# Do the math on your college loans

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NEW YORK — Lucrative jobs, corner offices and business lunches may be what undergrads and their parents have in mind for a post-graduation future, but their view on the amount of money they need to pay for education is generally far less clear.

Estimating the total cost of a college education can be confusing, which often leads to bad decisions when it comes to funding that education.

“The best place to start when it comes to figuring out what you can affordably borrow is to calculate the total cost of the education they are pursuing. However, parents and students frequently find themselves at a disadvantage when trying to determine what this figure will end up being,” said John P. Derham, an officer for MyRichUncle.

“A few smart rules are in order to help families get to a realistic number to start budgeting for.”

### Math Rule No. 1

Know your estimated total costs in relation to tuition and fees. Tuition is just one part of the total cost.

Factor in books, meals, housing, transportation and other expenses when making a college financial plan.

Your school should provide helpful information on costs but here are a few guidelines depending on the type of institution you plan to attend:

Four-year public college: If you’re in-state, the average budget is about \$18,000, of which tuition and fees are \$6,185.

The average out-of-state average budget should be about \$28,000, of which tuition and fees are \$16,640. Students considering a public college should be mindful that tuition and fees are approximately one-third of their total budget.

Four-year private college: The average budget should be about \$35,000, of which tuition and fees are close to \$24,000. Students considering a private school should consider their tuition and fees as just over two-thirds of their total budget.

Two-year college: Average estimated budget is about \$13,000. Tuition and fees are about \$2,400 of that amount. Students considering a two-year college should understand that tuition and fees are approximately 20 percent of their total budget.

### Math Rule No. 2

Know the impact of 1 percentage point of interest and shop around for the best rate on student loans. A change in rate can make a substantial difference in the overall cost of your student loan.

A \$10,000 private student loan that has an average percentage rate of 8.69 percent that you defer payment on until after graduation will cost \$20,512 in interest, not including the principal amount borrowed.

Meanwhile, a \$10,000 private student loan with an average percentage rate of 6.92 percent will cost \$14,797 in interest if you defer payment until after graduation. In other words, less than 2 percent difference in the annual percentage rate of interest translates to over a \$5,700 difference in the amount repaid.

### Math Rule No. 3

Understand the impact of your repayment decisions. If you are able to start payment on the loan immediately, do it.

Using the \$10,000 private student loan examples above, we recalculated the interest payments if the borrower started repayment on the student loan immediately.

The first loan’s total interest amount owed is reduced to \$11,056, a savings of nearly \$9,500 in overall interest paid.

The second loan’s overall interest amount paid reduced to \$8,420, a nearly \$6,400 difference.

Because payments need to be made consistently, it may not be realistic for many students to start repayment immediately. However, knowing that interest accrues during the deferment period and that you have to make it up by paying it back later should help parents and students make smarter borrowing decisions.

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