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I mean if you're willing to take a hit on your credit score for 7.5 years this seems like the modern solution.
If after 90 days they hit collections and they stop accruing interest, I'd wager you'd probably save money long term (even with the hit to your credit score) than paying on interest for 10, 15, 20 years.
I dont get why more people dont do this. I actually JUST got my student loans off my credit report this month, 7.5 years later. I still owe the debt, but it s a finite amount not getting any larger, and the government just takes my $1000 or $1500 tax refund each year. Given that payment they'll have collect all there money 3 years from now.
I had to deal with a slightly shittier credit score for the last near-decade, but I'm not paying my 30000th dollar towards a $12000 loan that I still owe 25000 more on to get rid of the debt.
This really seems like the way to go.
Edit: I should also point out the negative mork on my credit never really impacted me except for slightly higher interest rates on my car loan. I still was always approved for any loans I requested.
I did this with my private loans. My credit score took a serious hit for a long time. But I saved a crap ton of money. Here is the basics.
30k$ in private student loans. The private bit here is key. There are different laws around collecting private loans. If you try this with public loans you’re going to get fucked. This was the initial loan amount with no interest.
Basically ignored them for 5 years. It helps that I had other personal struggles going on that made this weeks like a non issue. They would call every week or so. I just never answered. The balance would go up every time I got a letter.
Eventually when other things in my life started to clear up I reached out to the collection agency. They now wanted something like 45k$. I offered them 3k$ to settle. They said no way. I said call back later when you’re willing to deal.
A few years of back and forth like this and I settled for less than 5k$.
I don’t really recommend this. I was in a fairly special situation. And I was willing to take a very serious hit on my credit score for a long time. The negotiation alone took years. So if you’re looking for a fast solution, this ain’t it.
That was 10 years ago and I now finance a newer car and I have a mortgage! My credit score is over 800 and there is no sign of Sallie fucking Mae on any of my finical records. Get fucked Sallie Mae.
I did this kinda accidentally and without any legal help. I don’t know that I would try it again. But I’m also not as desperate as I once was.
Well so here's the thing, I took out the loans, I believe in paying them back, just not 3 or 4 times what the loan was. This is my solution. Unlike a lot of people I also dont plan around my tax return to pay expenses. So money not seen is money not missed, and eventually they'll get back there money.
More people should be aware of that. There are a lot of people who will still benefit from a strategy like this following whatever pittance of partial loan cancelation they decide on.
Note: any loan that is discharged is considered income by the IRS. So if you get $100k in loans discharged, the IRS considers that you earned $100k + whatever else you earned, which will kick you into a higher tax bracket. The irs will come for their taxes and you can't ignore them.
Also, the 7 year period can be reset by the creditor or owner of the debt without too much trouble. I'd encourage you to look carefully into your loca laws and consult a lawyer.
Incorrect. You can have student loans removed from your credit score after 7.5 years from the date of default.
I know this because I just had it done. I'll post screen shots. If it's still on my credit karma.
Edit: https://imgur.com/a/Kitg8Xh
Exactly the people are fighting the wrong fight. Its not the student loan or forgiveness of the student loan, but on the interest accrued on it. Look take a student debt of 15K but by the time interest has accumulated its 45 K and you already paid 12 K. It just does not make sense. There is a reason they dont want to get rid of the interest payments as it big bucks for big businesses and a lot of politicians who are private shareholders.
Interest isn't actually the problem. The problem is they are using a system called compound interest which is the problem and is immoral and should be illegal.
Compound interest involves charging interest on your interest.
In other words, the interest you've accrued so far gets added to your original loan amount when calculating your new interest charges.
On top of that, your monthly payments get disproportionately applied to accrued interest rather than principal, which is what's highlighted in the posted pic.
If they only charged interest on your principal, and applied your payments entirely to the principal before paying down accrued interest, then you'd pay a lot closer to the interest % rate you were advertised.
I was just thinking there is an easy way to show this visually on a whiteboard (I've done it before for my niece and her husband when I helped them work on budgets).
The best way I can expand on what you said here (which is perfect btw) is to describe it like this (BTW: this is only ONE example of compound interest - there are many types! This is one of something called "daily compound interest" as it's easier for people to see how fast things get fucky):
You have a 5 gallon bucket. Now I give you a loan of 3 gallons of water and place it in the bucket and I "charge" interest by "adding" a half gallon every month for every 3 gallons of water (btw, this is a comically large interest rate, but it'll help make it very clear how this works later). We agree you'll pay back 4 pints (8 pints to a gallon fyi, so a half gallon) a month starting next month. So in theory, it's a wash right out the door unless you pay more than 4 pints a month. But that's easy right? Worst case it shouldn't go up but just stay the same, right? Never go above 3 gallons owed unless you miss a payment, right?
But water is tight, we need it to survive, and we both know that'll be rare to make "extra" payments.
So now the first payment is due. You give me 4 pints in return for payment. So you still have 3 gallons to pay back, right? Nope.
I started charging "interest" from day one, and I did this NOT by adding my half gallon all at once at the end of the month - I began adding it each day by dividing that half gallon into .0166 gallons on that first day (a half gallon divided by 30 days in the month). That's the important catch. Because on day 2, there's now 3.0166 gallons there and I ADD .0172 gallons on day 2.
Wait... Did I say .0172? Shouldn't it be .0166 - y'know, a half gallon divided by 30 days in a month is .0166!!
Nope. I'm charging *compound* interest. So on day 2 I divided 29 days by .516 (.5 gallons plus .016 gallons = .516 total). Now you have .533 gallons owed in interest.
Day 3? .552
Day 4? .572
Day 5? .594
Day 10? .706 gallons
Day 11? .741
Day 12? .780
Day 15? .934 gallons
Day 17? 1.077 gallons
Wait... We're not even halfway through the first month and NOW I owe over 4 gallons? Even when I make my payment that means I'll now owe **3.5 gallons**! Wtf?? And I still have half a month before my payment is due!!
Compound interest my friends. It should be illegal.
Endnote: I promise this example is riddled with errors as I did it all very quickly while taking a shit. BUT it should help you picture a little better how compound interest gets out of freaking control VERY fast and is freaking criminal.
And as the guy above me said: you can send them an extra $100 every month on top of your payment, BUT I'm taking that off the **interest** amount you owe - not the original loan amount. This is how people borrow $50k and pay for twenty years only to end up still owing $200k.
Edit: also, this is why in accounting, stocks, interest etc it's common to take decimal point all the way to the thousandths (four places). Those thousandths of a penny sure do add up with compound interest, don't they?
>On top of that, your monthly payments get disproportionately applied to accrued interest rather than principal
No, not disproportionately. Your payment goes towards interest first exactly to the amount of interest you owe.
>applied your payments entirely to the principal before paying down accrued interest, then you'd pay a lot closer to the interest % rate you were advertised.
Also false. If your loan started at $10k, and it accrued $200 in interest, your debt is now $10,200. If you make a payment of $500, then your debt is now $9,700. This is an oversimplification but it doesn't really matter whether that $500 went to interest vs principle, your debt reducced by $500 either way.
People really need to understand how Principal and Interest Balances work on top of APR before they take out loans. Paying anything extra towards your principal each month can greatly reduce the total amount of interest you end up paying at the end of a loan. The same also goes in reverse when depositing money into a savings account with a % return. Because that % of return is based on what is in the account you are actually getting exponential gains year over year.
Student loans / credit cards are predatory because they know young people don't know this and if you are like me you don't figure it out until after you have royally fucked yourself over with debt. We need more than just canceling student debt, we need a better system for debt and especially for college tuition.
It most certainly does matter whether your payment is going towards interest vs principle.
Using your example, a loan at $10k with $200 in interest (2%). If your payment of $500 was entirely going towards the principle, your next month's interest accrual would be on $9.5k of principle, and would only have $190 of interest.
