When many people are close to getting a university degree, they are starting to consider how they will deal with student loans they have accumulated in recent years. The burden – which grows more substantial with each generation – can cause stress and, if it is not managed correctly, can throw out its off-piste life plans for several years. Mathematicians with Colorado University in Boulder can have a solution, explaining that they developed a mathematical model to explore the ideal repayment strategy.
In general, college graduates get a brief grace period after graduation during which they are not required to make payments on their loans. Two different options are available once payments start: a reimbursement strategy that involves paying a certain amount monthly on the basis of its salary or simply throw as much money on the loan as possible to repay it in a shorter period.
In many cases, graduates are often invited to pay the loans as soon as possible if the amount of funding is of the smallest. On the low side, graduates are usually informed to take the income-based repayment option if they have subscribed a substantial amount of funds in the form of student loans. The new study suggests a hybrid approach may be more ideal.
The mathematical model takes into account items such as compound interest rates, income tax payable, and more. The results indicate that some graduates can benefit from a hybrid-type repayment approach that involves paying as much as possible for the early years, and then move to a reimbursement plan based on income for the rest of the balance.
The researchers team did not do its job available as a public calculator, but plan to improve it and make it potentially available for existing repayment calculators that can integrate the model. The ideal repayment method will ultimately depend on personal factors that need to be recognized, including items such as advance wages and more.