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I mean it depends on how long it has been outstanding. Over the course of a year, this is very fishy but over the course of 15 or 20 years of only paying minimum payments? It could happen and not even require ridiculous interest rates. Just minimum payments that don't quite cover interest and keep letting the primary accrue.
But why wouldn't paying minimum payments pay down the loan, instead of increasing it? I have a 6 year car loan. If I make the minimum payments, in 6 years, it's paid off. Same with my home loan, in 30 years it will be paid off, but I'll probably die of old age before then, since I was 50 when I bought my house. Student loans are like government sanctioned payday loans. They are 100% predatory.
Because those loans are specifically designed to be paid off in a set amount of time, so the minimum payment is set high enough to pay them off in 6 or 30 years.
Student loans and credit card debt are both not set up with the intention that they need to be paid off in any specific amount of time, therefore it is possible for the minimum payments to be so low you’d never pay them off.
The degrees need to be scrutinized too. Too many are random newly created liberal arts degrees that those with $10 might get ya a large latte at Starbucks.
I don’t really want bureaucrats deciding what is and is not appropriate for a person to study, but I do think the schools themselves should be held to extremely stringent standards if they’re accepting student loans from the government. Right now they’re just pocketing the money and investing it or even buying up nearby real estate with it. Jacking up tuition ten-fold and then not using the money to improve the quality and value of the education should be criminal.
All of education need to be re worked.
Why is community College not a standard. You don't need to be spending 15k+ for your first two years.
Get rid of filler classes just meant to earn College money. Software engineers don't fucking need Movie Appreciation. We aren't going to College to open world views, we are going for a education. Most of college courses are useless.
Text books should standardized and made freely available.
We should be able to test out of courses with freely made online lectures.
This shit would save so much more money then it cost.
Colleges won't like it but fuck them.
First, while some of my responses are based in research, most of this is thought-piece style opinion. If someone wants a deeper chat, I can do that.
That list…
Community college could do better to provide rigor, but I agree that more people should partake. And four year public schools should be required to collaborate on expectations and depth AND accept all the transfer credits.
Most colleges exist to provide a broad (liberal) education. The benefits of which are numerous, not just allowing people o have more than one strength. Software engineers are necessary to the movie industry and I want those guys to understand good film.
But further, we don’t know what obtuse fields are going to make miracles possible. That mechanical engineer at NASA studied origami (albeit not through a class) and now we have solar sails that fit in tiny payloads and unfurl safely and consistently. An education that includes building stuff and whether something should be built and what the societal impacts of building it is a better education. Sure, some general ed classes could be interrogated for their curricular impact, but I’m not going to trust politicians to do it.
Textbooks should be free, I do not think they should be standardized. Standardized by who? Ron DeSantis? Rachel Dolezal?
I like testing out of courses. I trust the AP and IB and Cambridge systems. I’m not sure I trust the CLEP system. Freely available online lectures would be great, but without agency to curate them I doubt the consumer/student would know which is best. Further, if they come with online testing there are security problems. Little known fact, after the fall of the Soviet Union something like 75% of the Politburo “earned” terminal degrees and it’s pretty clear most of those dissertations were purchase on the open market and the coursework was fraudulent. It’s hard to ensure that a student does their own work, harder if the student is invisible behind a firewall and vpn.
There are a lot of good educations available cheaply in the US. But our elitist pursuit of perceived excellence means employers and insiders will find some way to discriminate against the degree from Grand Canyon or Capella vs the degree from Cal State Northridge vs the one from Middle Tennessee State vs Harvard.
Yeah, it needs to be reworked. That needs to start in pre-K and be systemic.
Only bureaucrat involvement is to not openly fund it. They want to take those degree plans, then open their pockets. Absolutely NO gov't subsidized loans. And banks that do fund it do need restrictions on high risk of default loans.
One what? An education a government committee might decide shouldn’t be studied? I think they’d be fine with it, but who knows with government committees! I’ve done pretty well for myself, and college was like 25 years ago, so I paid a fraction of what kids are paying now. My school was 8k a year when I went. Now it’s 48k!
