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How much time does it really take to pay off student debt?
Office Hours #4: AMA (Ask Me Anything) with Mark Eagle
This question was posed by a question during one of our most recent "CareerVillage Office Hours" sessions. During Office Hours sessions, we invite students to pose questions related to a specific topic. In this case, the topic was preparing for life after high school. If you answer this question, we will reach out to the students who attended this office hours session to inform them of your response, and all students on CareerVillage will benefit. If you would be interested in hosting an office hours session on a particular topic, please reach out to our staff!
#debt #loans #money #finances #student-loans #paying-for-college
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9 answers
Suzie Mkandawire
5
Answers
Updated
Suzie’s Answer
It took me 5 years to pay off my undergrad college debt (~27K). This was also 20 years ago so I know things have changed. My financial aid was about half grants and half student loans in the late 90s. I studied mechanical engineering and had a job coming out of grad school. My loans were deferred while I was in grad school so they were not accruing interest. It took me 12 years to pay off my MBA tuition debt (~80K). It was mostly loans and very little grant. Depending on how disciplined you are in paying down your debt the faster you can get rid of it. Even if you pay a couple hundred over the principal every little bit helps. I always think of education has an investment in your future. There is no dollar amount you can put on the possibilities of your future. You are definitely worth it. !! I hope this helps.
Chris DeBreaux
Supply Chain
8
Answers
The Woodlands, Texas
Updated
Chris’s Answer
to add on to what the other answers have said...just make sure you keep your head down and make your payments...remember this loan was betting on you succeeding! It also helps to pay more whenever you can to defeat interest.
Gregg Tiven
Manager - eDiscovery
26
Answers
New York, New York
Updated
Gregg’s Answer
Hi there!
This is a really tricky question. Student debt can take the full term to pay off (as much 20 or 30 years) or you can make it a priority and pay it off sooner. It really will depend on your financial needs at the time as well as your future goals. Other things like interest rates come into play as well . For example, if interest is very low, maybe you hold off paying your loans since you can use the money for something else. If interest is high, you pay it off quicker if you can afford to.
Don't let debt or the thought deter you though. I fully financed my education and do not regret it. Education is always worth it!
Good Luck,
Gregg
This is a really tricky question. Student debt can take the full term to pay off (as much 20 or 30 years) or you can make it a priority and pay it off sooner. It really will depend on your financial needs at the time as well as your future goals. Other things like interest rates come into play as well . For example, if interest is very low, maybe you hold off paying your loans since you can use the money for something else. If interest is high, you pay it off quicker if you can afford to.
Don't let debt or the thought deter you though. I fully financed my education and do not regret it. Education is always worth it!
Good Luck,
Gregg
Simeon Snow
Risk Assurance
1790
Answers
Houston, Texas
Updated
Simeon’s Answer
It depends largely on how many years you stay in school and if you are able to get a good wage job for the degree that you earned. Each year that you spend getting your degree is another year you're also not pulling a living wage to help pay off that debt. The exchange can be worth it, but make sure don't take several years getting a degree that won't pay off the debt that you incur.
Jonathan Kolakowski
3
Answers
Updated
Jonathan’s Answer
Let's take a moment to understand the amount of debt you're potentially accumulating and how much of it can be sidestepped. For instance, by enrolling in a community college for your general education classes, you could save more than $30,000, based on personal experience. Similarly, commuting to a traditional four-year college could save you upwards of $20,000, again from personal experience. I emphasize this because incurring large amounts of debt isn't a prerequisite for earning your degree.
I attended a community college for two years where all my semesters were virtually free, thanks to state grants that were awarded based on household income limitations. Later, I spent two years at a university, living at home and commuting, while also working full-time. This only set me back about $20,000. I managed to pay off most of my student debt in cash, and the remainder was cleared within a few years after graduation.
It's worth noting that I earned my degree in Accounting and secured a full-time position at a major accounting firm. So, it's crucial to be mindful of the debt you're accumulating. Don't just blindly sign letters and tick off boxes for student aid. A small student debt, say around $25,000 or less, is manageable. But anything above $100,000 is not only avoidable but also unwise.
