President extends student loan through Sep 31st 2021. An Investment Opportunity - Repay Faster with SLR67
According to the recent news from US Dept Education, the student loan payments can be postponed until September 31 2021, without any penalty. It appears Washington is taking the student loan crisis more seriously now. President Biden extends freeze of student loan repayments until September 31, 2021.
That’s great news for the student community, and obviously with many students struggling to find work, is a welcome gesture. The debt ridden student-community can certainly use this break. If a student is yet to land a job, and if the money is scarce, they can simply skip paying until they land a job, until September 31.
For those who are already employed, they are in a lot better shape - they can use this time as a money making opportunity.
Time is money - by that we mean that time in the market is what counts and is actually potential money in investor pockets in returns.
Borrower's use case -
Loan Balance : $100,000
Interest rate : 6.8%
Monthly payment: $652 (~$660)
Student loans are unsecured loans, which carry higher risk for lenders hence the rates are higher. The cardinal rule of high risk - high potential returns holds true everywhere in the investment world.
Now comes the interesting part. This is free money for the next 8 months for every student out there with a loan. In some sense it is completely unfair to those who paid for their education. How? For the those with loans, these students don’t have to pay this payment - which means it is free money $660*8 = $5280. Those without loans do not get this opportunity.
So, If you are already holding a job, this is a golden opportunity for you - you can take all that money and make the power of compounding work for you.
How do you do it? Open a SLR67 account, invest those $660 every month for the next 8 months until September 2021. The next loan repayment due will be in October. This gives an opportunity to use this time and money, by countering the compounding interest effect in your loan.
How? Typically there is a higher return from the market than the loan interest. Assuming ROI of 8%, this will reap 8% - 6.8% = 1.2% additional returns when compared to just paying the loan. On top of that, when used monthly compounding, it all adds up. You are a winner!
Without investing the 8 months, your payments:
Payment Every Month : $652 (~$660 - Below calculation)
Total of 360 Payments : $234,693
Total Interest : $134,693
Borrowers are getting an 8 month break.
With a target of $10K in mind, Calculations:
Monthly investment: 660.00
Return (assumed) : 8%
Target : $10,000.00
Actual return : $10,358.82
Investment timeline: 1.167 years(14.004 months)
Here would be your loan payment schedule:
SUMMARY:
How will it impact the life of your loan if you pay down your loan with the $10,358.82:
Loan Balance before 10K payoff in May 2022:$ 99,481.00
Loan Balance Starting May after 10K payoff: $89,122.33
Interest rate : 6.8%
Months remaining : 354 (Since you already paid 6 months into the loan)
Payment Every Month $584.04
Total of 354 Payments $206,750.60
Total Interest $117,628.27
You saved $134,693.07 - $117,628.27 = $17,064.80 in interest.
Even better! If you decide to keep paying $660 instead of $584.04:
Extra payment: $75.96 per month
Saving in interest: $37,509 ($117,628 no extra payment vs. $80,119 extra payment),
Years saved on the loan: 8.1 years (29.5 years vs. 21.4 years, starting the time you made the down payment, that is April 2022)
Open a SLR67 account today - and make a consistent effort to take a bite out of that student loan today!
We at SLR67 are always looking for new ways to combat the looming student loan crisis! Hope this is helpful to someone out there.
Returns on investment may vary depending on market conditions. Calculations are made assuming you will stick to repayment schedules.
References:
https://www.calculator.net/amortization-calculator.html
https://www.calcxml.com/calculators/extra-payment-calculator
Author: Sreedar ([email protected])