Kaitlyn Cawley has already paid $18,000 toward her $24,000 student loan. She still owes $24,000 (not a typo, and true story).

Mike Meru, an orthodontist in Utah, is among the 101 Americans who now owe more than $1 million in student loans. Because of a government program that caps the amount some people have to pay on a monthly basis, he’s only paying $1,600 a month. He should be paying more than $10,500 each month. Because his payments are reduced, his total debt is growing $130 a day. At this rate, he’ll owe $2 million in two decades, even if he continues making payments. Eventually, the government will forgive the debt, although at that time he will be on the hook for more than $700,000 in taxes (another true story).

Mike and Kaitlyn might be extreme examples of student debt gone wrong, but their stories make it painfully clear what happens when compounding interest runs amok. In both cases, part of the problem is that interest on their loans started to compound while they were still in school, and not yet paying their loans back.

More than 45 million Americans are managing student debt; the average borrower from the class of 2017 shouldered roughly $37,000 along with their diploma. When those graduates signed the dotted line for their loans, the interest rates may have been easy to overlook. But over the life of a loan those interest charges can add thousands of dollars to the amount you ultimately end up paying.

By understanding how interest affects your student debt and monthly obligations (or any debt for that matter), you can tackle those loans, put your costs into perspective and avoid spinning your wheels in debt purgatory.

UNDERSTAND INTEREST RATES

Every year, Congress sets the interest rate on direct loans from the U.S. Department of Education, and the rate is typically tied to what’s happening in financial markets. In 2017-18, for example, direct loans for undergrads carried a 4.45 percent rate; direct loans for graduate and professional students were set at 6 percent; and PLUS loans carried a 7 percent rate.

Based on where rates have hovered over the past few years and the standard payback period, a good rule of thumb is that for every $10,000 you borrow you should budget $100 a month — give or take — to pay that debt down in 10 years. So, if you borrow $20,000 at 4.45 percent, it’ll cost you $200 a month for a decade.

Here’s the kicker: Over the life of that loan, you’ll end up paying $4,815 in interest. That $20,000 loan really costs $24,815. For a grad student paying 6 percent interest, it’ll cost $26,645. And a PLUS loan, at 7 percent, will cost $27,866. You can see more projections like this (if you have the stomach) from Navient, a major servicer of student loans.

Let’s dig into that $20,000 undergrad loan a little deeper. Once interest starts accruing on your student loans (this can happen at different times depending on the type loan), that interest is calculated using a simple formula. If your loan is compounded daily and your interest rate is 4.45 percent, your $20,000 loan will grow to $20,002.40 in a single day. The interest you are charged tomorrow will be based on that higher amount, every day after that as the interest adds to your balance, you’re being charged interest on more and more money. After 30 days of interest earning interest, your $20,000 loan is now $20,073.

If your monthly payment doesn’t exceed the interest that’s accruing, the amount you owe will continue to grow. That’s why Kaitlyn's balance hasn't budged and Mike’s debt is rising $130 every day even though he’s paying $1,600 a month.

BE STRATEGIC ABOUT PAYING YOUR LOANS BACK

While you're in school, take a close look at your loan mix. A subsidized loan won’t earn interest while you’re attending school, while an unsubsidized loan begins accruing interest right away. If you’re planning to pay back loans while enrolled, you may want to funnel funds to the unsubsidized variety first.

The good news is that you aren’t penalized for paying more than the minimum required payment each month on your federal student loans. Even $25 or $50 more a month can go a long way to saving you money.

Let’s take that $20,000 loan once again. If you add $50 on top of your $200 monthly payment, you’ll save $1,267 in interest and pay your loan off two years faster. An extra $100 will save you over $2,000 and bring your balance to zero four years sooner. You can play with the numbers using an online calculator, but regardless of your situation, getting aggressive with balances today will save you more tomorrow.

DO SOME MATH BEFORE YOU BORROW

If you are planning to attend college classes, keep the “$100 for every $10,000 for 10 years” rule of thumb in mind as you project your future obligations and consider taking out loans. Look at the average salaries for the career path you are pursuing and see if the numbers gel with the lifestyle you hope to live when your education is finished.

If you’re going to medical school and you’re likely to earn a substantial amount of money after you graduate, taking out larger loans may be ok. But if the career path you’ve chosen doesn’t pay as much, you may struggle to repay a significant loan after graduation.

Above all, be realistic about the amount you can borrow and remain vigilant about those interest rates. Compounding interest is wonderful when you earn it, but it quickly overstays its welcome on loan balances.

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