For students, the consequences of taking on student loan debt seem far off. Most have never been in debt so the signing of the loan agreement occurs with little thought on how it will affect their post-graduation years. It’s easy money.
In prior posts, I considered why aspiring ministers need to avoid student loan debt and how to avoid it. When it comes time to repay student loans, the drain it has on ones finances often comes as a shock. So, I thought it would be helpful to talk numbers and reveal what impact your school debt will have on your wallet.
On the undergraduate level, the class of 2014 is the most indebted class ever. Graduates average $33,000 of debt. For those who pursue graduate education, that number increases. They average $57,600 of debt.
Let’s assume that you are better than average. You graduate with $30,000 of debt.
Interest on your loans can vary depending on the type of loan. For federal student loans, undergraduate rates are lower than graduate rates, ranging from 4.66% to 7.21%. For private student loans, rates can creep into the low double digits.
We will assume the best and give you a 6% average rate on your loans without any loan fees.
You want to get rid of the loans as soon as possible, and you consider a 5-year repayment plan.
- Total debt: $30,000
- Average rate: 6%
- Repayment term: 5 years (60 months)
Over the next 5 years, your loan repayment plan will look like this:
- Monthly payment: $579.98
- Total interest paid: $4,799.08
- Total amount paid: $34,799.08
Unfortunately, ministerial salaries tend to be lower. Once you start taking out your tithe, housing payment, healthcare costs, and other living expenditures, the monthly loan payment can create significant strain. Of course, the most difficult part of the loan is knowing that you paid $4,799.08 for the $30,000.
If you stretch the loan repayment plan out over 10 years, the monthly payment does decrease ($333.06), but you end up paying a gut-wrenching $9,967.45 in interest for the $30,000.
It is easy to see how student loan debt hinders the launch of new careers, especially ministerial careers. Before you sign a student loan agreement, carefully examine the numbers and understand the weight you are about to place on yourself. You could end up paying more for your education than you ever dreamed.