Explore ways to secure grants, scholarships, or even a part-time job that allows you to contribute $200 a month towards your student loans while you're still in school.
I attended a community college for two years where all my semesters were virtually free, thanks to state grants that were awarded based on household income limitations. Later, I spent two years at a university, living at home and commuting, while also working full-time. This only set me back about $20,000. I managed to pay off most of my student debt in cash, and the remainder was cleared within a few years after graduation.
It's worth noting that I earned my degree in Accounting and secured a full-time position at a major accounting firm. So, it's crucial to be mindful of the debt you're accumulating. Don't just blindly sign letters and tick off boxes for student aid. A small student debt, say around $25,000 or less, is manageable. But anything above $100,000 is not only avoidable but also unwise.
Explore ways to secure grants, scholarships, or even a part-time job that allows you to contribute $200 a month towards your student loans while you're still in school.
Dan Kosuda
Field Service Engineer
7
Answers
Long Beach, California
Updated
Dan’s Answer
The answer will vary for everyone, but it can be answered (or at least estimated) before taking out any loans. You can shop for schools to find the best deal. Sometimes in-state schools may actually be more expensive if an out of state school will offer you a better scholarship. The major you choose will determine your salary after school, as well as, job demand in that field. There are ways to subsidize the expenses of school such as internships/co-op work during school.
My school had rotations starting the second year where every other semester we would go on co-op (internship) which allowed us to make money full time for 3-4 months. This would cover my upcoming semesters expenses.
In the end amount of time to pay off debt will be based on:
Debt = Tuition + Living - Scholarships/Grants
Time to pay off = Debt / (Salary - Living Expenses)
Example:
Debt ($40,000) = $10,000(4) + $6,000(4) - $6,000(4)
Time to pay off (10 years) = $40,000 / ($40,000(net salary) - $36,000)
*current average student loan debt is $33,000
*living expenses will vary widely on location and frugality
My school had rotations starting the second year where every other semester we would go on co-op (internship) which allowed us to make money full time for 3-4 months. This would cover my upcoming semesters expenses.
In the end amount of time to pay off debt will be based on:
Debt = Tuition + Living - Scholarships/Grants
Time to pay off = Debt / (Salary - Living Expenses)
Example:
Debt ($40,000) = $10,000(4) + $6,000(4) - $6,000(4)
Time to pay off (10 years) = $40,000 / ($40,000(net salary) - $36,000)
*current average student loan debt is $33,000
*living expenses will vary widely on location and frugality
Betty Yip, PMP, CSM
Senior Director, Technical Program Manager
72
Answers
San Francisco, California
Updated
Betty’s Answer
The basic information you'll need to calculate how long it would take to pay off student debt depends on a number of factors:
1. how much is the debt
2. how big your monthly payment is
3. when does interest kick in
4. how much is the interest
5. your discipline in sticking with a budget and payment plan
Doing a very straightforward scenario, say you owe $10,000 at an interest rate of 2% per year on the remaining balance, but the payment period starts 1 year after graduation and it's interest free for the first 6 months after the first payment is due. Then, you could enter the information in an Excel spreadsheet. If you're able to pay off $200 per month and your first payment starts on January 2022, then it's possible that the loan could be paid off by March 2026, a little over 4 years. Of course unexpected surprises could come up and sometimes pausing payments or consolidating different loans would change the formula. Paying it off sooner by making bigger payments can be an option, but it's generally a smarter choice to invest your savings towards a higher interest bearing account or equities that can earn more than the interest rate of the loan so that you are really leveraging your money. If you can make a guaranteed 3% interest back on your money, then it makes sense to make minimum payments to pay off your loan at an interest rate of 2%, but continue to invest your money to get a return of 3%.
