Things you should know… NOW !! Jana C. Davidson AVMA GHLIT Director of Student Services...
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Transcript of Things you should know… NOW !! Jana C. Davidson AVMA GHLIT Director of Student Services...
Things you should know…
NOW!!Jana C. DavidsonAVMA GHLIT Director of Student ServicesMississippi State University CVMJanuary 30, 2009
Reality is merely an illusion, albeit a very persistent one….
Albert Einstein
What will it be in…
2012?
Let’s talk about debt…
• Student loans : – a.k.a.- money matters I wish not to
think about– Compound/Capitalized interest - can
it be good for me?
• Credit Cards – friend or foe?• Repair my credit?
Importance of Borrowing Wisely!
Why be concerned?
Earning a professional degree will increase your possible income, but it may mean a few years of minimal excess revenue.
It is essential you evaluate expenses, reduce as much cost as possible, and budget, budget, budget!!
BUDGET WORKSHEET
Student Loans
Subsidized –borrower not
responsible for interest while enrolled
Unsubsidized - borrower
accumulates interest while enrolled and may be required to pay each month
Student Loans
Subsidized – Federal Stafford Loan– Federal Perkins Loan– Federal Grad Plus Loan– Specialized (military,
etc)– Some private
Unsubsidized – Typically private
industry or bank loan
Student Loans – Interest types
• Simple Interest – typically short term
• Compound Interest – longer term that accumulates interest daily, monthly or annually
• Capitalized Interest – adds accumulated interest at the time of repayment
Simple Interest
Simple interest = principle * rate * time
For example: Borrowing $100,000 for a rate of 6.8%, for 10 years :
$100,000*.068*10 =$ 6,800 interest + $100,000
Total of loan = $106,800
Compound InterestCompound interest = principle * rate * time
for each year and then added to the next as principle..
Example: Borrowing $100,000 for a rate of 6.8%, for 10 years :
$100,000 * .068 * 1 =$ 6,800.00 interest$106,800 * .068 * 1 =$ 7,262.40 interest$114,062 * .068 * 1 = etc…
+ $100,000 Total of loan = $193,068
$100,000 Borrowed?Simple interest :
Total loan $106,800Compound Interest :
Total loan = $193,068
Difference of 10 year loan value:
$86,268!!
Capitalized InterestTypical for education loans • can involve capitalized interest, which
increases the size of the loan. • can involve a variety of loan discounts and
loan fees • the interest is added to the principle
when repayment begins..
All of this combines to make it harder to appreciate just how much the loan will cost to repay……………..how do you know?
USE THE TOOLS!• Encourage borrowers to calculate the actual
total interest paid over the lifetime of the loan, using calculators like:
FinAid's loan calculator www.finaid.org
• Seeing the actual cost of the loan, the total interest paid, and the monthly loan payment will help you make more realistic decisions concerning the amounts you borrow
General Resources
FinAid!www.finaid.org
America Assoc of University Women
www.aauw.org
Student Aid on the Web Scholarship
Wizardwww.studentaid2.ed.g
ov/getmoney
Federal Student Aid Gateway
www.studentaid.ed.gov
Credit Card – friend or foe?
What type of interest do they carry?– Revolving– Compounding (daily, monthly, annually)
Friend:Allows access to open credit when needed
Foe:If only interest (minimum) payment made, principle payoff perpetuates to never be paid down!!
An Example: Discovering the Benefit of Increasing Your Payments
Let's say John and Jane both have $2,000 debt on their credit cards, which require a minimum payment of 3%, or $10, whichever is higher.
Both are strapped for cash, but Jane manages to pay an extra $10 on top of her minimum monthly payments.
John pays only the minimum.
Each month John and Jane are charged a 20% annual interest on their cards' outstanding balances. So, when John and Jane make payments, part of those payments go to paying interest and part go to the principal.
Here is the breakdown of the numbers for the first month of John's credit card debt:
•Principal: $2,000
•Interest: $33.33 ($2,000 x (1+20%/12))
•Payment: $60 (3% of remaining balance)
•Principal Repayment: $26.67
•Remaining Balance: $1,973.33 ($2,000 - $26.67) ---------------------------------------------------------------------------------
John pays $4,240 in total over 15 years to absolve the $2,000 in credit card debt.
The interest that John pays over the 15 years totals $2,240, higher than the original credit card debt.
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Because Jane paid an extra $10 a month, she pays a total $3,276 over seven years to absolve the $2,000 in credit card debt. Jane pays a total $1,276 in interest.
$4,240 (John) - $3,276 (Jane) = Jane saved $ 964!
Every little bit counts!
•Paying twice your minimum or more, can drastically cut down the time it takes
to pay off the balance
•Lower balance leads to lower interest charges
The Lesson….
However…
It's wise to pay more than the minimum
It's best simply not to carry a balance at all.
WHY? - If you could invest that 20% with compounding interest, you can make more money than any stock broker would promise!
(Average yield of S&P 500 = 6-7% growth annually)
The Lesson….
Keeping or Repairing Credit
• Don’t make late payments• Pay off collections• Correct errors
(www.annualcreditreport.com)• Add your side of the story• Pay down loan (easier said than
done)• Check that negative info older than 7
years is reported