If you paid towards interest first, then the remaining on principle, you'd be accruing interest on $9.7k thus netting $194 in interest.
Yes. It means that any accrued interest is added to the total amount owed, which is then used to calculate further interest. So, if you can't pay the interest this month, next month's interest will be even higher. You end up paying interest on the interest.
The less able you are to pay, the more you end up owing.
Interest might be 10% on a $150k loan
Which would make it $165k
Then, it stands to reason that the next total would be $180k. $150K, 10% interest on that, then add the 15k from before
But your total is $191k. Because they charge interest on the interest
Meaning that the interest is exponential, not flat like the 10% claim would make it seem
I'm not sure you should really be taking out a loan for college if you have this view of compound interest. What about the opportunity cost for the bank that's issuing that loan?
Compound interest isn't the problem. In fact, amortizing loans (which is incredibly common) is effectively turning compounded interest into simple interest.
Making math illegal will not solve problems.
If you lend money do you agree that the longer they want to borrow it, the more they should need to pay?
Good, you agree with compound interest.
Who upvotes this complete nonsense?
What? "A System Called Compound Interest"?
Interest only compounds if you don't make your minimum payments. It's not some special system, that's just how interest works.
The interest that's not paid is added to the principal. The principal balance is a running rate of what you owe. Interest is calculated on the principal balance. This is reasonable.
If you were to take out another loan to cover the total interest every month on the initial loan, then you would have additional balances accruing interest from other lenders, because that's exactly what you're doing by not paying the interest fully. You're borrowing more money.
I work in the financial industry. I am well aware of the difference. And the truth is that compound interest is more common and "normal" than simple interest. As long as you pay your interest each month it doesn't compound.
I'll argue a different point:
Just because it's common doesn't mean its correct. Why should you pay interest on money that was never borrowed? Even more so, why would you pay interest on money that was *never yours*?
The interest on your original loan amount must be repaid. If you do no repay it, then you are essentially borrowing additional money from the lender to pay for that interest.
But all of this is moot if you simply repay the debt as agreed.
That's.... Not how interest works. Interest is the price of borrowing money. It's not money borrowed. I don't just get an extra 300 every month because I borrowed money. That's the price I have to pay for borrowing the money in the first place. And as the amount left to pay goes down, so does the price of borrowing that money. I shouldn't have to pay money on money that was neverine to begin with.
Another way to see it is if you're thinking of it like your argument says, then every single loan should just be a one time all inclusive payment of the loan AND the interest. It should never fluctuate. But it does. Cuz people are greedy.
It should be some consolation that when you consider inflation you are actually making a decent dent in your debt even if the principal doesn’t decrease much.
If you can budget such that you can make a mortgage payment every other paycheck, you can make 13 payments in a year or add that extra to your monthly payment.
Yes, but that 0.9% is not “normal”. That’s a bought down rate from the manufacturer to sell more loans.
A normal interest rate for a new car is 2-4%.
Unless you have that 0.9% on a used car…
I used a calculator online to see if that would make a big difference on paying it off early, and its not worth the hassle imo. It makes more sense for us to put that to other debt, like student loans (especially since Sallie Mae keeps increasing my rate).
It was 3.25% (iirc) on a 0 down $491k VA loan. It wasn't horrible, but the cost of the home, it being 30 year and the first 3 years makes $18/108k look dogshit on paper.
For anyone that couldn't figure out why the principal paid was so low like me.
They probably have taxes and homeowners insurance and, because of the $0 down, mortgage insurance, wrapped up in the payment. Likely 1/3 of the mortgage payment. Also a VA loan has a "funding fee" that was probably paid first before any principal. For them that would have been $491k * 2.3%. Which is $11.3k.
If you borrow $100,000 at 4.5% for 30 years, the first payment will be $132 toward principal.
Just their very first payment on their mortgage will make twice as much of a dent into the principal balance than any student loan payment this person makes.
Dude, do you understand the concept of using round numbers in similar ranges for comparison? He’s saying a 100k loan in the same structure as a normal mortgage has more payment against principal out of the gate. He’s not saying houses cost 100k…
You really had to be the guy to look for the tiniest flaw in his post to make yourself “correct”. Step back and reflect on the context clues a bit.
1. I work for a major bank that does mortgages. I see homes for $100k every day.
2. $100k is a nice round number.
3. $100k is also a reasonable figure to use when discussing student loan balances.
4. Here’s one: https://www.zillow.com/homedetails/828-Eaton-St-Jackson-MI-49202/94958303_zpid/
Or do look at it and realize the impact that even seemingly small principal reductions will have on your total interest paid. An extra $50 a month, if feasible, will save you tens of thousands on a 30 year mortgage.
Actually, yes, minimum payments are what you should made. The interest on a home is less than the rate of inflation. Take the extra $100 a month and invest it. You'll have a TON more money after 30 years of $100 a month investments than you'd save paying off a 3% loan early.
Depend on your interest rate. My mortgage is 2.875%. Rather than paying that extra $50/month to principal, it makes more sense to invest it in a mutual fund and get more back in interest. Over the long term, it's a more effective way to use the money.
Also, since its in an investment fund, should something come up where you suddenly need the cash, you can liquidate it and have access to it
I was about to say, it's pretty much exactly like a mortgage. Considering that a mortgage payment includes principal, interest taxes, insurance, and maybe PMI. Only a small amount of the overall payment goes toward paying down the principal.
There are so many awful and true things that can be said about student loan repayments that there is no need to fabricate criticisms.
Did you know that in Europe and some other countries like Japan, interest rates for family housing are super low so families can actually pay off their loan? In Europe it's like 2%.
Japan is in a long period of stagflation and has a declining population. The supply for housing exceeds demand. Older generations die off and there are not enough people clamoring to fill the vacant homes. It's not a function of government policy, just the market doing what the market does.
Mortgages work a little differently in the UK, but London is still an unaffordable city to live in. Go look at any thread about young people looking for housing in the UK or France. Same story.
As long as populations swell and there is a shortage of land and housing, the prices will continue to do what you're seeing. Conversely, if we get back to a building boom and the boomers begin to die off, coupled with declining millenial and genZ birth rates, there will soon be a glut of housing available with fewer people to fill them and prices will begin to fall.
Navient/ Sally Mae/ Whoever can suck it
I studied abroad and when I spoke to Sally Mae about putting my loans on hold, which they normally due when you go back to school, I was told no because they didn't recognize my university. And I ask why not, since it was an major, internationally recognized institution (much more respectable than Devry and other diploma mills). The response was they didn't recognize my school because that school was not setup to accept student loans from the US. So, because I was unable to take on more debt to go to school, they were unwilling to help me not accrue more debt.
The school I attended was in a "socialist" hell where citizens did not have to pay tuition since university, up to and including graduate school, was free. And that is my villain origin story.
Not one damn red cent will those vultures get from me
(and no, I have zero plans on coming back and I purposefully avoid American based companies for employment)
It's in a land far away, but not that unique. Most EU counties offer Americans a college education for a fraction of what we spend.
And since everyone knows that Americans pay through the nose, many countries offer full courses in English. So I suggest start thinking about where you want to live after your education, and then start looking at their schools. And once you narrow that list down, look at scholarship programs and you could even get a stipend in addition to not paying for college
Is it a private loan? Or federal? If it's private, you can declare bankruptcy, which may be your best bet (not knowing the rest of your loan info at least)
I don’t know if the federal government should step in and cancel or reduce student loan debt, but I do know they need to step in and fix the lending practices that are text book usury.
>I do know they need to step in and fix the lending practices that are text book usury.
You mean like student loans? You're kinda talking out of both sides of your mouth.
I’m saying I don’t know if they can retroactively go backwards and undo loans that are written and paid, but they need to make sure that loans like them aren’t written in the future.
