When it Comes to Student Loans, You Need to do the Math
12 Mayo 2008 - 8:17AM
PR Newswire (US)
One Percentage Point Can Cost Thousands of Dollars - And Shackle
Parents' and Students' Finances NEW YORK, May 12
/PRNewswire-FirstCall/ -- Lucrative jobs, corner offices and
business lunches may be what undergrads and their parents have in
mind for a post-graduation future, but their view on the amount of
money they need to pay for education is generally far less clear.
Estimating the total cost of a college education can be confusing,
which often leads to bad decisions when it comes to funding that
education. "The best place to start when it comes to figuring out
what you can affordably borrow is to calculate the total cost of
the education they are pursuing. However, parents and students
frequently find themselves at a disadvantage when trying to
determine what this figure will end up being," said John P. Derham,
an officer for MyRichUncle. "A few smart rules are in order to help
families get to a realistic number to start budgeting for." Math
Rule #1 -- Know your Estimated Total Costs, in relation to tuition
and fees Tuition is just one part of the total cost. Factor in
books, meals, housing, transportation and other expenses (even
decorating the dorm room) when making a college financial plan.
Your school should provide helpful information on costs but here
are a few guidelines depending on the type of institution you plan
to attend: -- Four-year public college -- If you're in-state, the
average budget is about $18,000, of which tuition and fees are
$6,185. The average out-of-state average budget should be about
$28,000, of which tuition and fees are $16,640. Students
considering a public college should be mindful that tuition and
fees are approximately one-third of their total budget. --
Four-year private college -- The average budget should be about
$35,000, of which tuition and fees are close to $24,000. Students
considering a private school should consider their tuition and fees
as just over two-thirds of their total budget. -- Two-year college
-- Average estimated budget is about $13,000. Tuition and fees are
about $2,400 of that amount. Students considering a two-year
college should understand that tuition and fees are approximately
20 percent of their total budget. "Knowing the true extent of the
costs up front and planning for them is critical. When parents are
not given enough time or information to do the research and the
math, they can put their finances and their children's education in
jeopardy," said Derham. Math Rule #2 -- Know the Impact of One
Percentage Point of Interest and Shop Around for the Best Rate on
Student Loans A change in rate can make a substantial difference in
the overall cost of your student loan. -- A $10,000 private student
loan that has an average percentage rate (APR) of 8.69 percent that
you defer payment on until after graduation will cost $20,512 in
interest, not including the principal amount borrowed. --
Meanwhile, a $10,000 private student loan with an APR of 6.92
percent will cost $14,797 in interest if you defer payment until
after graduation. In other words, less than two percent difference
in the annual percentage rate of interest translates to over a
$5,700 difference in the amount repaid. Math Rule #3 -- Understand
the Impact of your Repayment Decisions. If you are Able to Start
Payment on the Loan Immediately, Do It Using the $10,000 private
student loan examples above, we recalculated the interest payments
if the borrower started repayment on the student loan immediately.
-- The first loan's total interest amount owed is reduced to
$11,056, a savings of nearly $9,500 in overall interest paid. --
The second loan's overall interest amount paid reduced to $8,420, a
nearly $6,400 difference. Because payments need to be made
consistently, it may not be realistic for many students to start
repayment immediately. However, knowing that interest accrues
during the deferment period and that you have to make it up by
paying it back later should help parents and students make smarter
borrowing decisions. Added Derham: "When you do the math, you can
really see why it is important not to borrow a dollar more than you
need in student loans." MyRichUncle offers many tools for
prospective borrowers. One tool, the APR Monthly Repayment
Calculator, provides student loan shoppers a new process whereby
they can view examples of private student loans in repayment from
several different vantage points. Specifically, if a borrower is
seeking to secure a private loan to fund their education costs that
free and federal money have not covered, he or she can input a
desired loan amount as well as the expected graduation date and
degree sought. From there, the borrower can compare several
options, including: -- The cost difference between three repayment
options: Immediate Interest and Principal, Interest Only and
Deferred. While the deferment option is most popular among
students, they may not calculate how much interest will accumulate,
and the true difference that will make in the overall amount
repaid. -- The cost difference between repayment terms. A standard
comparison of 15 years is provided, however borrowers can look to
repay their private student loans over a longer or shorter period
of time and compare the true cost of those decisions in real
numbers. -- The Annual Percentage Rate (APR) on the loan. As the
total measure of what the loan will cost, the APR will take all
repayment factors into consideration, thus making it a standard
comparison tool for consumers. The APR Monthly Repayment Calculator
is fully automated and operational from the MyRichUncle.com
website; no downloads are required. For more information, please
visit http://www.myrichuncle.com/ and click on the link for the APR
Monthly Repayment Calculator. About MyRichUncle(TM) From its
inception in 2000, MyRichUncle(TM), the consumer brand of MRU
Holdings, Inc. (NASDAQ:UNCL) has been at the forefront of
innovation for education finance, most recently focusing on the
growth market of student loans. Since May of 2005, MyRichUncle has
originated more than $400 million private and federal student loans
using its breakthrough underwriting platforms and innovative
technology to deliver competitively priced products and services to
borrowers. In May 2006, the Company launched Preprime(TM), the
first and only student loan that allows students to qualify for
loans based on individual merit, rather than credit history alone.
In June 2006, MyRichUncle launched its Federal student loans with
upfront interest rate reductions at repayment. Dedicated to
reshaping the student loan industry to function in the best
interests of students, founders Vishal Garg and Raza Khan and their
team are committed to delivering the most innovative solutions for
their customers. The Company and its founders have been recognized
by Fast Company's Fast 50 (2006) and listed among
BusinessWeek.com's Tech's Best Young Entrepreneurs (2006). For more
information, visit http://www.myrichuncle.com/. UNCL-G DATASOURCE:
MyRichUncle CONTACT: Karin Pellmann, VP, Public Relations of
MyRichUncle, +1-212-444-7541, ; or Adria Greenberg of Sommerfield
Communications, +1-212-255-8386, , for MyRichUncle Web site:
http://www.myrichuncle.com/
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