Wednesday, July 31, 2013
Student Loan Debt - How $50,000 in loans could cost you over $750,000
Here is how $50,000 in student loan debt could really cost you $753,206.
It is not out of the ordinary for many college graduates to have $50,000 in student loans.
With current student loan rates at 6.8% and with a 10 year payback of the loan, a student could have a monthly payment of $575.40/month. This will amount to $69,048 in payments over 10 years. But that is not where it ends.
If the graduate did not have the loan, that student could theoretically save that amount every month in a in an investment account or their company 401K.
Lets assume the graduate saves the $575.40 every month and the money earns 6.8% on average - not an unlikely scenario if the funds are invested in a 60% stock/40% bond portfolio. After 10 years that money would grow to $98,504. It doesn't end here!
If the Graduate lets the $98,504 continue to grow in the account for the next 30 years, and the money continues to earn an average return of 6.8%, the account will grow to $753,206! That is without adding another penny to the balance.
I call the $753,206 the real cost of borrowing.
This does not mean that college degrees should not be pursued and debt not incurred. This cannot be avoided for many professional programs - medical, law.
But, many attend private and out of state universities to pursue degrees in accounting engineering and liberal arts that may not result in higher life time pay than a local state university.
When it comes down to making a college decision, a young person must ask: "if I have to borrow to attend this school will the degree result in more lifetime income than the real cost of borrowing?"
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