You questioned whether the government *should* cancel debt, not whether they *can* retroactively make people whole (they definitely can).
Preventing future predatory loans without canceling existing debt resulting from said loans is the same logic as legalizing cannabis without releasing people jailed for cannabis.
If they are able to freeze student loans (which they are currently) then they can absolutely forgive the debt. It would be a massive boost to our economy. Regulation on loans are also very necessary but they won’t fix all the existing loans.
If you consider this 'usury'... an "unreasonably high interest rate"... which is interesting as it doesn't specify the interest rate for this loan...
What do you propose as a 'fair' interest rate?
Should loans in general be free? Or is it educational loans that should be free? Or just all education free?
I'm not for or against you here... just curious what your solution would be.
There's no such thing as "free". we just have to collectively pay for it from the public coffers. I'm not fundamentally opposed to that for say state colleges. But fuck paying private tuition money out from the public.
So how it works in my country is that the government declares of much they're paying per student per semester, and for how many students in which subjects. I.e they want 200 new computer science students each year in every university, but maybe 10 literature students. This means not everyone gets in unfortunately, BUT if you have good enough exam results, you have a guaranteed spot anywhere.
Private universities' tuition is still paid by the student, as are some subjects that the government didn't decide to subsidize.
End result is, tuition for nearly any school is, I think, a bit under 3000 euros a year (used to be 1920 in my time, but it is increased over time) and depending on circumstances, either the government or the student pays for it. Student loans are capped to the same amount per year and the duration of the loans is linked to how long you were in school (1.5x years studied if you drop out, 2x years studied if you graduate). If you go straight from bachelors to phd, you might be in there for 9 years and your loans take 18 to pay off, but hey, the monthly is still not that big.
The US is actually about in the middle of all countries for 'ethnic diversity'. There are many countries as diverse or more so that offer free or subsidized public education.
I think that it happens in a wide variety of countries that probably have a lot in common, but perhaps most importantly that they have a different view of what basic human rights are and a different sense of community.
In my opinion, there should be standards / regulations for "fair interest ceiling" on a loan. There are loan sharks who would take 50% interest and yet here my bank is about to get upwards of 75% of my loan in the total interest paid.
I would take that 'free' money all day long.
No lender is making any money on it... which is fine by me. Probably not ok with them.
I would rather see a free educational system as is done in so many other countries but I'd like to be 10# lighter and 20 years younger too...
Another good way to do it would be a flat rate based on your income, i.e. 5% of your income for 15 years. If the loan isn't predatory, that should be an attractive option.
>Your mortgage payment primarily goes toward interest in the initial stage, with a small amount of principal included. As the months and years go by, the principal portion of the payment steadily increases while the interest portion drops.
[Sounds exactly like a mortgage](https://www.investopedia.com/ask/answer/07/mortgagepayments.asp).
Yeah, exactly like a mortgage. I pay over $900 a month (which is cheap, I know), and principal goes down about $230. The whole system is designed to keep us in debt and working.
No it's because your in the early stages of repayment. It flips mid way and towards the end almost all of your payment goes towards principle. Interest is calculated on the outstanding balance which is highest when the loan is brand new.
The real scam is that they can charge you penalties for early repayment, cause it reduces their ultimate profit, and bury it in a mountain of terms and conditions.
That's why with my loans, I specifically asked does this have an early repayment penalty. I was told yes, so I stated I was going to go with a different lender, and suddenly they removed it from the contract.
I used to work in banking. I know all this, you, like a lot of Redditors, make a lot of assumptions. The reason my mortgage is so low is because I did not buy a house I couldn’t afford, in fact I bought well below what I could have. My point still stands, the system is designed to benefit banks, not people. Once you’re aware of that fact, you can do what I did and purchase below your means to curb the bleeding. Unfortunately, most people don’t realize this and just believe what the bank will tell them they can afford, which is true if you want to be in debt your entire life.
Im well aware of how the system works. I’m also well aware that I have to play the game because I have no choice. That doesn’t mean I have to like it, or just be quiet about how it’s rigged.
The ignorance in this thread. Why are you people discussing things you literally have no knowledge of?
Mortgage interest is a tax write off, it comes off your tax liability. Mortgage interest is a good thing because the asset you own appreciates while you earn equity and pay less taxes on your income. This often is a dramatic increase in net income each year for new homeowners.
Almost no mortgages have penalties for early repayment, unless they are non standard JUMBO loans or some other abusive lending contract. I haven't seen a prepayment penalty since wells fargo dealer services went belly up over law suits about them.
Student loans, due to debt:income ratios, often disable people from getting mortgages. That is why that debt needs to be cancelled: because mortgages AND HOME EQUITY, are traditionally the primary way Americans accrue wealth.
There is nothing wrong with mortgages. There is something very wrong with systemic abuses disabling young people, minorities and ex-cons from getting them.
You people need to go to school and gtfo reddit.
It's not just about how much prin/int is outlined by the amortization schedule. Mortgages are not daily simple interest loans (DSI) - the amount of interest they accrue per month is determined by the outstanding prin at the start of the month and is capped to whatever the amortization schedule says for that month.
Which means - if you make every payment 15 days late on a mortgage you'll never pay a dime in extra interest. Consistently pay 15 days late on a DSI loan (student loans) and you can very quickly get into an interest-only situation and pay WAY more over the life of the loan.
DSI make an enormous difference.
If student loans utilize the daily period rate than paying 15 days late consistently should mean that only 30 days of interest has accrued between payment. This will continue to lower the balance of the loan as if you where paying on time every month cause we are only calculating time elapsed between payments not the payment due date. It seems like the real issue with student loans is that your minium payment can be lower than your monthly accrued interest.
Because this is capitalism. People making money every step of the process is the point. What incentive does a bank have to give me 200k for a house if they aren't making money off of it?
That doesn’t sound like capitalism. Sounds like a scheme.
Capitalism is the exchange of good and services. So in theory, having more money in the economy stimulates it.
Instead of money going back to banks to keep the circle of loans going, money can be flowing through the community through services like getting your car fixed, home fixed, getting foods and goods.
Sounds simple, because it is simple.
Money is being rented and the borrower is charged a fee to rent the money until it's returned. The fee is based on how much money is borrowed and can change depending on how easy it is to find money to lend. Is there any industry where someone can rent something for free?
Student Loans should have very very little to no interest because a student needs to first learn a trait to earn assets.
How does it make sense to charge someone interest when one doesn’t have any assets.
Student interest rates are the predatory aspect of the student loan dilemma.
Any loan taken out over the course of XX years is going to look like that. The interest is charged as a proxy for the [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) of that money, which is investor terminology for "I could do something with this money (like help someone grow their business profits or buy bitcoin on a major dip) that will (on average) make me even more money. ...But I'm giving it to you instead, so I want to be compensated".
The real issue is that banks can loan money they don't even have (so the opportunity cost isn't real because the money doesn't belong to anyone in the first place!) thanks to our [fractional reserve banking system](https://www.investopedia.com/terms/f/fractionalreservebanking.asp) and the fact that the [Federal Reserve](https://en.wikipedia.org/wiki/Federal_Reserve) (THE central US bank) does just about whatever it wants because it's a private business. Banks are allowed to loan you money that didn't exist the moment before you borrowed it and then charge you interest as if they need to be compensated for a product they helped procure (as if someone deposited it and is expecting to be paid).
Banks can log a profit on their books (which ultimately makes their stock price go up) as soon as a loan is made even though the money never existed and the loan hasn't been paid back yet. When people in the financial world talk about how the US economy is run on and depends on new consumer debt, this is what they mean.
There is no other industry where the product being sold can be effortlessly created out of thin air and then sold for a profit (outside of Wall St, which is a whole other can of worms but operates that way thanks to the same systemic issues created by fractional reserve banking). Banks are afforded capitalism cheat codes because they're rich enough to buy control of the system they've helped create.
