November 22, 2010 by Leah
Yes, I have an MBA; however, I have not actually used my brain since May. Thus, when I calculated how long it would take us to pay off our student loans in yesterday’s post, I completely skipped the whole “interest” part of the loan. You know, the part that makes it profitable to loan people money. The part that means 20% of what I’ve sent to the Alaska Student Loan Corporation over the past two years has gone to interest, not principal. My brilliant engineer husband pointed out this colossal error when my offhand calculation sounded just too good to be true.
I ran a few more calculations this morning. If we throw $1400 a month at our combined loans, it will take almost nine years to pay them all off, not four years. Also, we’re not actually paying $1400 a month, like we used to be when we were both employed; we are paying $600 out of pocket because that’s what we decided we could reasonably afford on our budget. One benefit of Aaron’s job is that it pays something like $250 to $300 a month on his student loans, although to keep this benefit he has to keep promising to stay with the Feds for another few years. (Indentured servitude?) If I keep paying $200 a month towards my loans (only $10,127 but with interest rates at 7.05% and 6.55%) it will take around five years. If we keep paying $600 a month on Aaron’s loans (I’m including the extra from the government in this $600) it will take TWENTY FIVE years. Omg. I could be dead by then. More likely, we’ll be incurring debt to put our kids through college by then. Heck, maybe the government will have collapsed and higher education will be a thing of the past and my homesteading skills will be in demand. (That actually doesn’t sound so bad…)
My brilliant engineer husband is getting a raise in a few weeks, and it looks like we will need to heed his suggestion and throw any extra money towards paying loans, and we’ll need to up my payment considerably because my interest rates are higher (his highest interest rate is 5.375%, lowest is 3.5%). More importantly, though, it looks like if we want any kind of financial freedom while we have a glimmer of youth left, I need a job more than ever. Of course, that was some of the point of getting the master’s in the first place – to make myself more employable. Hah.