Question

The average college student loan debt is becoming an increasing financial burden for many individuals upon graduation or upon dropping out of college. Many individuals take 12 to 15 years or more to pay off student loans and paying off the outstanding debt can result in many additional costs in higher costs of borrowing and lost financial opportunities that are important to gaining long term financial success Some of the financial difficulties caused by student debt obligations may include the inability to qualify for a home mortgage, being unable to finance the start of a new business venture, not having available money to take advantage of employer sponsored tax sheltered retirement plans, or just not having the money available to save for other important personal goals. The average student debt amount is approximately $50,000 for graduating college students. ed Your assignment is to provide YOUR specific financial suggestions for how to pay off student debt early using one or more business financial decision making techniques. Please be specific and provide specific actions.

Answer 1

The best financial decision making technique is the Cost benefit analysis

Using the cost benefit technique calculate the profitability of the loan over the period of repayment. Calculate the net cash outflow of extending the loan for longer periods of time and also calculate the net benefit of early repayment of the loan. If you select for the former, that is extending the loan for longer periods of time, the interest keeps building up and you have to repay a higher amount. So you have to calculate the cost and benefits of lat repayment. On the other hand if you repay your loans early, you save on interest which is a benefit. Although there may be prepayment penalties on early repayment and this may be a cost. So cost-benefit analysis for both option must be done and we should arrive at the most attractive option.