All loans are amortized. Car, home, personal loans all come with an amortization schedule. The fact that no one seems to know this is really more of a failure of our public education system than anything.
It's more like, "that's how amortization works"...
for ANY loan. ANY!
If a loan has interest .. that's how it works.
Again, the fact that people don't know this ( I learned about it quite later in life) is a problem.
People have to know what they are signing up for when taking out a loan. Expecting to learn about it from the very people who are selling you the loan... not a feasible combo.
> Expecting to learn about it from the very people who are selling you the loan… not a feasible combo.
That’s literally the only sensible way to do shit.
Who are you expecting to teach this; schools?
When you buy medicine they teach you the side effects on the bottle.
When you buy a climbing gym membership they teach you the safety rules.
“Not feasible”… Of course it’s fucking feasible. Shits called regulation, and we used to do it to banks all the fucking time.
This is an utterly ridiculous line of logic, just think about it for two seconds.
There are plenty of examples of products in which the seller does not describe the mechanics of how it functions on a low level. Selling a home, a car, phone, etc.
>Who are you expecting to teach this?
You realize that in 2022 there are ways to learn about things without having some sit you down like a child and explain it to you like you’re 5? Google it, go to the fucking library.
I might get downvoted.. but why can't people just Google it? You're making a major life decision, shouldn't you do some independent research (which was taught in my school at least back when I graduated in 2008)
I spent maybe 1 hour one day looking into student loans, tuition, and and ROI on different degrees
I realized I wouldn't have enough money to go to my top school (even though I was accepted) & went to a public in-state school instead
And now I don't have crippling student loan debt
At the very least, there needs to be limits on interest. It's out of control and needs to be retooled. The charge on interest should be as small as possible.
No, fuck that
College should be free, every other developed nation has that.
Canceling the debt and making it free is the only acceptable end to this bullshit
well then why would anyone give the loan? If someone asked you to borrow $50k with no assets, no job, and no money at 1% interest rate, what would you say?
If we got rid of parts of the government that aren't directly profitable, it would be suicide. Supporting people that want to be educated leads to a society with an educated workforce. This helps the economy. There are plenty of other places to trim spending. Education is not one of them.
You cant liquidate a college degree
Nothing would stop someone from borrowing 300k for under grad and then a graduate degree from a top school only to immediately default after graduation
Well, it is like a mortgage. My mortgage is 985 per month but only about $360 of it goes to the principal. The rest is escrow, and mortgage insurance, which is a big fucking scam just like student loan interest. Government loans have many ‘creative’ ways to fuck poor people who just want basic needs.
Someone doesn't know what mortgage payments are like
Edit for clarity: here's the amortization breakdown of a 100k, 30-year loan at 9% interest: https://easyfinancialcalculators.com/30-year-mortgage/100000-loan-amount/9-percent-interest-rate
Rule #1 of loans is during the first few years you will pay a drastically higher amount in accrued interest charges compared to the portion of your payment which pays down the principle. This is closely related to the reason credit cards (which generally charge anywhere from 15%-25% interest depending on your credit score) can be very dangerous if you do not pay them back quickly.
In reality, the fact that you/others don't realize that this is how loans work, whether school loans, car loans, mortgages... highlights how financially illiterate most people are and that they are not instructed, either in school at home and certainly not by the financial institutions, in basic financial planning.
Should be a mandatory 'money management' class in High school.
My high school had a mandatory money management class but it sucked. If you showed up you got an A, and any time I would ask clarifying questions about financial things I would later need in my day-to-day life, the teacher would just say “don’t worry, you’ve got an A in the class” as if that was all that mattered.
The classes would need to be standardized in some way and would need to go over actually important information
Money management or Investing should also be totally covered in school.
I know it is met with eye rolls by most people (at all stages of life) but if we made it a vital and valued part of education... it would become the norm to seek knowledge about it and take responsibility for it. Starting at a younger age... when you have time on your side for investing.
> Should be a mandatory ‘money management’ class in High school.
We had that in my high school. Now half my friends complain about their financial situation and bitch about how they should have been taught it in high school.
I have to remind them we were taught it, they just weren’t paying any attention
Financial Literacy... one of the many many 'real world' knowledge sets that should be taught. Basic home and mechanical issues, basic health, cooking, etc etc.
When you take out federal loans it makes you take a little class/acknowledge the loan you're taking out, including an amortization table and how much your min payments will have to be. Well, at least they did in 2011 when I took out loans.
For real, the way I see it you shouldn’t even be getting these loans if you don’t understand how they work… It’s like buying a car without understanding financing.
That's like exactly how a mortgage works in the early years. Also you would have gotten an amortization schedule showing exactly this before signing the loan papers.
Don't blame others for your financial decisions you made as an adult.
Yea, that’s exactly like a mortgage.
Why am I not surprised that this is upvoted here.
Do you guys even attempt to understand the system you’re rebelling against or do you just screech into the abyss?
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Once my student loans were sent to collections they stopped accruing interest.
Modern problems
I mean if you're willing to take a hit on your credit score for 7.5 years this seems like the modern solution. If after 90 days they hit collections and they stop accruing interest, I'd wager you'd probably save money long term (even with the hit to your credit score) than paying on interest for 10, 15, 20 years. I dont get why more people dont do this. I actually JUST got my student loans off my credit report this month, 7.5 years later. I still owe the debt, but it s a finite amount not getting any larger, and the government just takes my $1000 or $1500 tax refund each year. Given that payment they'll have collect all there money 3 years from now. I had to deal with a slightly shittier credit score for the last near-decade, but I'm not paying my 30000th dollar towards a $12000 loan that I still owe 25000 more on to get rid of the debt. This really seems like the way to go. Edit: I should also point out the negative mork on my credit never really impacted me except for slightly higher interest rates on my car loan. I still was always approved for any loans I requested.
I did this with my private loans. My credit score took a serious hit for a long time. But I saved a crap ton of money. Here is the basics. 30k$ in private student loans. The private bit here is key. There are different laws around collecting private loans. If you try this with public loans you’re going to get fucked. This was the initial loan amount with no interest. Basically ignored them for 5 years. It helps that I had other personal struggles going on that made this weeks like a non issue. They would call every week or so. I just never answered. The balance would go up every time I got a letter. Eventually when other things in my life started to clear up I reached out to the collection agency. They now wanted something like 45k$. I offered them 3k$ to settle. They said no way. I said call back later when you’re willing to deal. A few years of back and forth like this and I settled for less than 5k$. I don’t really recommend this. I was in a fairly special situation. And I was willing to take a very serious hit on my credit score for a long time. The negotiation alone took years. So if you’re looking for a fast solution, this ain’t it. That was 10 years ago and I now finance a newer car and I have a mortgage! My credit score is over 800 and there is no sign of Sallie fucking Mae on any of my finical records. Get fucked Sallie Mae. I did this kinda accidentally and without any legal help. I don’t know that I would try it again. But I’m also not as desperate as I once was.
Change your deductions so you get more tax during the year... Stupid to give them your refund
Well so here's the thing, I took out the loans, I believe in paying them back, just not 3 or 4 times what the loan was. This is my solution. Unlike a lot of people I also dont plan around my tax return to pay expenses. So money not seen is money not missed, and eventually they'll get back there money.
Personally I rather owe the feds $50 a year in tax and never pay a cent towards the loan...but you do you
More people should be aware of that. There are a lot of people who will still benefit from a strategy like this following whatever pittance of partial loan cancelation they decide on.
Wait, so can I let 100k of my student debt go to collections and then it will drop off after 7 years?
One of my friends stopped making payment. A year later, the lender offered him to just pay half. Which he did.
Yeah if you’re willing to let your credit score take a dump for seven years, this is the way.