1. how much is the debt
2. how big your monthly payment is
3. when does interest kick in
4. how much is the interest
5. your discipline in sticking with a budget and payment plan
Doing a very straightforward scenario, say you owe $10,000 at an interest rate of 2% per year on the remaining balance, but the payment period starts 1 year after graduation and it's interest free for the first 6 months after the first payment is due. Then, you could enter the information in an Excel spreadsheet. If you're able to pay off $200 per month and your first payment starts on January 2022, then it's possible that the loan could be paid off by March 2026, a little over 4 years. Of course unexpected surprises could come up and sometimes pausing payments or consolidating different loans would change the formula. Paying it off sooner by making bigger payments can be an option, but it's generally a smarter choice to invest your savings towards a higher interest bearing account or equities that can earn more than the interest rate of the loan so that you are really leveraging your money. If you can make a guaranteed 3% interest back on your money, then it makes sense to make minimum payments to pay off your loan at an interest rate of 2%, but continue to invest your money to get a return of 3%.
Christopher Bain
Director, Performance Measurement (Ops Finance Related)
10
Answers
Lexington, Kentucky
Updated
Christopher’s Answer
Hey there,
Firstly, I am putting a link to a calculator online you can use to punch in the amount of debt, your interest % rate, and your payment to estimate how long. Treat this as a guide and not an absolute! There are some exceptions to this and things to consider. The calculator will treat the loan as a standard loan understand amortization terms (amortization mathematically describes how a loan is paid off). Many student loans have special terms. Examples would be:
(1) Step payment plans where you start with lower payments at first, and they get larger over time. The idea here is you are starting to increase your earnings as you progress in your career.
(2) Sometimes student loans allow you to defer payments, which will increase the length of time to pay off.
(3) Student loans are not typically underwritten, which means they do not necessarily assess you for risk of paying back in the traditional way. This process is typically used to assess how much your borrowing limit should be. Since you are a student and don't know what your salary will be yet, this style of underwriting is not considered in the usual way it would be for say a car or home loan. Keep this in mind when you are taking on debt and make sure that the career you choose will allow you to repay the loan.
(4) Some career paths like teaching, military, peace corps may allow you to cancel your debt after a few years of service if it is a federal loan. Definitely do your research here. If these are of interest, you may want to consider.
Thank you for asking!
https://www.calculator.net/student-loan-calculator.html
Firstly, I am putting a link to a calculator online you can use to punch in the amount of debt, your interest % rate, and your payment to estimate how long. Treat this as a guide and not an absolute! There are some exceptions to this and things to consider. The calculator will treat the loan as a standard loan understand amortization terms (amortization mathematically describes how a loan is paid off). Many student loans have special terms. Examples would be:
(1) Step payment plans where you start with lower payments at first, and they get larger over time. The idea here is you are starting to increase your earnings as you progress in your career.
(2) Sometimes student loans allow you to defer payments, which will increase the length of time to pay off.
(3) Student loans are not typically underwritten, which means they do not necessarily assess you for risk of paying back in the traditional way. This process is typically used to assess how much your borrowing limit should be. Since you are a student and don't know what your salary will be yet, this style of underwriting is not considered in the usual way it would be for say a car or home loan. Keep this in mind when you are taking on debt and make sure that the career you choose will allow you to repay the loan.
(4) Some career paths like teaching, military, peace corps may allow you to cancel your debt after a few years of service if it is a federal loan. Definitely do your research here. If these are of interest, you may want to consider.
Thank you for asking!
Christopher recommends the following next steps:
Leanne Field, PMP, ACS, FLMI
Project Manager
1
Answer
Houston, Texas
Updated
Leanne’s Answer
The answer to this question will partly depend on how big of a loan you take out and whether or not you pay the minimum or can pay more than the minimum. Before agreeing to a loan amount be realistic about how much money you can expect to make right out of college and over the following years. I took out a $17,000 loan that I was able to pay off in my mid-30s. When I went back for my MBA I was able to defer my loan to not accumulate interest, but continued making payments that went all towards principle and allowed me to pay down my loan faster. I also have a lot of friends in their 40s still paying off their loans.
Remember that a loan is not your only option. There are grants and scholarships. There are a lot of scholarships out there through many different organizations. Some are one time only, some may be for multiple years. Ask friends and ask family what organizations they belong to and whether or not there are scholarships available.
Remember that a loan is not your only option. There are grants and scholarships. There are a lot of scholarships out there through many different organizations. Some are one time only, some may be for multiple years. Ask friends and ask family what organizations they belong to and whether or not there are scholarships available.