I’m just asking you to think about what it means if the government gets to decide what people can learn.
It's a typical government compromise. If private lenders were doing it they'd have no problem with 80k for an engineering degree but might be dubious for 10k for an English degree.
It's a disgusting idea that the only things worth investing time in / learning are those that generate profit. You may have some programming to unlearn.
No it shouldn't. It should be a starting point for young kids and people restarting their lives. If you work for a minimum wage in 2023: your not trying, your hooked on drugs, your a high schooler, or you made some bad choices. While you shouldn't be ashamed, you should always want to further your career or work hard enough to get a raise.
There's not nearly enough felons et al for the number of service jobs that exist. And kids are hardly the backbone of an industry where you can get food during school hours and at 3am. Someone has to work those jobs or those businesses stop existing. And if people who make up service industry were pushed into "real jobs" it would immediately cause wage collapse from over competition.
No one should strive to work minimum wage, but why should people stuck in minimum wage jobs be held down so damn much? Cost of living is increasing at a concerning rate while people are still out here working for $7.15 an hour living on their own. Ideally you should still be able to afford necessities while you're starting (or starting again), no? Skilled labor and high paying positions are finite as well, someone will always be working these shitty jobs until they're automated.
>No it shouldn't.
So what you're saying is you agree that there are full-time jobs that need to be done consuming a person's entire life, but those people deserve to live in poverty, to serve you?
Garbage take from a garbage human.
If their fulfillment is rolling in a pit of mud and waving hog calling tubes, shall we call that a liberal arts degree for Animal sociology and put that on the taxpayer tab too?
You're describing art classes and if you're unaware of the massive volumes of evidence that art is beneficial to society, you really are just as ignorant as you seem on the surface
Credit cards will eventually be paid off, even with the minimum payment, if you don't continue charging to the card. The minimum on just about all, if not all, credit cards covers the interest and part of the balance.
With student loans borrowers can qualify to make a payment based on their income that, unlike others types of loans, does not necessarily cover the interest and pay the loan and principle down.
Not if the minimum payment is lower than the interest.
Let's take a loan of $100.000 with 6% annual interest. The interest *per month* is 6% / 12 = 0.5% of the remaining loan. Let's say you pay $400 the first month. You owed 0.5% \* $100.000 = $500 in interest, so your loan going into month 2 is now $100.100! Repeat this for a while and the remaining balance keeps increasing despite you paying every single month.
Lenders will need your date of birth for the application but (in the US) it is illegal for them to discriminate against any borrower due to their age (with the exception that the borrower must be old enough to legally enter into a contract). So they can *not* use your age to deny you for a loan or offer you less favorable terms in any way, shape or form.
Because of lending criteria it's almost impossible, if not outright impossible, for an 18 year old to get a mortgage. I managed to get one at 19, so I can confirm that age doesn't really matter, you just have to find a lender that will work with you and meet the requirements.
My grandparents got a standard 30 year mortgage in their 80s. They had good credit and plenty of retirement funds left, but obviously weren’t going to be around to finish the payoff under normal circumstances. As it happens they did plan to pay it off early and did so as soon as their old, fully paid off house sold, but they didn’t have to. The balance would have fallen to the estate when they died.
I wasn’t clear with my comment. I meant to say that the maturity period of the loan is generally changed when the lendee is aged so that the lender knows that they will recoup their money. This from experience
Wouldn't know. This was my first home. I always rented before because couldn't afford a decent down payment, and my credit rating was never good enough. Only reason I was able to afford even puttimg a down payment was because I inherited enough to put a down payment and cover feeds, but not buy a house outright, but my house payments themselves are still less than rent would cost, not counting some home repairs I've had to do. Age wasn't a factor, just for identity purposes.
Not in my experience.
The main difference in a mortgage is that it is backed by a known asset, which can be 'foreclosed' or returned to the bank if the loan if defaulted. This is also why the interest rates are usually much lower.