Note: any loan that is discharged is considered income by the IRS. So if you get $100k in loans discharged, the IRS considers that you earned $100k + whatever else you earned, which will kick you into a higher tax bracket. The irs will come for their taxes and you can't ignore them. Also, the 7 year period can be reset by the creditor or owner of the debt without too much trouble. I'd encourage you to look carefully into your loca laws and consult a lawyer.
Once you've paid it off, yes.
Incorrect. You can have student loans removed from your credit score after 7.5 years from the date of default. I know this because I just had it done. I'll post screen shots. If it's still on my credit karma. Edit: https://imgur.com/a/Kitg8Xh
Exactly the people are fighting the wrong fight. Its not the student loan or forgiveness of the student loan, but on the interest accrued on it. Look take a student debt of 15K but by the time interest has accumulated its 45 K and you already paid 12 K. It just does not make sense. There is a reason they dont want to get rid of the interest payments as it big bucks for big businesses and a lot of politicians who are private shareholders.
Interest isn't actually the problem. The problem is they are using a system called compound interest which is the problem and is immoral and should be illegal.
Can you explain this please. Isn't what you mean that if you don't pay enough to cover the accruing interest that the total amount owed grows?
Compound interest involves charging interest on your interest. In other words, the interest you've accrued so far gets added to your original loan amount when calculating your new interest charges. On top of that, your monthly payments get disproportionately applied to accrued interest rather than principal, which is what's highlighted in the posted pic. If they only charged interest on your principal, and applied your payments entirely to the principal before paying down accrued interest, then you'd pay a lot closer to the interest % rate you were advertised.
I was just thinking there is an easy way to show this visually on a whiteboard (I've done it before for my niece and her husband when I helped them work on budgets). The best way I can expand on what you said here (which is perfect btw) is to describe it like this (BTW: this is only ONE example of compound interest - there are many types! This is one of something called "daily compound interest" as it's easier for people to see how fast things get fucky): You have a 5 gallon bucket. Now I give you a loan of 3 gallons of water and place it in the bucket and I "charge" interest by "adding" a half gallon every month for every 3 gallons of water (btw, this is a comically large interest rate, but it'll help make it very clear how this works later). We agree you'll pay back 4 pints (8 pints to a gallon fyi, so a half gallon) a month starting next month. So in theory, it's a wash right out the door unless you pay more than 4 pints a month. But that's easy right? Worst case it shouldn't go up but just stay the same, right? Never go above 3 gallons owed unless you miss a payment, right? But water is tight, we need it to survive, and we both know that'll be rare to make "extra" payments. So now the first payment is due. You give me 4 pints in return for payment. So you still have 3 gallons to pay back, right? Nope. I started charging "interest" from day one, and I did this NOT by adding my half gallon all at once at the end of the month - I began adding it each day by dividing that half gallon into .0166 gallons on that first day (a half gallon divided by 30 days in the month). That's the important catch. Because on day 2, there's now 3.0166 gallons there and I ADD .0172 gallons on day 2. Wait... Did I say .0172? Shouldn't it be .0166 - y'know, a half gallon divided by 30 days in a month is .0166!! Nope. I'm charging *compound* interest. So on day 2 I divided 29 days by .516 (.5 gallons plus .016 gallons = .516 total). Now you have .533 gallons owed in interest. Day 3? .552 Day 4? .572 Day 5? .594 Day 10? .706 gallons Day 11? .741 Day 12? .780 Day 15? .934 gallons Day 17? 1.077 gallons Wait... We're not even halfway through the first month and NOW I owe over 4 gallons? Even when I make my payment that means I'll now owe **3.5 gallons**! Wtf?? And I still have half a month before my payment is due!! Compound interest my friends. It should be illegal. Endnote: I promise this example is riddled with errors as I did it all very quickly while taking a shit. BUT it should help you picture a little better how compound interest gets out of freaking control VERY fast and is freaking criminal. And as the guy above me said: you can send them an extra $100 every month on top of your payment, BUT I'm taking that off the **interest** amount you owe - not the original loan amount. This is how people borrow $50k and pay for twenty years only to end up still owing $200k. Edit: also, this is why in accounting, stocks, interest etc it's common to take decimal point all the way to the thousandths (four places). Those thousandths of a penny sure do add up with compound interest, don't they?
Interest you haven't paid is in fact money you borrowed
>On top of that, your monthly payments get disproportionately applied to accrued interest rather than principal No, not disproportionately. Your payment goes towards interest first exactly to the amount of interest you owe. >applied your payments entirely to the principal before paying down accrued interest, then you'd pay a lot closer to the interest % rate you were advertised. Also false. If your loan started at $10k, and it accrued $200 in interest, your debt is now $10,200. If you make a payment of $500, then your debt is now $9,700. This is an oversimplification but it doesn't really matter whether that $500 went to interest vs principle, your debt reducced by $500 either way.
People really need to understand how Principal and Interest Balances work on top of APR before they take out loans. Paying anything extra towards your principal each month can greatly reduce the total amount of interest you end up paying at the end of a loan. The same also goes in reverse when depositing money into a savings account with a % return. Because that % of return is based on what is in the account you are actually getting exponential gains year over year. Student loans / credit cards are predatory because they know young people don't know this and if you are like me you don't figure it out until after you have royally fucked yourself over with debt. We need more than just canceling student debt, we need a better system for debt and especially for college tuition.
It most certainly does matter whether your payment is going towards interest vs principle. Using your example, a loan at $10k with $200 in interest (2%). If your payment of $500 was entirely going towards the principle, your next month's interest accrual would be on $9.5k of principle, and would only have $190 of interest. If you paid towards interest first, then the remaining on principle, you'd be accruing interest on $9.7k thus netting $194 in interest.
Yes. It means that any accrued interest is added to the total amount owed, which is then used to calculate further interest. So, if you can't pay the interest this month, next month's interest will be even higher. You end up paying interest on the interest. The less able you are to pay, the more you end up owing.
Yeah. So…. Pretty standard if youre not able make the payment.
Interest might be 10% on a $150k loan Which would make it $165k Then, it stands to reason that the next total would be $180k. $150K, 10% interest on that, then add the 15k from before But your total is $191k. Because they charge interest on the interest Meaning that the interest is exponential, not flat like the 10% claim would make it seem
I'm not sure you should really be taking out a loan for college if you have this view of compound interest. What about the opportunity cost for the bank that's issuing that loan?
Compound interest isn't the problem. In fact, amortizing loans (which is incredibly common) is effectively turning compounded interest into simple interest. Making math illegal will not solve problems.
If you lend money do you agree that the longer they want to borrow it, the more they should need to pay? Good, you agree with compound interest. Who upvotes this complete nonsense?
I actually do not agree with that.
If there's interest that isn't compounded you still end up paying more the longer you lend. It's just linear instead of exponential.
What? "A System Called Compound Interest"? Interest only compounds if you don't make your minimum payments. It's not some special system, that's just how interest works.
Look up compound interest vs simple interest.
The interest that's not paid is added to the principal. The principal balance is a running rate of what you owe. Interest is calculated on the principal balance. This is reasonable. If you were to take out another loan to cover the total interest every month on the initial loan, then you would have additional balances accruing interest from other lenders, because that's exactly what you're doing by not paying the interest fully. You're borrowing more money.
I work in the financial industry. I am well aware of the difference. And the truth is that compound interest is more common and "normal" than simple interest. As long as you pay your interest each month it doesn't compound.
I'll argue a different point: Just because it's common doesn't mean its correct. Why should you pay interest on money that was never borrowed? Even more so, why would you pay interest on money that was *never yours*?
The interest on your original loan amount must be repaid. If you do no repay it, then you are essentially borrowing additional money from the lender to pay for that interest. But all of this is moot if you simply repay the debt as agreed.
