The Math Behind Student Loans

Even though we’re an online tutoring app, we always look for ways to apply math concepts to every day life. No matter what field of study interests you beyond high school, math will continue to matter in your personal finances. With college price tags on a national upward trend, 40 million Americans have opted to shoulder some form of student loans. Taking the time to research the types and ranges of repayment plans for college can save you a world of trouble down the road.

First homework tip: apply for FAFSA

The federal government doles out $150 billion every year in need-based grants. I repeat: $150 billion.

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Yet many students neglect to fill out the forms necessary to get a chunk of that money. The earlier you do, the more money you’re eligible for. Tax information from two years prior may be used to file an “early FAFSA” on Oct. 1, 2016, for the 2017-18 school year.

Loan calculators = online math tutor

While our parents had to manage their finances using a pen, pad and four-function calculator, they also didn’t live during a time of skyrocketing tuition. Thankfully, we now have online tools that specifically calculate your repayment rates based on a number of personal variables.

The Department of Education provides one, but there are many to choose from.

For example: You originally sign up for a 10-year repayment plan. However, four years out of school, you realize you have a bit of extra money saved up. Using a loan calculator, you can re-calibrate your repayment. If you make $65,000 in yearly salary, with a 6.5% interest rate on the loan, you could save $8,000 by paying it off in lump sum after four years instead of 10. If you keep in mind that every dollar you repay ahead of time is money that doesn’t grow in interest (which you eventually have to pay the bank anyway), then you can save thousands in the long run.

Using different sources

As a student loan borrower, make sure you’re getting accurate information about how to avoid – or get out of – delinquency and default. One way of ensuring this is to diversify your sources of loans in a way that’s most strategic for you.

Loan providers generally fall in two categories: private and federal. As Forbes notes:

One key difference between federal and student loans is how they charge interest. All federal loans written after July of 2006 have a fixed-interest rate, which means that the rate that you are quoted will not change for the lifetime of the loan. Private loans, in contrast, typically carry variable interest rates, meaning that they often reset every quarter based upon the interest rates that banks pay each other. Lenders will then add a percentage on top of this baseline rate to your monthly payment. There is no legal limit to the interest rate that private lenders can charge you.

If you have a combination of loans, you’ll likely have varying interest rates. It’s important to strategize your monthly payouts to minimize your highest interest rates.

For example: You carry 3 loans with interest rates of 4.5%, 5.5% and 7.0%. Your monthly payments are $400. You lower your monthly payments to $150. You then use the $250 you would’ve used on your loans anyways to make an “extra” payment to the loan that has the highest interest rate (7.0%), and pay that one off the quickest as it is accruing the most interest every day.

Keep an eye on other finances

It’s difficult to get ahead of your repayment if you don’t keep a close eye on your other expenses. Organizational apps like Mint allow you to track where your money goes and set goals to stay on track with your repayments. You can then see in real time how adding more money to loan repayments is better than eating at restaurants every night.


The options may seem endless, but they become less available the longer you wait. Each student is unique, so make sure you do the proper research and work through the math before deciding which loan plan to follow through with. You have the tools, now you just have to explore! Good luck.

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