Help me understand my loan consolidation.

[Al Pacino]

I just graduated medical school in June. I just received the official loan consolidation information from Sallie Mae. Please help me to understand the details. I confess that my knowledge of finance is rudimentary. The amount I have to pay every month is too high for me, and I'm really worried about how I can survive in the future.

The amount financed is $ 137,656.69. The letter says this is my unpaid principal.

The annual interest rate of the loan is 2.875%.

Those two numbers I understand. It then says my finance charges is $68,405.09. Thus, when I do finish paying back my loans, I will have paid $206,061.78.

Starting January 2006, I have to pay $572.45 every month.

Can anybody tell me how they calculated my finance charges of the 68,405.09? That seems to be awfully high.

The $572 a month is steep for me. My rent each month is close to $1100. My residency pays me after all the deductions $2300 a month. Thus, each month I have 2300-1100-572 or $628 per month left for gas, food, and so forth.

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[ClearDay]

I just graduated medical school in June. I just received the official loan consolidation information from Sallie Mae. Please help me to understand the details. I confess that my knowledge of finance is rudimentary. The amount I have to pay every month is too high for me, and I'm really worried about how I can survive in the future.

The amount financed is $ 137,656.69. The letter says this is my unpaid principal.

The annual interest rate of the loan is 2.875%.

Those two numbers I understand. It then says my finance charges is $68,405.09. Thus, when I do finish paying back my loans, I will have paid $206,061.78.

Starting January 2006, I have to pay $572.45 every month.

Can anybody tell me how they calculated my finance charges of the 68,405.09? That seems to be awfully high.

The $572 a month is steep for me. My rent each month is close to $1100. My residency pays me after all the deductions $2300 a month. Thus, each month I have 2300-1100-572 or $628 per month left for gas, food, and so forth.

The formula for compound interest is: FV = P(1+r)^n
FV is the future return, which in your case is the $206K
P is the principle
r is the interest rate
n is the number of years you'll be paying it off.
OR you can use this link to calculate it: http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Many residents I know defer their loan payment until the end of their residency. By that time, you should be able to pay this without much trouble. Again, it's a personal choice, some of my friends choose to start paying right after their medical school.
Good luck

 

[mackie]

As with most loans, you are paying most of the interest in the first several years because you haven't paid down any of the principal yet.

I actually requested a graduated payment plan so that for the first five years I am paying only interest. That way, my payments are greatly reduced, and I can pay more whenever I want. And the higher payments won'tl kick in until my salary is much higher.

 

[Poety]

mackie, do you really make 5000 a month like your signature says? That should cover your loan payment! Sign me up

 

[skypilot]

I just graduated medical school in June. I just received the official loan consolidation information from Sallie Mae. Please help me to understand the details. I confess that my knowledge of finance is rudimentary. The amount I have to pay every month is too high for me, and I'm really worried about how I can survive in the future.

The amount financed is $ 137,656.69. The letter says this is my unpaid principal.

The annual interest rate of the loan is 2.875%.

Those two numbers I understand. It then says my finance charges is $68,405.09. Thus, when I do finish paying back my loans, I will have paid $206,061.78.

Starting January 2006, I have to pay $572.45 every month.

Can anybody tell me how they calculated my finance charges of the 68,405.09? That seems to be awfully high.

The $572 a month is steep for me. My rent each month is close to $1100. My residency pays me after all the deductions $2300 a month. Thus, each month I have 2300-1100-572 or $628 per month left for gas, food, and so forth.

137656 x .02875 = $3957 interest per year.
3957/12 months = $329 interest per month
Payment = $572 per month
Principal paydown of loan balance = $572 - $329 = $242 per month (that is why it will take you so many years to pay off your loan at this rate!)

You would need a compound interest table to do this properly but if you have an interest rate of only 2.8% that is pretty good. Hopefully you can defer during residency or maybe pay the $329 interest portion only and keep the principal balance at $137k.

 

[Poety]

Hi skypilot, thanks for the reply, I think i will go that route myself - the whole interest only. My debt is 250,000 give or take a couple grand. (Last I checked it was like 239,000)

So, I think the interest only then doing that principal after residency will be the best bet for me.

Thanks for the advice!

 

[Hurricane]

I actually requested a graduated payment plan so that for the first five years I am paying only interest. That way, my payments are greatly reduced, and I can pay more whenever I want. And the higher payments won'tl kick in until my salary is much higher.

So how do you set something like that up? Or, how do you set up deferment?

 

[EctopicFetus]

137656 x .02875 = $3957 interest per year.
3957/12 months = $329 interest per month
Payment = $572 per month
Principal paydown of loan balance = $572 - $329 = $242 per month (that is why it will take you so many years to pay off your loan at this rate!)

You would need a compound interest table to do this properly but if you have an interest rate of only 2.8% that is pretty good. Hopefully you can defer during residency or maybe pay the $329 interest portion only and keep the principal balance at $137k.