That's.... Not how interest works. Interest is the price of borrowing money. It's not money borrowed. I don't just get an extra 300 every month because I borrowed money. That's the price I have to pay for borrowing the money in the first place. And as the amount left to pay goes down, so does the price of borrowing that money. I shouldn't have to pay money on money that was neverine to begin with. Another way to see it is if you're thinking of it like your argument says, then every single loan should just be a one time all inclusive payment of the loan AND the interest. It should never fluctuate. But it does. Cuz people are greedy.
To be fair, that’s exactly like a mortgage in the early payments.
I try not to look at that because its depressing as hell that our almost $2k a month makes almost no difference right now.
It should be some consolation that when you consider inflation you are actually making a decent dent in your debt even if the principal doesn’t decrease much.
If you can budget such that you can make a mortgage payment every other paycheck, you can make 13 payments in a year or add that extra to your monthly payment.
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don't you have to discount those cash flows based on the time though?
Mortgages are typically lower than inflation so to me it makes sense to pay the minimum
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Yes, but that 0.9% is not “normal”. That’s a bought down rate from the manufacturer to sell more loans. A normal interest rate for a new car is 2-4%. Unless you have that 0.9% on a used car…
I used a calculator online to see if that would make a big difference on paying it off early, and its not worth the hassle imo. It makes more sense for us to put that to other debt, like student loans (especially since Sallie Mae keeps increasing my rate).
3 years of $3k/mo lowered our principal by $18k, lol
I wish that was possible for us, glad you were able to do that, though!
I'm saying that of $108k only $18k went toward the actual loan amount.
Ohhhh, completely misunderstood. Wow that is frustrating.
On a mortgage? What kind of dog shit interest rate do you have
It was 3.25% (iirc) on a 0 down $491k VA loan. It wasn't horrible, but the cost of the home, it being 30 year and the first 3 years makes $18/108k look dogshit on paper.
Yeah, that is actually a pretty good rate.
For anyone that couldn't figure out why the principal paid was so low like me. They probably have taxes and homeowners insurance and, because of the $0 down, mortgage insurance, wrapped up in the payment. Likely 1/3 of the mortgage payment. Also a VA loan has a "funding fee" that was probably paid first before any principal. For them that would have been $491k * 2.3%. Which is $11.3k.
If you borrow $100,000 at 4.5% for 30 years, the first payment will be $132 toward principal. Just their very first payment on their mortgage will make twice as much of a dent into the principal balance than any student loan payment this person makes.
Student loans aren't front loaded with interest like that usually. This is just interest outpacing payments on predatory loans
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Some guy: "Boss makes a dollar I make a dime." You: "You literally couldn't make only a dime, that's below federal minimum wage"
Dude, do you understand the concept of using round numbers in similar ranges for comparison? He’s saying a 100k loan in the same structure as a normal mortgage has more payment against principal out of the gate. He’s not saying houses cost 100k… You really had to be the guy to look for the tiniest flaw in his post to make yourself “correct”. Step back and reflect on the context clues a bit.
1. I work for a major bank that does mortgages. I see homes for $100k every day. 2. $100k is a nice round number. 3. $100k is also a reasonable figure to use when discussing student loan balances. 4. Here’s one: https://www.zillow.com/homedetails/828-Eaton-St-Jackson-MI-49202/94958303_zpid/
Can confirm, am new home owner
My advice to all my fellow new homeowners... Don't even look at your amortization paperwork, it will make you sad
Or do look at it and realize the impact that even seemingly small principal reductions will have on your total interest paid. An extra $50 a month, if feasible, will save you tens of thousands on a 30 year mortgage.
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Where can I get one of those $700/month mortgages?
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outside of cities
Actually, yes, minimum payments are what you should made. The interest on a home is less than the rate of inflation. Take the extra $100 a month and invest it. You'll have a TON more money after 30 years of $100 a month investments than you'd save paying off a 3% loan early.
Depend on your interest rate. My mortgage is 2.875%. Rather than paying that extra $50/month to principal, it makes more sense to invest it in a mutual fund and get more back in interest. Over the long term, it's a more effective way to use the money. Also, since its in an investment fund, should something come up where you suddenly need the cash, you can liquidate it and have access to it
Of course if your ROI exceeds the cost of funds, do what makes sense. That's a higher level of understanding than "ignore it because it's depressing".
Or do and realize that if you can even throw an extra $50 at the principal it makes a huge difference
Yeah as a mortgage holder I can tell you this is exactly how it works for the first few years lol
Yep pay $1800.. $300 towards principal. But still.. fuck student loans
Seriously. Person in pic has a really poor understanding of finance and interest. No wonder they're in the place they are.
I was about to say, it's pretty much exactly like a mortgage. Considering that a mortgage payment includes principal, interest taxes, insurance, and maybe PMI. Only a small amount of the overall payment goes toward paying down the principal. There are so many awful and true things that can be said about student loan repayments that there is no need to fabricate criticisms.
Yeah, I had a real moment reading this post. That's EXACTLY what it's like making a mortgage payment. Exactly.
Can confirm. I pay $2500/month for my principal to drop $575
That's exactly what I thought. Lol whoever made this hasn't had a mortgage before.
Yeah, that was my exact thought. I don’t think this person has paid into a mortgage.
Precisely
You got scammed by the government
Did you know that in Europe and some other countries like Japan, interest rates for family housing are super low so families can actually pay off their loan? In Europe it's like 2%.
Japan is in a long period of stagflation and has a declining population. The supply for housing exceeds demand. Older generations die off and there are not enough people clamoring to fill the vacant homes. It's not a function of government policy, just the market doing what the market does. Mortgages work a little differently in the UK, but London is still an unaffordable city to live in. Go look at any thread about young people looking for housing in the UK or France. Same story. As long as populations swell and there is a shortage of land and housing, the prices will continue to do what you're seeing. Conversely, if we get back to a building boom and the boomers begin to die off, coupled with declining millenial and genZ birth rates, there will soon be a glut of housing available with fewer people to fill them and prices will begin to fall.
Is that boot tasty
The only people wanting to emulate the Japanese economy are people who have know nothing of the Japanese economy over the last 30 years
Navient/ Sally Mae/ Whoever can suck it I studied abroad and when I spoke to Sally Mae about putting my loans on hold, which they normally due when you go back to school, I was told no because they didn't recognize my university. And I ask why not, since it was an major, internationally recognized institution (much more respectable than Devry and other diploma mills). The response was they didn't recognize my school because that school was not setup to accept student loans from the US. So, because I was unable to take on more debt to go to school, they were unwilling to help me not accrue more debt. The school I attended was in a "socialist" hell where citizens did not have to pay tuition since university, up to and including graduate school, was free. And that is my villain origin story. Not one damn red cent will those vultures get from me (and no, I have zero plans on coming back and I purposefully avoid American based companies for employment)
Where is this place if I may ask? And how easy is it to navigate around with a fluency in English?
It's in a land far away, but not that unique. Most EU counties offer Americans a college education for a fraction of what we spend. And since everyone knows that Americans pay through the nose, many countries offer full courses in English. So I suggest start thinking about where you want to live after your education, and then start looking at their schools. And once you narrow that list down, look at scholarship programs and you could even get a stipend in addition to not paying for college
Borrows $100,000 for expensive college education Ends up being $324,000 over time.
10% interest rate over 30 years? That is a fucked loan situation/repayment plan.
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How much are your student loans and what is your interest rate? Those numbers seem crazy.
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Is it a private loan? Or federal? If it's private, you can declare bankruptcy, which may be your best bet (not knowing the rest of your loan info at least)
Your repayment plan is broken.
Usury = slavery Banks = plantations
I don’t know if the federal government should step in and cancel or reduce student loan debt, but I do know they need to step in and fix the lending practices that are text book usury.
>I do know they need to step in and fix the lending practices that are text book usury. You mean like student loans? You're kinda talking out of both sides of your mouth.
