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Student loans: pay more now, save later

Sienna Kossman

In about three weeks I will submit my first student loan payment of $280. And there are 120 monthly payments just like that to come.

If that’s not a harsh post-college reality check, I don’t know what is.

With my six-month, no-payment grace period coming to an end, I decided it was time to officially confirm my debt repayment plan so I sat down and took a hard look at the numbers.

Student loans: pay more now, save later

As of June 20, I’m faced with $24,797.50 in student loan debt from 4.5 years at a state university. Those nine semesters of college tuition and fees led to two unsubsidized and four subsidized federal student loans.

A good portion of my loans are subsidized, meaning interest won’t be added until my payments begin. Interest on the unsubsidized loans began accruing September 2009, but so far only amounts to $885.50. I never took out any private student loans, so I’m looking at pretty low interest rates when the rest do kick in, ranging from 3.4 to 6.8 percent, depending on when each loan was taken out.

All of that makes me feel pretty fortunate and I continue to tell myself that my debt could be worse. After all, the current national debt average is around $30,000 — compared to my principal of $24,797.50. But that doesn’t make the numbers look any less intimidating, so I took selecting my repayment plan pretty seriously.

When I sat down to review my options, I had three things in mind:

1. I don’t want to be making student loan payments well into my 30s. That thought terrifies me more than making monthly payments, so my payment plan has to put me on track to get my loans paid off ASAP.

2. I’m a big fan of organization, plans and predictability so the more my plan can reflect those qualities, the better.

3. I want to pay as little interest as possible.

I already knew I wasn’t going to apply for Pay as You Earn or other income-based repayment plans. Those plans are designed for borrowers with high debt relative to their income who demonstrate other areas of financial hardship. Even though my debt feels like a huge burden right now, I just don’t qualify.

Additionally, I don’t qualify for a 25-year repayment term options since my debt is below $30,000, so all of my options are based on 10-year repayment plans.

Taking all the above into consideration, these are the plans and numbers I had left to mull over:

Loan group 1: $22,224 (covering 4 years of college)
  Monthly payment No. of months Interest Total to be repaid
Level payments $230 120 $5,327 $27,610
Graduated payments $152 – $345 120 $6,336 $28,620
Loan group 2: $2,573 (covering 1 extra semester)
Level payments $50 59 $377 $2,950
Graduated payments $25 – $32 120 $840 $3,413
TOTALS $255 – $377 120 $5,704 – $7,176 $30,560 – $32,033

On the graduated plan, payments start low but increase after every 24 payments based on the total amount owed. This plan is good for those who have a limited income when payment begins but who believe they will be able to make higher payments later on. However, even though this plan eases borrowers into the repayment process, this option costs more in interest over time.

The level payment plan requires a set amount be paid each month until the end of the payment period. This plan is recommended for those who have a steady income and are interested in paying the least amount of interest possible.

Since I’m all about saving time and money, I selected the level plan. Despite the mild panic attack that ensued when I realized that means I’ll be paying nearly $300 a month, I’m satisfied with my decision.

Although the graduated plan seems like a low-stress way to approach student loan debt, on the level payment plan I’ll know what to expect each month, which means I can plan ahead and still stay relatively stress-free. My debt will accumulate substantially less interest over the 10 years it will take to pay off than it would on the graduated plan. Lastly, the higher payments will help me pay off the small loan from last fall in about five years instead of 10.


So this is it. There’s no turning back now. I’m hoping the student loan savings plan I created for myself will supplement my monthly income enough to make this plan work. If not, well, back to Ramen I’ll go.

If you or someone you know is a recent college graduate who has picked a repayment plan, I’d love to hear your plan of action and any tips you may have for adjusting to the monthly costs. I’ll keep sharing if you will.

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