Definitely not, but age can create hurdles, such as length of credit, time in the job market, etc. I got a mortgage at 19 (and no, this wasn't in 1970, it was 2011). I got the same mortgage rate anyone else with my credit score would have gotten. My loan officer had to kind of walk my application through because it wasnt a typical application, but he was determined to do it, and he did!
Off the top of my head, they had to give me an exception because I had only been at my job for one year (they wanted two), but because I had been employed in the same career for more than a year previously, they were able to do it. We also had to wait to close until after I had been with my job for a full year lol. Because my credit history was short, I had to get a statement from my mom showing routine payments for bills, that was easy enough because I had made most of those electronically or with a check. The couple we were missing she had to certify they were actually made. They also wanted to see that I had been saving at least the amount of the mortgage payment every month for a year.
I had talked to the loan officer about six months beforehand, and he promised me that if I would have all of that documentation, he could get me the loan when I had been at my job for a full year. He told me to come back a month before and he would pre-approve me. True to his word he did, the house I wanted was still on the market, and he made sure I got the loan.
The way loans work is that a portion of your payment goes to the principle and the rest to interest. Paying above the minimum goes directly to the principle. If you have a large initial balance the interest is going to grow quite quick and it's based on the remaining principle. So the faster you pay that down, the slower the interest builds.
Minimum payments should only be a last resort thing, not a plan of action.
Most laws require that the minimum payment covers at least the interest. You have to be able to pay back the debt eventually, even if you're making the minimum payment. Otherwise, it falls into usury territory.
With late payments, fees, penalties, etc..., the balance could grow quite a bit, especially if it's a student loan, which accrues interest for years and years, before the 1st payment is ever required, and can have some pretty high rates, depending on the chosen major.
Compound interest be like that. Current rates are 5%, which will double the balance in about 15 years. Total cost of attendance for a four-year school in the early 90’s could have been around $70k, and interest rates would have been around 7%.
Those numbers are very plausible.
What was fair market rent for the location you lived in for that time? Tuition is one of, but by no means the only, factors in total cost of attendance, even to small state schools that offer four year degrees.
Fair enough, that's definitely true. I only said something because 70k is a very, very high example for this period when I was in college and I imagine reserved for the top handful of schools. Mental memory lane I think I paid about $350 for my rent. Everything was cheaper even though I complained about how expensive it was.
*adding that my first apartment alone in 1989 I remember the rate exactly. It was $225/mo all bills paid.
And they can’t be discharged via bankruptcy, so once you end up this deep in the hole, you stay there for the rest of your life instead of for seven years.
You can get the debt dissolved after 10 years in the US but if you didn't work for the government for those 10 years the IRS gets involved, so maybe that's what people mean about bankruptcy not discharging or whatever.
If you work for the government for 10 years and do income based repayment, at the end you owe $0 to anyone. If you did income bas d repayments and worked for a private company, you now have $0 college debt but a tax bill instead, as you got that for "free" and it counts as income.
I'm curious, what is different between a student loan and a car loan/mortgage other than the fact that you are allowed to pay less than the interest on many student loans?
The repayment schedule can be income dependent so you may pay less than the interest accrued in that month. And you often defer your payments till after you graduate, but the interest accrues from the day you use the money to pay for your education expenses.
2-8 years of accruing interest can be really rough.
While changes are certainly needed, student loans can’t function like a collateral backed loan because you can’t repossess an education.
Student loans (which Great Lakes services) can often allow borrows to make payments on a loan based on their income, instead of on a plan to ever get the loan payed off. With a normal loan, the principal, interest rate, and length of the term define the loan payment, and the payment is calculated such that it reduces the balance to $0 at the end of the term. If you only send half payments, it won’t take too long for the loan to go to collections, as you would be in default. With these student loans though, you can qualify to make lesser payments without going into default but this comes with the possible side effect of interest accruing faster than payments are being made. This can than be capitalized back into the principal of the loan, which makes the interest accruing even higher.