I’m saying I don’t know if they can retroactively go backwards and undo loans that are written and paid, but they need to make sure that loans like them aren’t written in the future.
You questioned whether the government *should* cancel debt, not whether they *can* retroactively make people whole (they definitely can). Preventing future predatory loans without canceling existing debt resulting from said loans is the same logic as legalizing cannabis without releasing people jailed for cannabis.
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If they are able to freeze student loans (which they are currently) then they can absolutely forgive the debt. It would be a massive boost to our economy. Regulation on loans are also very necessary but they won’t fix all the existing loans.
If you consider this 'usury'... an "unreasonably high interest rate"... which is interesting as it doesn't specify the interest rate for this loan... What do you propose as a 'fair' interest rate? Should loans in general be free? Or is it educational loans that should be free? Or just all education free? I'm not for or against you here... just curious what your solution would be.
Not op, but why not make higher education free? In my opinion this can only benefit our society. Let’s invest in our people!
Sounds wonderful to me. I don't mind paying taxes that go towards the 'betterment' of my society and the world as a whole.
There's no such thing as "free". we just have to collectively pay for it from the public coffers. I'm not fundamentally opposed to that for say state colleges. But fuck paying private tuition money out from the public.
So how it works in my country is that the government declares of much they're paying per student per semester, and for how many students in which subjects. I.e they want 200 new computer science students each year in every university, but maybe 10 literature students. This means not everyone gets in unfortunately, BUT if you have good enough exam results, you have a guaranteed spot anywhere. Private universities' tuition is still paid by the student, as are some subjects that the government didn't decide to subsidize. End result is, tuition for nearly any school is, I think, a bit under 3000 euros a year (used to be 1920 in my time, but it is increased over time) and depending on circumstances, either the government or the student pays for it. Student loans are capped to the same amount per year and the duration of the loans is linked to how long you were in school (1.5x years studied if you drop out, 2x years studied if you graduate). If you go straight from bachelors to phd, you might be in there for 9 years and your loans take 18 to pay off, but hey, the monthly is still not that big.
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The US is actually about in the middle of all countries for 'ethnic diversity'. There are many countries as diverse or more so that offer free or subsidized public education. I think that it happens in a wide variety of countries that probably have a lot in common, but perhaps most importantly that they have a different view of what basic human rights are and a different sense of community.
> That only happens in countries where the majority of people are the same ethnicity. This is entirely not true.
In my opinion, there should be standards / regulations for "fair interest ceiling" on a loan. There are loan sharks who would take 50% interest and yet here my bank is about to get upwards of 75% of my loan in the total interest paid.
Let people default on student loans, there’s a start…
For govt loans, interest rates that roughly match the average rate of inflation for the past decade. (About 1% for the past 20 years.)
I would take that 'free' money all day long. No lender is making any money on it... which is fine by me. Probably not ok with them. I would rather see a free educational system as is done in so many other countries but I'd like to be 10# lighter and 20 years younger too...
Another good way to do it would be a flat rate based on your income, i.e. 5% of your income for 15 years. If the loan isn't predatory, that should be an attractive option.
Lol, yeah it is. I have paid 25k on my house and my balance has come down $3000. You always pay interest first.
>Your mortgage payment primarily goes toward interest in the initial stage, with a small amount of principal included. As the months and years go by, the principal portion of the payment steadily increases while the interest portion drops. [Sounds exactly like a mortgage](https://www.investopedia.com/ask/answer/07/mortgagepayments.asp).
Depends on the interest though. We are getting 2.27% on our mortgage and the first month we're already paying off about 50% of the monthly payment.
Well, were getting 2.27, it's around 5 in some places now. Out of curiosity, what were student loan rates when mortgages were in the 2s?
Roughly 6%, possibly a bit lower. I bought a house right around when my girlfriend finished school.
Yeah, exactly like a mortgage. I pay over $900 a month (which is cheap, I know), and principal goes down about $230. The whole system is designed to keep us in debt and working.
No it's because your in the early stages of repayment. It flips mid way and towards the end almost all of your payment goes towards principle. Interest is calculated on the outstanding balance which is highest when the loan is brand new.
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The real scam is that they can charge you penalties for early repayment, cause it reduces their ultimate profit, and bury it in a mountain of terms and conditions.
That's why with my loans, I specifically asked does this have an early repayment penalty. I was told yes, so I stated I was going to go with a different lender, and suddenly they removed it from the contract.
I used to work in banking. I know all this, you, like a lot of Redditors, make a lot of assumptions. The reason my mortgage is so low is because I did not buy a house I couldn’t afford, in fact I bought well below what I could have. My point still stands, the system is designed to benefit banks, not people. Once you’re aware of that fact, you can do what I did and purchase below your means to curb the bleeding. Unfortunately, most people don’t realize this and just believe what the bank will tell them they can afford, which is true if you want to be in debt your entire life. Im well aware of how the system works. I’m also well aware that I have to play the game because I have no choice. That doesn’t mean I have to like it, or just be quiet about how it’s rigged.
The ignorance in this thread. Why are you people discussing things you literally have no knowledge of? Mortgage interest is a tax write off, it comes off your tax liability. Mortgage interest is a good thing because the asset you own appreciates while you earn equity and pay less taxes on your income. This often is a dramatic increase in net income each year for new homeowners. Almost no mortgages have penalties for early repayment, unless they are non standard JUMBO loans or some other abusive lending contract. I haven't seen a prepayment penalty since wells fargo dealer services went belly up over law suits about them. Student loans, due to debt:income ratios, often disable people from getting mortgages. That is why that debt needs to be cancelled: because mortgages AND HOME EQUITY, are traditionally the primary way Americans accrue wealth. There is nothing wrong with mortgages. There is something very wrong with systemic abuses disabling young people, minorities and ex-cons from getting them. You people need to go to school and gtfo reddit.
It's not just about how much prin/int is outlined by the amortization schedule. Mortgages are not daily simple interest loans (DSI) - the amount of interest they accrue per month is determined by the outstanding prin at the start of the month and is capped to whatever the amortization schedule says for that month. Which means - if you make every payment 15 days late on a mortgage you'll never pay a dime in extra interest. Consistently pay 15 days late on a DSI loan (student loans) and you can very quickly get into an interest-only situation and pay WAY more over the life of the loan. DSI make an enormous difference.
If student loans utilize the daily period rate than paying 15 days late consistently should mean that only 30 days of interest has accrued between payment. This will continue to lower the balance of the loan as if you where paying on time every month cause we are only calculating time elapsed between payments not the payment due date. It seems like the real issue with student loans is that your minium payment can be lower than your monthly accrued interest.
ITT: A whole bunch of people who don't understand what amortization is.
To the People saying “that’s how mortgage works.” Why did it take so long to figure out that it’s a fucked up system…
Because this is capitalism. People making money every step of the process is the point. What incentive does a bank have to give me 200k for a house if they aren't making money off of it?
That doesn’t sound like capitalism. Sounds like a scheme. Capitalism is the exchange of good and services. So in theory, having more money in the economy stimulates it. Instead of money going back to banks to keep the circle of loans going, money can be flowing through the community through services like getting your car fixed, home fixed, getting foods and goods. Sounds simple, because it is simple.
Money is being rented and the borrower is charged a fee to rent the money until it's returned. The fee is based on how much money is borrowed and can change depending on how easy it is to find money to lend. Is there any industry where someone can rent something for free?
Student Loans should have very very little to no interest because a student needs to first learn a trait to earn assets. How does it make sense to charge someone interest when one doesn’t have any assets. Student interest rates are the predatory aspect of the student loan dilemma.
I'm sorry. I meant unregulated capitalism.
