If you haven’t heard, SoFi, the big money loan company primarily known for ‘low interest’ terms for student loan refinances, just spent $400 million to plaster their name across the new football stadium in Los Angeles. Something’s off there, that a company touting themselves as the savior of the student debtor has well over $400 million in the advertising budget. However, that is just a rabbit hole that I won’t go down.
I won’t get into the fact that companies like SoFi turn massive profits off of unknowing teenagers who take out massive loans. I promise this article isn’t about how these companies borrow money from the FED at fractions of a percent and then turn around and give out loans with unmanageable payback expectations at percentages that are sometimes 20 times higher than what they borrowed them at.
No, no I won’t talk about the loans they give out being federally backed and virtually unbankruptable, creating virtually no risk for lenders. I won’t even mention how loan providers offer floundering debtors repayment plans that increase the balance of their loans.
These snakes have been exposed time and again and this article isn’t here to add more fuel to the flame. Rather, it’s how to give those soul suckers as little of your money as possible.
It’s not often we’re given anything as debt payers, but we just got a huge solid. The FED just delayed the collection of federal student debt until September 30, 2020. Now, the cash strapped and recently laid off are cheering the reduction of their bills, but a word of advice: if you got it, pay it.
The “why” is simple. Over the next 6 months, your loan is collecting 0 interest. Any payment you make goes right towards the principal. Furthermore, by not paying you aren’t saving money; you’re just extending the life of your loan for another 6 months.
The average national student loan debt was $35,830 in 2018. If you have an interest rate of 6%, you would average a $1200 interest payment, bringing your total to $47,830. If you pay your loans over the next 6 months, you will save yourself an estimated $600 in interest. The savings are even greater if you can throw more money at your debt, like that $1200 check you didn’t know existed until a week and a half ago.
Sure, it would be nice to buy a new TV or plan a trip, but you can save an additional $600 and a half a year off the back end of your loan term (unless you need that money for bills).
By keeping up with your payments you will pay $4,121 of your debt in the next 6 months as opposed to the $1191 you would pay, or the $0 you could pay. All in all, by spending money you had already planned on spending or didn’t plan on having, you nearly quadrupled your student loan principal payment. Meanwhile, the $1200 you spent becomes $1200 you don’t have to pay, so it’s like paying yourself.
Now, go tell Fannie Mae that she sounds way cooler when you don’t know who she is.