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23 Mar 2018, 07:43
Kudos
Bookmarks
Hi All,
I feel like I'll be much more qualified to figure all this out post MBA
, so I'd love for someone to take a look. Hopefully it will help others as well. This math may be completely wrong, I'm an engineer not a financial analyst!
Let's say for the sake of simplicity that the total amount I'm borrowing over 2 years is $140,000, and I'll look at CommonBond fixed rate only. What I want to determine is the trade-off between full deferment, and making interest only payments while in school.
Terms are all the same:
- 6% APR fixed
- 2% fee
- 10yr period
For simplicity, let's break it up into two equal loans of $70,000 (this is how it works right??).
Year 1
- Loan amount: $70,000
- Deferral period: 2 years
- Principal after 2 years: $78,924
- Monthly interest accrued: $371
Year 2
- Loan amount: $70,000
- Deferral period: 1 year
- Principal after 1 year: $74,328
- Monthly interest accrued: $360
So with no interest only payments:
Total principal after deferral: $153,252
Monthly payment: $1,735
But then it looks like in year 2 I'm accruing over $700 per month in interest. Let's say I pay that down every month, and my total principal upon graduation is an even $140,000. My monthly payment only goes down to: $1,585. Only a difference of $150.
I'd rather pay an extra $150/mo once I have a job than $700 per month with no job. It seems as though interest only payments are not worth it.
Is my math wrong / should I have come to a different conclusion?
I feel like I'll be much more qualified to figure all this out post MBA
, so I'd love for someone to take a look. Hopefully it will help others as well. This math may be completely wrong, I'm an engineer not a financial analyst!Let's say for the sake of simplicity that the total amount I'm borrowing over 2 years is $140,000, and I'll look at CommonBond fixed rate only. What I want to determine is the trade-off between full deferment, and making interest only payments while in school.
Terms are all the same:
- 6% APR fixed
- 2% fee
- 10yr period
For simplicity, let's break it up into two equal loans of $70,000 (this is how it works right??).
Year 1
- Loan amount: $70,000
- Deferral period: 2 years
- Principal after 2 years: $78,924
- Monthly interest accrued: $371
Year 2
- Loan amount: $70,000
- Deferral period: 1 year
- Principal after 1 year: $74,328
- Monthly interest accrued: $360
So with no interest only payments:
Total principal after deferral: $153,252
Monthly payment: $1,735
But then it looks like in year 2 I'm accruing over $700 per month in interest. Let's say I pay that down every month, and my total principal upon graduation is an even $140,000. My monthly payment only goes down to: $1,585. Only a difference of $150.
I'd rather pay an extra $150/mo once I have a job than $700 per month with no job. It seems as though interest only payments are not worth it.
Is my math wrong / should I have come to a different conclusion?
23 Mar 2018, 09:02
Kudos
Bookmarks
I think you are close. I came up with slightly different numbers.... maybe I am off with some of my assumptions - attaching excel file for reference.
(I would also recommend checking LendKey - i met the guy who runs their student loan program and they work heavily with local small lenders such as credit unions. They have no origination fees)
Balance difference: $13,483.00
Pmt difference $177.19
I think you are spot on with analysis. Your payment would be around 10% more as the result of not paying interest while at school. Most don't and most choose to borrow less as the result. I can tell you, however, is that there are many expenses, trips, and opportunities while at business school and you want to have a reserve.... you don't want to scramble or be like me and live on the credit cards part of the way, though I have to say it worked out.
pmt calc.png [ 111.99 KiB | Viewed 1652 times ]
(I would also recommend checking LendKey - i met the guy who runs their student loan program and they work heavily with local small lenders such as credit unions. They have no origination fees)
Balance difference: $13,483.00
Pmt difference $177.19
I think you are spot on with analysis. Your payment would be around 10% more as the result of not paying interest while at school. Most don't and most choose to borrow less as the result. I can tell you, however, is that there are many expenses, trips, and opportunities while at business school and you want to have a reserve.... you don't want to scramble or be like me and live on the credit cards part of the way, though I have to say it worked out.
Attachment:
pmt calc.png [ 111.99 KiB | Viewed 1652 times ]
Attachments
nycengineer loan math.xlsx [11.72 KiB]
Downloaded 55 times
23 Mar 2018, 11:04
Kudos
Bookmarks
Thank you! I'm glad we are in the ballpark. Yeah, I plan to to extensive comparisons between lenders, but I just wanted to fix all that for the purposes of the interest-only payment decision.
I definitely hear you on the reserve for trips etc. This may seem like a low number overall but I'm lucky to have some other funding sources to contribute with.
I definitely hear you on the reserve for trips etc. This may seem like a low number overall but I'm lucky to have some other funding sources to contribute with.
