"Create future value with your money"

Use case: Paying Off Student Loans Faster

In today's society, student loan debt has become an increasingly common and often ignored problem. These loans are becoming a part of life for all age groups, often taking 20 to 30 years to pay off. Unfortunately, there aren't enough programs to help students manage this debt. Most financial companies focus on high net-worth clients, leaving the average person to fend for themselves.

While there are ways to consolidate or refinance these loans, making monthly payments lower, these methods don't remove the debt; they merely make it more convenient for the borrower. Freedom from student loans is what every borrower should aspire to, but it has become a dream in the current system. However, there is a way to pay off loans faster.

With systematic saving, investment discipline, and expert help, one can pay off student loans faster than expected. The idea is that since student loans work on compound interest, one can counteract this effect only with the power of compounding.

For example, consider a student graduating from college with a $100,000 student loan borrowed at 7% interest. Assuming the student plans to pay back the loan over 20 years, the monthly payment will be $775.30. With this program, the total interest paid will be $86,071.74. The total money out of the student's pocket is $186,071.74.

Let's compare that with a case where the student opts to invest a small amount every month. Say they decide to invest $225, making the monthly cost for the loan plus investment an even $1000.

With this plan, the student will invest $225 per month into WealthPaver. Assuming a conservative market return rate of about 8%, the student's account value will be $25,390.31 within seven years, which they can use to pay off the loan, reducing the time needed for a full payoff. Assuming the borrower paid every installment of the loan, at the end of the seventh year, the outstanding loan balance would be $79,267.91.

At this point, the student can either continue growing their investment in WealthPaver or use those funds to pay off the loan balance. If they choose to pay it off, this will bring down the loan balance to $53,877.60. Now there are several options available to refinance the loan. If the rates are suitable, continuing the payoff with the same monthly due will allow the student to pay off the loan in 8 to 9 years or less, depending on the terms.

An even better option: Since the monthly payment has been reduced for the loan, the student can continue with the minimum monthly payment and increase their WealthPaver investment. The remaining $53,877.60 over 13 years at 7% interest will require a monthly payment of $526.96. If the student continues WealthPaver with $475 (keeping the $1000 outflow per month approximately constant), they will have $35,152.13 to further pay off the loan within the next 5 years.

The loan balance at the end of 5 years is only $38,651.45. At this point, the student can pay off all but $3,500. As you can see, the student has essentially paid off the loan in just 13 years, gaining a 7-year advantage!

This is just one of the ways students can use WealthPaver to rid themselves of crushing debt. They can use many more combinations - for example, contributing more every month will greatly improve returns.

Typically, first jobs out of college pay modestly, but as students grow in their careers, salaries increase. This excess income can be used judiciously, investing the money into WealthPaver plans and reaping the returns to shorten loan payoff times.

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