy One iPod And 38K Songs

That’s Roughly 152,640 Minutes

106 Days Of Music.

That’s Right. Non-Stop.

Be Invested In A 401K

And Worth $100,000 After 20 Years

 

Buy A Tropical Island

Yes, Really. $30,000 will get you a nice spread even Robinson Crusoe would admire.

Skydive Twice A Week For 20 Years

That’s Over 2,000 Jumps

But don’t avoid college just because of debt. The average college graduate with a bachelor’s degree is expected to earn $1.2 million more over the course of their lifetime than those with just a high school diploma.

$1,200,000+

Average Salary

$33,000 Take Home Pay (Approx.)
$51,171 Average Bachelor’s Degree Salary
8.8% Student Loan Payment
30% Taxes (Approx.)

$3,100 of your gross annual salary will be needed to cover $2,200 in loan payments (after taxes)

Student Debt is not all bad, but it’s important to be aware of your future obligations and understand that responsible planning now can save you a lot of money later.