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My valentines day gift to the US Department of Education

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Is there a love purer than your love for student loans? Just kidding. I can’t think of a topic that brings me more anger and resentment than paying my student loans. Unfortunately with $162,000 of student loan debt and a goal to pay it off by the end of 2019 not paying really wasn’t an option. So this year, my secret valentine was the US Department of Education, and my gift — a $2,002.49 payment.

Sometimes I like to imagine what I could have spent $2,000 if I didn’t have this debt looming over my head. How about a Ford F150? Or maybe A Chrysler PT Cruiser (my childhood car!) or maybe a commercial industrial heavy duty water heater? Sorry, craigslist, we’ll never know!

Let’s break it down

For new readers, my original student loan debt of $171,000 was aggregated across 9 loan groups as outlined below. 3 of the 9 loan groups have been ‘PAID IN FULL BY BORROWER (PIF BY BORROWER)’, leaving an outstanding balance of around $161,000. I make minimum payments on all loan groups and all additional payments are applied to the loan group with the smallest principal balance, in this case, loan group D, as denoted by the ‘Payoff rank’ column.

The distribution of the $2,002.49 across the 5 loan groups produced a principal payment reduction of $1,100.84, or about 55.47% of the total payment. That means almost $900 or 44.53% of the payment went just to interest! yuck!

When I examine the breakdown of interest rate to principal allocation within each loan group I see that for loan group H almost 60% of the payment went to interest! Think about the insanity of that payment for a second. This means that for every dollar I give the US Department of education, only 40 cents goes to actual principal reduction. This is because both H and I are unsubsidized loans which mean that interest accrues while I am was in school, and once I graduated the interest was then capitalized (or added to principal) as the new outstanding loan balance. Then any new interest which accrues is based on the new (and higher) capitalized loan balance, not the original principal amount!

If you don’t know how much interest, in terms of actual dollars, actually accrues on your student loans, please take the time to learn and understand the insanity behind interest accruals on student loan debt. Approximately $815 of interest accrues on my student loan days in a 30-day window, which is around $27 dollars a day. Let me repeat that, my student loans accrue $27 of interest a day.

So I made a $2002 payment this valentines day to the love of my life the US Department of Education. There’s one question left to answer, and it’s really the only question that matters Did my student loan balance actually go down? The short answer, yes — by about $1,200! You can see the distribution of each loan group payment against the outstanding balance in the table below. One thing that kind of bums me out about mandatory minimum payments is that you don’t really see a ‘dent’ in the loan payments. Rather than making one large $2,000 payment which actually moves the needle on an individual loan group, the amount paid is distributed amongst many loan groups, but such is life — this is the unfortunate price we pay for student loans.

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