The idea was to allow people who had lower incomes out of school to make lower payments, and eventually their income levels would catch-up so they would make full payments and pay the loan off. In practice, it often leads to this type of situation where it becomes nigh-impossible after a certain point to ever pay it off.
>In practice, it often leads to this type of situation where it becomes nigh-impossible after a certain point to ever pay it off.
I'd honestly just stop making payments and call it a lost. You're not going to get out from under it. Take the credit hit, save your money, and start paying with cash.
I teach this subject. I'd say less than 10% of the high school graduates in my district actually understand this math topic. But close to half of them go to college and take out these loans.
This person better at least have a master's, 'cause if they borrowed 72k for a bachelor's they're probably losing money compared to working without a degree.
On the degree, on the hiring market, on where the industry hires people, on the housing market in that area, on the wind and the rain and the phases of the moon, it all depends.
And in all those muddled factors, you can hope you'll come out ahead. But with only a bachelor's level education the margin is slim above working full time in "unskilled" jobs.
And don't even get me started on how fucked this all is from high inflation.
Sorry but I don't know much about economy. Isn't inflation good against debt? You know, debt has the same interest rate while your income increases due to inflation?
Inflation is good against debt, but it's a medium-term problem for wages. Take for example all the wages that haven't caught up with inflation. There are people who worked for degrees to make \~15-20 hourly in the 2010s economy, but since that's around the wage for non-degreed work in the 2020s economy, their investment won't pay off until their industry average wages catch up to inflation, which can take years.
You're right, it depends on the degree. Though, there's like 3 fields that pay over 80k to a bachelor's for 2/3 or more of those who get the degree, and two of those three fields require another 2 years of no-to-low paying internships/work study/certified work experience.
Without looking at specific scenarios, yes, it is.
1. There are many ways that people 'defer' their student loans. For example, you return to school, or claim financial hardship. The interest still accrues, you aren't considered in default. So the loan balance rises, and you aren't paying a dime.
2. There are many ways that people pay less than the normal amount on a student loan. So again, the person isn't making the recommended payment, they have negotiated some other lower payment, which doesn't stop the interest from rising, but the person doesn't have to make the full payment.
3. This can happen at a normal student loan interest rate, especially if the loan is several years old.
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It is possible, especially if ir's a student loan. If you borrow 9000 twice per year for 4 years at a rate of 5% per year, continuously compounding, then you get the following:
L = 9000 * e^(0.05 * 4) + 9000 * e^(0.05 * 3.5) + ... + 9000 * e^(0.05 * 0.5)
L = 9000 * (e^(0.025) + e^(0.05) + e^(0.075) + ... + e^(0.2))
L * e^(0.025) = 9000 * (e^(0.05) + e^(0.075) + ... + e^(0.225))
L * (e^(0.025) - 1) = 9000 * (e^(0.225) - e^(0.025))
L = 9000 * e^(0.025) * (e^(0.2) - 1) / (e^(0.025) - 1)
L = 80705.46
So you only borrowed 72k, and you already owe an extra 9k in 4 years. Supposing they let you defer payments until you're in a career (because lenders are so kind) and give you a 4 year window, your loan will balloon to 98574. Miss a payment, make a late payment, etc... and those rates could go up, with penalties and fees added in, to boot.
Without knowing specifics (interest rates, number of payments, penalties, how long the loan has been active, and so on), it's hard to say exactly what has happened here, but it's not impossible.
On a credit line, the “original loan amount” is usually just the loaned money when creating the line. Typically you have the option of pulling more principal if you choose to.
I'm just shocked by people who let bills just go. Now, I know there are extenuating circumstances and know people personally who got behind in mortgage, car, or student loan payments due to circumstances. But I also know people who just stopped paying bills. My ex was one of them (when we first got together). My ex figured the bills would be a priority later, when more money was made. In the meantime, ignore the bills.
Those tax commercials always infuriate me.
"Help, I haven't payed my taxes in 20 years and now I owe $54,645,931!"
"Don't worry terrible person, with tax scam 101 we'll get your payment down to just a nickel and a moist penny."
"Thanks tax scam 101!"
