One Percentage Point Can Cost Thousands of Dollars - And Shackle Parents' and Students' Finances

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 #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 (even decorating the dorm room) 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.

"Knowing the true extent of the costs up front and planning for them is critical. When parents are not given enough time or information to do the research and the math, they can put their finances and their children's education in jeopardy," said Derham.

Math Rule #2 -- Know the Impact of One 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
     (APR) 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 APR of 6.92 percent
     will cost $14,797 in interest if you defer payment until after
     graduation.

In other words, less than two percent difference in the annual percentage rate of interest translates to over a $5,700 difference in the amount repaid.

Math Rule #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.

Added Derham: "When you do the math, you can really see why it is important not to borrow a dollar more than you need in student loans."

MyRichUncle offers many tools for prospective borrowers. One tool, the APR Monthly Repayment Calculator, provides student loan shoppers a new process whereby they can view examples of private student loans in repayment from several different vantage points. Specifically, if a borrower is seeking to secure a private loan to fund their education costs that free and federal money have not covered, he or she can input a desired loan amount as well as the expected graduation date and degree sought. From there, the borrower can compare several options, including:

  -- The cost difference between three repayment options:  Immediate
     Interest and Principal, Interest Only and Deferred.  While the
     deferment option is most popular among students, they may not calculate
     how much interest will accumulate, and the true difference that will
     make in the overall amount repaid.
  -- The cost difference between repayment terms.  A standard comparison of
     15 years is provided, however borrowers can look to repay their private
     student loans over a longer or shorter period of time and compare the
     true cost of those decisions in real numbers.
  -- The Annual Percentage Rate (APR) on the loan.  As the total measure of
     what the loan will cost, the APR will take all repayment factors into
     consideration, thus making it a standard comparison tool for consumers.

The APR Monthly Repayment Calculator is fully automated and operational from the MyRichUncle.com website; no downloads are required. For more information, please visit www.MyRichUncle.com and click on the link for the APR Monthly Repayment Calculator.

About MyRichUncle(TM)

From its inception in 2000, MyRichUncle(TM), the consumer brand of MRU Holdings, Inc. (NASDAQ:UNCL) has been at the forefront of innovation for education finance, most recently focusing on the growth market of student loans. Since May of 2005, MyRichUncle has originated more than $400 million private and federal student loans using its breakthrough underwriting platforms and innovative technology to deliver competitively priced products and services to borrowers. In May 2006, the Company launched Preprime(TM), the first and only student loan that allows students to qualify for loans based on individual merit, rather than credit history alone. In June 2006, MyRichUncle launched its Federal student loans with upfront interest rate reductions at repayment. Dedicated to reshaping the student loan industry to function in the best interests of students, founders Vishal Garg and Raza Khan and their team are committed to delivering the most innovative solutions for their customers. The Company and its founders have been recognized by Fast Company's Fast 50 (2006) and listed among BusinessWeek.com's Tech's Best Young Entrepreneurs (2006). For more information, visit http://www.myrichuncle.com/.

Source: MyRichUncle