How to Estimate the Monthly Repayment Amount

Any one who is in debt needs to have a clear idea about the debt payment obligations in order to manage effectively the future expenditures and the future income stream requirements. That is true of countries as well as corporations, households and students. In the same way that states need to manage their sovereign debt so as not to exceed certain guidelines such as the Debt/GDP ratio among other yardsticks corporations target earnings that are in excess of their interest rate obligations and their anticipated dividend payments. As we have stated in an earlier post the most common guidelines for students should be the maintenance of total debt obligations not to exceed their anticipated annual earnings for their first year of employment after graduation. The following schedule will provide you with a rough estimate of the monthly repayments that you should expect. The major three variables are the total sum of indebtedness, the anticipated interest rate and the length of finance period. If one is to assume an interest rate of 6.8% , which is the most common student loan rate at the moment then this is the monthly repayment schedule that one should expect per $1,000 of debt.

Interest rate............................................Finance period.........................Monthly Repayment

6.8%..........................................................10 years...................................$11.05

6.8%..........................................................20 years....................................$7.6

6.8%..........................................................25 years....................................$6.9

Illustration: If a student graduates with $60,000 student loan then the most common financing period is 10 year. The expected monthly payment , at 6.8%, for 120 months should be about $663.00. If the lending institution is willing to offer a 20 year financing option then the same amount of debt will result in $456.00 per month for a240 months. Some institutions might be willing to offer a 300 month option and in that case the monthly payment would be expected to amount to $414.00. Please note that if one graduates at the age of 22 years old then the student would be burdened by the student loan repayments until either the age of 32, 42 or even 47.