MASH (Mansion, Apartment, Shack, House)

Do you remember playing MASH? Dreaming of a mansion on a hill, an apartment in the city, a shack in the woods, or maybe a three-bedroom house just like the one you lived in as a kid? I think this game was mostly a girl thing. My friends and I spent a great deal of time predicting our potential futures. The things I used to conjure up: where I would live, the type of dwelling I would raise my family in, the job I would end up with, number of kids, type of car, and my future mate.

Here’s a link to the game for those who do not know if it:

http://www.wikihow.com/Play-M.A.S.H

I used to list Florida, Russia (what was I thinking?), the Bahamas, and Oregon as the places to be. What came true is that I currently live in Florida and I found my mate. Obviously, while this game was a fun distraction, it had no actual bearing on my future.

Student loans, on the other hand, have the potential to shape one’s future in very real ways. But I don't recall playing that version of the game. Do you? The amount of loans one has influences all of the categories in the MASH game of life. Want to drive a new car? Want to purchase a new house? It may not be possible if your loan balance is too high. But don't despair. It's not all doom and gloom.

In many instances, you have control over how much your monthly payment on federal loans will be. Here is a breakdown on two popular repayment plans that are calculated from your loan balance and length of repayment (making them operate like mortgages, kind of).

1.     Standard Loan Repayment: This payment plan is called “standard” because it is what most students with federal loans are placed on unless they stipulate otherwise. Monthly payments will be the same amount for 10 years, at which point their loans will be paid off. This repayment plan is probably the best option for someone who has the financial means and desire to pay their student loans off quickly. The total amount of interest someone is obligated to pay will be the least under this payment plan.

Here’s an example….let’s say that your student loan balance is $26,946 with an interest rate of 3.9%. Per studentloans.gov, this is the average debt held by an undergraduate graduating from a 4-year public university. Under Standard repayment, the monthly payment would be $272.00, and this amount would remain constant for all 120 payments (equaling 10 years). The total interest paid would be $5,638.00,while the overall amount of the loan (principal + interest) paid equals $32,585.00. For more official information on the Standard plan, see: https://studentaid.ed.gov/repay-loans/understand/plans/standard

If you can afford the $272.00 per month and want to pay your loan off quickly, this is the way to do it. You can also pay extra each month to fulfill your loan obligations sooner. Now, let’s say that you have a low-paying job after graduation, but have prospects (experience, tenure, economic recovery) to get a higher paying one later in your career. Enter Graduated repayment…

2.     Graduate Repayment: The payments under this plan are somewhat flexible.

They start off smaller in the beginning (when a former student is earning less) and become larger at the end of 10 years (when he or she is earning more). At least that's what the assumption is. Like Standard repayment, monthly payments under the Graduated plan are calculated based upon the overall balance and time. Using the same balance of $26,946.00 and an interest rate of 3.9%, the first monthly payments would be $152.00. Towards the end of the 10-year loan, the payments increase to $455.00. The total interest paid is $7032.00, making the total amount (principle + interest) paid $33,979.00.

Notice that the Graduated repayment plan will cost a bit more in interest than the Standard repayment plan, but it might make sense if someone needs a lower monthly payment at the beginning of their student loan journey (seriously… “journey” is such a ridiculous euphemism for this type of situation!).

For more information on the Graduated plan, see:

 https://studentaid.ed.gov/repay-loans/understand/plans/graduated

I recommend visiting the official government websites. If you have consolidation loans, you may be able to spread your loans out over 30 years instead of 10 with the graduated repayment plan.

It would have been more realistic if the designers of the MASH game had included a “student loan balance” category. But for most of us, that might have been depressingly portentous. People had student loans -- back in the day --- when I was playing this game in the late 80s and early 90s, but the implications were less troubling. At that time, there were more scholarships available AND tuition was much less.

Now, what if your loan balance is higher, or your income will not allow you to make the monthly payments under the Standard and Graduated repayment plans? Thankfully, there are options based upon your income.

I will deal with those in an upcoming post.