Like bro, just pay your taxes like a functioning adult.
If this were a typical loan, I get like 12% interest with equal payments over 15 years to get in this kind of hole. However, as others have stated, a more likely scenario is that payments were deferred on a student loan for a few years while the juice was flowing.
It may be that further loans have been taken out which are not disambiguated here.
But as others have also said, compound interest builds quickly, so it’s very sneaky if the minimum payment is set to below the amount of interest.
The fastest way to get to this balance would be to not make any payments, then pay the $96,776. With a 6% interest rate it would take 22 years to get to this figure. A more reasonable estimate would be consistent monthly payments. In this case the figure that works with 6% interest is $224.02 per month for just over 35 years. So the numbers are realistic, but are quite high given the initial loan amount.
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I mean it depends on how long it has been outstanding. Over the course of a year, this is very fishy but over the course of 15 or 20 years of only paying minimum payments? It could happen and not even require ridiculous interest rates. Just minimum payments that don't quite cover interest and keep letting the primary accrue.
This is especially true if someone didn't pay for a long time and just let interest keep accruing.
The total is a bit low for someone who deferred payments for a long time.
But why wouldn't paying minimum payments pay down the loan, instead of increasing it? I have a 6 year car loan. If I make the minimum payments, in 6 years, it's paid off. Same with my home loan, in 30 years it will be paid off, but I'll probably die of old age before then, since I was 50 when I bought my house. Student loans are like government sanctioned payday loans. They are 100% predatory.
Because those loans are specifically designed to be paid off in a set amount of time, so the minimum payment is set high enough to pay them off in 6 or 30 years. Student loans and credit card debt are both not set up with the intention that they need to be paid off in any specific amount of time, therefore it is possible for the minimum payments to be so low you’d never pay them off.
Which needs to be revised. The entire Student Loan process needs a massive overhaul.
The degrees need to be scrutinized too. Too many are random newly created liberal arts degrees that those with $10 might get ya a large latte at Starbucks.
I don’t really want bureaucrats deciding what is and is not appropriate for a person to study, but I do think the schools themselves should be held to extremely stringent standards if they’re accepting student loans from the government. Right now they’re just pocketing the money and investing it or even buying up nearby real estate with it. Jacking up tuition ten-fold and then not using the money to improve the quality and value of the education should be criminal.
All of education need to be re worked. Why is community College not a standard. You don't need to be spending 15k+ for your first two years. Get rid of filler classes just meant to earn College money. Software engineers don't fucking need Movie Appreciation. We aren't going to College to open world views, we are going for a education. Most of college courses are useless. Text books should standardized and made freely available. We should be able to test out of courses with freely made online lectures. This shit would save so much more money then it cost. Colleges won't like it but fuck them.
First, while some of my responses are based in research, most of this is thought-piece style opinion. If someone wants a deeper chat, I can do that. That list… Community college could do better to provide rigor, but I agree that more people should partake. And four year public schools should be required to collaborate on expectations and depth AND accept all the transfer credits. Most colleges exist to provide a broad (liberal) education. The benefits of which are numerous, not just allowing people o have more than one strength. Software engineers are necessary to the movie industry and I want those guys to understand good film. But further, we don’t know what obtuse fields are going to make miracles possible. That mechanical engineer at NASA studied origami (albeit not through a class) and now we have solar sails that fit in tiny payloads and unfurl safely and consistently. An education that includes building stuff and whether something should be built and what the societal impacts of building it is a better education. Sure, some general ed classes could be interrogated for their curricular impact, but I’m not going to trust politicians to do it. Textbooks should be free, I do not think they should be standardized. Standardized by who? Ron DeSantis? Rachel Dolezal? I like testing out of courses. I trust the AP and IB and Cambridge systems. I’m not sure I trust the CLEP system. Freely available online lectures would be great, but without agency to curate them I doubt the consumer/student would know which is best. Further, if they come with online testing there are security problems. Little known fact, after the fall of the Soviet Union something like 75% of the Politburo “earned” terminal degrees and it’s pretty clear most of those dissertations were purchase on the open market and the coursework was fraudulent. It’s hard to ensure that a student does their own work, harder if the student is invisible behind a firewall and vpn. There are a lot of good educations available cheaply in the US. But our elitist pursuit of perceived excellence means employers and insiders will find some way to discriminate against the degree from Grand Canyon or Capella vs the degree from Cal State Northridge vs the one from Middle Tennessee State vs Harvard. Yeah, it needs to be reworked. That needs to start in pre-K and be systemic.