The problem with this statement is because like someone on here mentioned the way loans are structured are that you pay the majority of interest up front and not a static number every month. Per the calculator I used, the first month you will have payed $330.37 in interest, and $241.12 per month in principal. Go to Bankrate.com, and then calculators and after you input your data you should look at the Amortization Table. These numbers are very close to the ones above because of the low rate. Also dont forget that after a certain number of payments the interest % drops. Hope this helps! Good luck!

 

[EctopicFetus]

So how do you set something like that up? Or, how do you set up deferment?

Call your loan provider..They can hook you up with that jazz.

 

[skypilot]

The problem with this statement is because like someone on here mentioned the way loans are structured are that you pay the majority of interest up front and not a static number every month. Per the calculator I used, the first month you will have payed $330.37 in interest, and $241.12 per month in principal. Go to Bankrate.com, and then calculators and after you input your data you should look at the Amortization Table. These numbers are very close to the ones above because of the low rate. Also dont forget that after a certain number of payments the interest % drops. Hope this helps! Good luck!

Yes this is true. But for the first few years of the loan you will only be off by a few bucks doing the simple interest calculation.

So I was off by less than a dollar? Not bad for a "back of the envelope" calculation.

Your lender will supply you with an amortization table if you want that will give the exact figure or you can plug the numbers into one of the calculators available on the web as stated above.

 

[EctopicFetus]

Skypilot,

I wasnt trying to flame or anything. I just wanted to make sure people understood how these long term loans are calculated. Houses are done the same way but since the rates are usually now between 5-6% so you arent paying your house down as fast as you think! Since it seems to me people in MD school usually dont know much about money, I just figured I would drop a little knowledge. Peace out..

 

[Al Pacino]

Skypilot, thanks for showing me the math. That is exactly what I was looking and hoping for. It still amazes me that even though I only loaned $137, 656; I have to return in interest $68,405. 68,405/137,656 is 49.3%. Sallie Mae is making a nice tidy sum from this business.

Now here an extra twist. Sallie Mae promises to drop my interest rate by 1% if I make on time the first 36 monthly payments. I can't be late once. This is a good deal. Hence, I'm tempted to just pay the $572 bucks they want every month. I wish there was a way to lower my minimum to pay each month and still qualify for this bonus

Sigh. My monthly payments don't end until 12/15/2035.

 

[skypilot]

Skypilot, thanks for showing me the math. That is exactly what I was looking and hoping for. It still amazes me that even though I only loaned $137, 656; I have to return in interest $68,405. 68,405/137,656 is 49.3%. Sallie Mae is making a nice tidy sum from this business.

Now here an extra twist. Sallie Mae promises to drop my interest rate by 1% if I make on time the first 36 monthly payments. I can't be late once. This is a good deal. Hence, I'm tempted to just pay the $572 bucks they want every month. I wish there was a way to lower my minimum to pay each month and still qualify for this bonus

Sigh. My monthly payments don't end until 12/15/2035.

If it were me I would not worry about earning the bonus. If you at least can pay the interest during residency you will keep the balance at $137k. (that is better than most people who try to defer the entire amount and make no payments during residency)

Why scrimp and be miserable when you are earning $40k per year? When you are finished with residency you will easily be able to pay off the $137k balance in a few years.

 

[mackie]

mackie, do you really make 5000 a month like your signature says? That should cover your loan payment! Sign me up

Yes, I do, and I have been using this extra income to pay down my loans that I wasn't able to consolidate (~ $30,000 worth with interest rates 5-8%). If 12dailypro sticks around through the end of February, I will have these paid off. So far, I have gotten them down to $18,700 over the past 4 months.

 

[mackie]

Skypilot, thanks for showing me the math. That is exactly what I was looking and hoping for. It still amazes me that even though I only loaned $137, 656; I have to return in interest $68,405. 68,405/137,656 is 49.3%. Sallie Mae is making a nice tidy sum from this business.

Now here an extra twist. Sallie Mae promises to drop my interest rate by 1% if I make on time the first 36 monthly payments. I can't be late once. This is a good deal. Hence, I'm tempted to just pay the $572 bucks they want every month. I wish there was a way to lower my minimum to pay each month and still qualify for this bonus

Sigh. My monthly payments don't end until 12/15/2035.

I consolidated with SallieMae, and I still qualified for the bonus with the graduated payment plan. You should check with them to be sure. Oh, and I won't ever be late because I signed up for automatic debit, which drops the rate by another half a percent.

 

[EctopicFetus]

Keep in mind that it is true that you have to pay a ton but in reality at a rate of 2.875% you actually sorta make money every yr. If you consider inflation to be 3% per yr, you are much better off not hurrying those payments. Imagine in 15 yrs that $572 will be like $250 in todays money. I hope that this makes sense... Anyhow we are all in the same crappy boat! Good luck! I hope I win the lotto to pay that BS off!