Quantifying the Value of Extra Student Loan Payments
Barnum Financial Group recently added a student loan contribution program to the list of benefits available to their new advisors—and, during our conversations with them, we talked about how a principal payment from an employer has value beyond the amount of the actual monthly contribution.
For example, when you front-load the amount of money put down on a student loan, you can pay the loan down more quickly and reduce the amount of money that’s paid back, overall.
To help quantify the value of an employers’ contribution to your student loan debt, you can use our student loan debt navigator tool.
The tool is pretty simple to use, and an employee just needs to come equipped with a few pieces of information, including:
• Current student loan payment amount
• Weighted interest rate
• Whether the loan(s) is private, federal, or a combination of both
• The outstanding balance
• The employee’s goal:
○ To reduce the monthly payment
○ To become debt free sooner
○ To pay less over time
The employee could use the tool to enter the monthly payment that he or she is personally paying. Then, he or she could perform a similar calculation but inputting a monthly payment that includes the employer contribution. Then, compare the difference.
When an employee sees the impact of, say, an additional $100 per month in principal on reducing student loan debt, then he or she may decide to adjust his or her monthly budget to further increase what is paid each month.
Or, if the student loan debt’s interest rate is relatively low, then he or she might decide to continue with the same monthly payment and use discretionary money in the budget to invest.
There is no one right answer—but having facts and figures at hand allows each person to make the best decisions for themselves.
Money and Emotions
The reality is that there is no 100% surefire way to make completely logical decisions about money because there is an emotional component to financial decision-making.
If you’re someone, for example, who feels a sense of security as savings and investment dollars go up, then you may decide that investing extra dollars is the right choice for you.
Another person, though, might decide that reducing debt is more personally satisfying. If you’re someone who finds having outstanding debt to be stressful, you may fall into this group.
So, to find the right balance between saving money and paying down student loan debt, it can make sense to:
• Take some time to think about upcoming financial decisions.
• Create goals and then line up your financial decision-making with those goals.
• Educate yourself, and then follow your instincts, rather than falling into a herd mentality.
Financial demands connected with paying back student loan debt are actually causing some borrowers to delay making big life decisions. These range from buying a home to starting a family, pursuing graduate school, saving for retirement, and more. What may help is creating and following a financial plan to reduce money-related stress.
Taking Control Financially: Steps to Consider
It may help to use our debt navigator tool to determine how front-loading payments on student loan debt could help you pay off the loan quicker and pay less overall.
It may also make sense to talk to your employer about any student loan contribution benefits—either available now or in the planning stages—and also determine if refinancing your student loans is the right choice for you. It is important to remember that each person’s situation is unique, and there isn’t a one-size-fits-all method for debt payment.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.