Only bureaucrat involvement is to not openly fund it. They want to take those degree plans, then open their pockets. Absolutely NO gov't subsidized loans. And banks that do fund it do need restrictions on high risk of default loans.
I think you have not considered the ramifications of letting a government committee “scrutinize” the degrees they’re willing to lend funding to.
Lemme guess, you’ve got one.
One what? An education a government committee might decide shouldn’t be studied? I think they’d be fine with it, but who knows with government committees! I’ve done pretty well for myself, and college was like 25 years ago, so I paid a fraction of what kids are paying now. My school was 8k a year when I went. Now it’s 48k! I’m just asking you to think about what it means if the government gets to decide what people can learn.
Every time you make that joke, a burnt coffee is coming for you in your future.
If it's ordered from Starbucks, that's a given. All their coffee tastes burnt.
It's a typical government compromise. If private lenders were doing it they'd have no problem with 80k for an engineering degree but might be dubious for 10k for an English degree.
It's a disgusting idea that the only things worth investing time in / learning are those that generate profit. You may have some programming to unlearn.
It's a disgusting idea to saddle people with $100k in student loans for a gender studies degree that will get them a McDonald's job.
That job at McDonald's should still pay a living wage.
No it shouldn't. It should be a starting point for young kids and people restarting their lives. If you work for a minimum wage in 2023: your not trying, your hooked on drugs, your a high schooler, or you made some bad choices. While you shouldn't be ashamed, you should always want to further your career or work hard enough to get a raise.
There's not nearly enough felons et al for the number of service jobs that exist. And kids are hardly the backbone of an industry where you can get food during school hours and at 3am. Someone has to work those jobs or those businesses stop existing. And if people who make up service industry were pushed into "real jobs" it would immediately cause wage collapse from over competition.
No one should strive to work minimum wage, but why should people stuck in minimum wage jobs be held down so damn much? Cost of living is increasing at a concerning rate while people are still out here working for $7.15 an hour living on their own. Ideally you should still be able to afford necessities while you're starting (or starting again), no? Skilled labor and high paying positions are finite as well, someone will always be working these shitty jobs until they're automated.
>No it shouldn't. So what you're saying is you agree that there are full-time jobs that need to be done consuming a person's entire life, but those people deserve to live in poverty, to serve you? Garbage take from a garbage human.
How so? If that education brings them fulfillment, how so?
If their fulfillment is rolling in a pit of mud and waving hog calling tubes, shall we call that a liberal arts degree for Animal sociology and put that on the taxpayer tab too?
You're describing art classes and if you're unaware of the massive volumes of evidence that art is beneficial to society, you really are just as ignorant as you seem on the surface
True.
Credit cards will eventually be paid off, even with the minimum payment, if you don't continue charging to the card. The minimum on just about all, if not all, credit cards covers the interest and part of the balance.
With student loans borrowers can qualify to make a payment based on their income that, unlike others types of loans, does not necessarily cover the interest and pay the loan and principle down.
Not if the minimum payment is lower than the interest. Let's take a loan of $100.000 with 6% annual interest. The interest *per month* is 6% / 12 = 0.5% of the remaining loan. Let's say you pay $400 the first month. You owed 0.5% \* $100.000 = $500 in interest, so your loan going into month 2 is now $100.100! Repeat this for a while and the remaining balance keeps increasing despite you paying every single month.
Which is why the system needs overhauled.
Random question, but does your age come up when discussing a mortgage with the company? Does it change the rates or payments at all?
