(Part two in a two-part series)
How Important is it to Compete at the College Level?
If you read my article, The True Cost of Playing Sports in College, you know that I gave up a college football scholarship offer, in part, because I didn’t want to go into debt. Since I had an academic scholarship that covered 75% of any Florida state school I attended I decided state school was going to be the most affordable, football or not.
Most athletes won’t get a full ride. If you are awarded a 50% scholarship for athletics and tuition is $50,000 a year, you are still responsible for $25,000 year–$100,000 for your four-year education. Is this amount worth playing your sport at the college level? The answer will be different for every individual.
A Useful Example
Now let’s take the four year and roughly $100,000 you just invested in your education and apply interest to it because you will be paying this money back. We can use an interest rate of 5% to make it easy and I will use terms of 10 years, 15 years, 20 years, 25 years, and 30 years to cover all options.
School loans are individual loans broken up by the time when they are used–in this case it would be four loans at $25,000 each. Most loans immediately start drawing interest. This means that the interest accumulated during the life of the loan–when the loan matures–will be added to the total amount due.
Understanding Capitalized Interest
This interest is known as capitalized interest and is absolutely no fun. The only way to avoid capitalized interest is to start making interest payments as soon as the individual loan is taken.
Back to our example: each loan was taken at $25,000 with a 5% interest rate, you pay:
Loan #1- $25,000 * 5% = $1,250 /365.25 (days of the year)= 3.42 (interest daily)*30 (days a month)= $102.6 dollars a month in interest which would be added onto the loan at maturity. Now, figure out the interest per year and add for all four years $102.6*12= $1231.2*4(years)= $4924.80
Loan #2- $25,000 * 5% = $1,250 /365. = 3.42)*30 = $102.6*12=$1231.2*3(years)= $3693.6
Loan #3- $25,000 * 5% = $1,250 /365. = 3.42)*30 = $102.6*12=$1231.2*2(years)= $2462.4
Loan #4- $25,000 * 5% = $1,250 /365. = 3.42)*30 = $102.6*12=$1231.2*1(years)= $1231.2
The Damage Over a Four-Year Period
Over a four year college experience you would have accumulated $12,317 in capitalized interest. All interest calculations in this example were performed using simplified daily interest which is standard for all government supported & federally issued loans (FAFSA).
Using a loan calculator you can figure out how much money your $100,000 education truly cost.
$100,000+ $12,317 (cap. Interest)= $112,317 at 5%
10 year loan Total Amount Paid = $142,955.39, you will pay $30,638.39 in interest.
15 year loan Total Amount Paid= $159,874.84, you will pay $47,557.84 in interest.
20 year loan Total Amount Paid= $177,898.63, you will pay $65,581.63 in interest.
25 year loan Total Amount Paid= $196,979.39, you will pay $84,662.39 in interest.
30 year loan Total Amount Paid= $217,060.02, you will pay $104,743.02 in interest.
Do as I Say Not as I Do
This situation, despite the staggering numbers, is eerily similar to my own experience in college. I didn’t know what capitalized interest was until I graduated and received my first loan summary.
I was disappointed that I had not educated myself properly on these issues.
These numbers should not deter you from pursuing your dream of being a college athlete. My only intention is to open your eyes to the reality of a college education, especially when competing as an intercollegiate athlete.
You should pursue academic scholarship money in addition to any athletic scholarship money you may have. Any money you receive will help offset the total cost of attendance and lessen the amount of interest you will end up paying back in the end.
PART ONE BROKEN RECRUITING. THE TRUE COST OF COLLEGE SPORT.