Tuesday, November 30, 2010

Paying off the Student loan early - in 22 months.

I came to the US to get a Masters degree with an I-120 in hand to a nice but very expensive university. The fees there is consistently amongst the highest in the country, even more so when i looked at converting my Rupees(Indian currency - right now a dollar can buy about 45 Rupees, back then it took about 50 Rupees to get ONE US dollar).
I had no Scholarship offers, no in-state tuition option, so i took out a loan to cover my first semester fees plus living  costs from India itself. Now consider going to an absolutely new country to study, with no initial money in the bank, no credit history, no credit card to put any expense on - that can be pretty scary. The money that i got from there combined with everything i could manage to save by working on campus part-time (and living on a very very strict budget) almost covered one semester and a half, with still another 2.5 semesters to take care of, and no tuition assistance from the school, i had to take out a student loan here in the US too.
How tough it can get for an international student to get a loan with absolutely no credit history, and no immediate relative to co-sign will be a subject of another blog post, but i did manage to get the loan, and graduate with a degree, good GPA and a good 2 year experience working on campus in my field of study. I got a job in about 4 months after graduation and the first thing i wanted to do, was get rid of one of the 2 loans i had.
The loan from India had a higher rate of interest and was slightly less than the loan here, so it made more sense to get rid of that first - but around the same time my parents were getting close to retirement and were looking for safe investment opportunities, so they paid off my loan and i started paying it back to them (at a rate lower than the bank, but a little higher than what a CD would give them so it worked out for us). With that done, i shifted my attention to the loan here, after about 6 months of graduating, the minimum payments started and my loan balance looked like this -
  • Principal - $15,000
  • Loan Origination Fee - $980
  • Interest accrued - $1530
  • Total - $17,510
The initial interest rate was a variable 3.75%, and it increased by 0.25% every other month for some reason, so i started putting $500 a month toward the loan. I could manage to do that because even though i had graduated, and had a full time job - i chose not to inflate my lifestyle for some time. I still lived with my college room-mates, still split grocery and other costs with them like i had for the last couple of years and basically lived like i still made the part time school job salary. This allowed me to put money towards more important things like the student loan, a small fund to buy a used car in the future, as well as start saving for the years to come.
I paid $500 for 6 months(that used to be the first bill out of the bank every month), and once i got used to not seeing those 500 dollars in my account, i increased it to $750. I continued that for another 6 months. It was tough but i managed to scrap through the first year and paid off about $7500 from the student loan balance. Around this time i got a raise of about $2500, instead of looking at it as a $2500 raise , i saw it as a $200 a month increase toward my loan and started paying off $1000 a month and 8 months after that i managed to completely pay off the loan with less than $500 of added interest. It took me a total of 22 months.
It got really tough in the last few months, because i did buy a used 8 year old car and had small payments for that too, plus buying the car helped me move a little away from the city and get a bigger place, i still shared a 2 bedroom apartment with a roommie and my monthly rent and utility charge increased.
I kept focusing on the end goal, and believe me the satisfaction of being free was priceless.Most friends around me had parents who sponsored their education and paid every dollar of it (it is not very uncommon for Indian Parents), so i always felt that i started my professional career on the back foot when it came to having debt - paying of the loan in under 2 years helped me get back on track to save for and focus on other things in life.


  1. What is "Loan Origination Fee - $980" ??

    I too started on 'the back foot' with my education with having debt. My friends had their parents pay for everything too, but my parents... well, no. :)

  2. It is a mandatory fee that was charged to initiate the loan, and the worst part was - it was mentioned in a small paragraph in one of the 100 odd pages i had to read before signing on :(