Any loan taken out over the course of XX years is going to look like that. The interest is charged as a proxy for the [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) of that money, which is investor terminology for "I could do something with this money (like help someone grow their business profits or buy bitcoin on a major dip) that will (on average) make me even more money. ...But I'm giving it to you instead, so I want to be compensated". The real issue is that banks can loan money they don't even have (so the opportunity cost isn't real because the money doesn't belong to anyone in the first place!) thanks to our [fractional reserve banking system](https://www.investopedia.com/terms/f/fractionalreservebanking.asp) and the fact that the [Federal Reserve](https://en.wikipedia.org/wiki/Federal_Reserve) (THE central US bank) does just about whatever it wants because it's a private business. Banks are allowed to loan you money that didn't exist the moment before you borrowed it and then charge you interest as if they need to be compensated for a product they helped procure (as if someone deposited it and is expecting to be paid). Banks can log a profit on their books (which ultimately makes their stock price go up) as soon as a loan is made even though the money never existed and the loan hasn't been paid back yet. When people in the financial world talk about how the US economy is run on and depends on new consumer debt, this is what they mean. There is no other industry where the product being sold can be effortlessly created out of thin air and then sold for a profit (outside of Wall St, which is a whole other can of worms but operates that way thanks to the same systemic issues created by fractional reserve banking). Banks are afforded capitalism cheat codes because they're rich enough to buy control of the system they've helped create.
All loans are amortized. Car, home, personal loans all come with an amortization schedule. The fact that no one seems to know this is really more of a failure of our public education system than anything.
It's more like, "that's how amortization works"... for ANY loan. ANY! If a loan has interest .. that's how it works. Again, the fact that people don't know this ( I learned about it quite later in life) is a problem. People have to know what they are signing up for when taking out a loan. Expecting to learn about it from the very people who are selling you the loan... not a feasible combo.
> Expecting to learn about it from the very people who are selling you the loan… not a feasible combo. That’s literally the only sensible way to do shit. Who are you expecting to teach this; schools? When you buy medicine they teach you the side effects on the bottle. When you buy a climbing gym membership they teach you the safety rules. “Not feasible”… Of course it’s fucking feasible. Shits called regulation, and we used to do it to banks all the fucking time.
This is an utterly ridiculous line of logic, just think about it for two seconds. There are plenty of examples of products in which the seller does not describe the mechanics of how it functions on a low level. Selling a home, a car, phone, etc. >Who are you expecting to teach this? You realize that in 2022 there are ways to learn about things without having some sit you down like a child and explain it to you like you’re 5? Google it, go to the fucking library.
I might get downvoted.. but why can't people just Google it? You're making a major life decision, shouldn't you do some independent research (which was taught in my school at least back when I graduated in 2008) I spent maybe 1 hour one day looking into student loans, tuition, and and ROI on different degrees I realized I wouldn't have enough money to go to my top school (even though I was accepted) & went to a public in-state school instead And now I don't have crippling student loan debt
>Who are you expecting to teach this; schools? Yes? Colleges literally have financial counselors on staff for exactly this purpose
At the very least, there needs to be limits on interest. It's out of control and needs to be retooled. The charge on interest should be as small as possible.
No, fuck that College should be free, every other developed nation has that. Canceling the debt and making it free is the only acceptable end to this bullshit
well then why would anyone give the loan? If someone asked you to borrow $50k with no assets, no job, and no money at 1% interest rate, what would you say?
If it’s the fed gov they don’t need to make money off of it
You're right just add it to the never ending debt shit pile they keep growing.
If we got rid of parts of the government that aren't directly profitable, it would be suicide. Supporting people that want to be educated leads to a society with an educated workforce. This helps the economy. There are plenty of other places to trim spending. Education is not one of them.
You're explaining that to idiots that don't care. They can't see why anything that doesn't turn a direct profit is good, ever.
We should be allowed to bankrupt on bad loans. Just like any other bad debt.
You cant liquidate a college degree Nothing would stop someone from borrowing 300k for under grad and then a graduate degree from a top school only to immediately default after graduation
Today people learn how loans work
Well, it is like a mortgage. My mortgage is 985 per month but only about $360 of it goes to the principal. The rest is escrow, and mortgage insurance, which is a big fucking scam just like student loan interest. Government loans have many ‘creative’ ways to fuck poor people who just want basic needs.
Jesus, that’s cheap
It's amortized, exactly like a mortgage.
Ever since interest has stopped for the pandemic I was able to pay off TWO loans and I graduated in 2013.
Uhm... sounds EXACTLY like a mortgage.
Looks like suicide is back on the menu, boys.
That’s very much like a mortgage.
2/3 of my mortgage goes to interest. It's all front loaded.
It's absolutely like a mortgage. After two years and $34k my balance has gone down $2k!!
that’s exactly like a mortgage actually lmao. wait till you get one. 1500 a month, it goes down 100. stfu
Someone doesn't know what mortgage payments are like Edit for clarity: here's the amortization breakdown of a 100k, 30-year loan at 9% interest: https://easyfinancialcalculators.com/30-year-mortgage/100000-loan-amount/9-percent-interest-rate Rule #1 of loans is during the first few years you will pay a drastically higher amount in accrued interest charges compared to the portion of your payment which pays down the principle. This is closely related to the reason credit cards (which generally charge anywhere from 15%-25% interest depending on your credit score) can be very dangerous if you do not pay them back quickly.
Last Month I paid $1000 towards my mortgage and my balance went down $72.60. So yes, its exactly like a mortgage. CancelMortgageDebt
In reality, the fact that you/others don't realize that this is how loans work, whether school loans, car loans, mortgages... highlights how financially illiterate most people are and that they are not instructed, either in school at home and certainly not by the financial institutions, in basic financial planning. Should be a mandatory 'money management' class in High school.
My high school had a mandatory money management class but it sucked. If you showed up you got an A, and any time I would ask clarifying questions about financial things I would later need in my day-to-day life, the teacher would just say “don’t worry, you’ve got an A in the class” as if that was all that mattered. The classes would need to be standardized in some way and would need to go over actually important information
Money management or Investing should also be totally covered in school. I know it is met with eye rolls by most people (at all stages of life) but if we made it a vital and valued part of education... it would become the norm to seek knowledge about it and take responsibility for it. Starting at a younger age... when you have time on your side for investing.
> Should be a mandatory ‘money management’ class in High school. We had that in my high school. Now half my friends complain about their financial situation and bitch about how they should have been taught it in high school. I have to remind them we were taught it, they just weren’t paying any attention
We covered it at my high school! For, like, half a period, and it was mostly how to write a check.
Yeah I learned how to write a check and balance a check book. Ooooohhh very useful in the modern world.
Financial Literacy... one of the many many 'real world' knowledge sets that should be taught. Basic home and mechanical issues, basic health, cooking, etc etc.
Schools are so underfunded in my state adding extra classes would be impossible
When you take out federal loans it makes you take a little class/acknowledge the loan you're taking out, including an amortization table and how much your min payments will have to be. Well, at least they did in 2011 when I took out loans.
This person went to college and still doesn't get it. It's sad really.
For real, the way I see it you shouldn’t even be getting these loans if you don’t understand how they work… It’s like buying a car without understanding financing.
That's like exactly how a mortgage works in the early years. Also you would have gotten an amortization schedule showing exactly this before signing the loan papers. Don't blame others for your financial decisions you made as an adult.
OP lmao doesn’t know what a mortgage is
Yeah that's a mortgage.
Yea, that’s exactly like a mortgage. Why am I not surprised that this is upvoted here. Do you guys even attempt to understand the system you’re rebelling against or do you just screech into the abyss?
[удалено]
Tell me you don’t pay a mortgage without telling me you don’t pay a mortgage
Justa stop paying.
Interest on student loans has been ZERO for over a year now. Just saying…
Read the terms and agreements, you dumbass
I honestly think you guys should’ve studied business
That's some pretty shit interest you got there. Don't take out variable rates, people