Postby **r6_philly** » Mon Apr 04, 2011 1:39 pm

Of course just in case my math is fuzzy, I did another spreadsheet.

Standard 120 month payment plan on 200k v. extended graduated.

If loan interest is 6.8% and you invest every dollar of the payment differences at 8.5% interest, compounded monthly, at the end of 10 years, you will have $201,000 saved up from the difference. In the mean time, you did already paid down some of the principle (not sure how much because I can't find an amortization table on the student aid website). But the point is you will have some money left over after paying off the balance at the end of 10 years. But if you went with standard payment plan you will have no money and no principle.

So if the assumption that you will earn 8.5% is correct, then it pays to push off debt service into the future (obviously because you earn more than you are being charged).

So again if 8.5% is assumed, earnings from the savings will outpace the debt service by year 11. So you will only be paying the debt service out of pocket on the extended/graduated plan for 10 years. Total? $149,615. Also since you will have some left over after paying off the principle, you can add that to your retirement fund and let it grow for another 10 years helping to achieve earlier retirement.

Period (M) | Monthly Payment | Std Payment|Diff|Rate|Earning|Balance

1 $1,133.33 $2,301.00 $1,167.67 8.50% $0.00 $1,167.67

2 $1,133.33 $2,301.00 $1,167.67 8.50% $8.27 $2,343.61

year 10:

13 $1,365.66 $2,301.00 $935.34 8.50% $1,236.07 $176,675.64

14 $1,365.66 $2,301.00 $935.34 8.50% $1,251.45 $178,862.44

Year 10 month 11-12

23 $1,365.66 $2,301.00 $935.34 8.50% $1,394.88 $199,253.94

24 $1,365.66 $2,301.00 $935.34 8.50% $1,411.38 $201,600.66

formula:

earning = prev. balance * rate/12

Balance = difference + earning + prev. balance