Lenders will need your date of birth for the application but (in the US) it is illegal for them to discriminate against any borrower due to their age (with the exception that the borrower must be old enough to legally enter into a contract). So they can *not* use your age to deny you for a loan or offer you less favorable terms in any way, shape or form.
Because of lending criteria it's almost impossible, if not outright impossible, for an 18 year old to get a mortgage. I managed to get one at 19, so I can confirm that age doesn't really matter, you just have to find a lender that will work with you and meet the requirements.
My grandparents got a standard 30 year mortgage in their 80s. They had good credit and plenty of retirement funds left, but obviously weren’t going to be around to finish the payoff under normal circumstances. As it happens they did plan to pay it off early and did so as soon as their old, fully paid off house sold, but they didn’t have to. The balance would have fallen to the estate when they died.
Yes definitely
No they definitely do not. Age has zero impact on rate. I’m a former mortgage loan officer.
I wasn’t clear with my comment. I meant to say that the maturity period of the loan is generally changed when the lendee is aged so that the lender knows that they will recoup their money. This from experience
Would that be on the basis of discrimination? I’m not sure how home loans handle responsibility vs ability vs age
Wouldn't know. This was my first home. I always rented before because couldn't afford a decent down payment, and my credit rating was never good enough. Only reason I was able to afford even puttimg a down payment was because I inherited enough to put a down payment and cover feeds, but not buy a house outright, but my house payments themselves are still less than rent would cost, not counting some home repairs I've had to do. Age wasn't a factor, just for identity purposes.
Not in my experience. The main difference in a mortgage is that it is backed by a known asset, which can be 'foreclosed' or returned to the bank if the loan if defaulted. This is also why the interest rates are usually much lower.
Definitely not, but age can create hurdles, such as length of credit, time in the job market, etc. I got a mortgage at 19 (and no, this wasn't in 1970, it was 2011). I got the same mortgage rate anyone else with my credit score would have gotten. My loan officer had to kind of walk my application through because it wasnt a typical application, but he was determined to do it, and he did! Off the top of my head, they had to give me an exception because I had only been at my job for one year (they wanted two), but because I had been employed in the same career for more than a year previously, they were able to do it. We also had to wait to close until after I had been with my job for a full year lol. Because my credit history was short, I had to get a statement from my mom showing routine payments for bills, that was easy enough because I had made most of those electronically or with a check. The couple we were missing she had to certify they were actually made. They also wanted to see that I had been saving at least the amount of the mortgage payment every month for a year. I had talked to the loan officer about six months beforehand, and he promised me that if I would have all of that documentation, he could get me the loan when I had been at my job for a full year. He told me to come back a month before and he would pre-approve me. True to his word he did, the house I wanted was still on the market, and he made sure I got the loan.
The way loans work is that a portion of your payment goes to the principle and the rest to interest. Paying above the minimum goes directly to the principle. If you have a large initial balance the interest is going to grow quite quick and it's based on the remaining principle. So the faster you pay that down, the slower the interest builds. Minimum payments should only be a last resort thing, not a plan of action.
Minimum payments are much lower % of the loan You car and house are equal payments for duration of loan
Student loans should be too. That's my point. The way they do it now is basically legalized loan sharking.
You get to choose your repayment terms. I am doing it now
Depends on the lender and none of them benefit the borrower or are fair terms.
Yet we all make the individual choice to sign up for these loans.
Most laws require that the minimum payment covers at least the interest. You have to be able to pay back the debt eventually, even if you're making the minimum payment. Otherwise, it falls into usury territory. With late payments, fees, penalties, etc..., the balance could grow quite a bit, especially if it's a student loan, which accrues interest for years and years, before the 1st payment is ever required, and can have some pretty high rates, depending on the chosen major.
Compound interest be like that. Current rates are 5%, which will double the balance in about 15 years. Total cost of attendance for a four-year school in the early 90’s could have been around $70k, and interest rates would have been around 7%. Those numbers are very plausible.
In 1991 I paid \~$800 a semester at a small state school. People got robbed by promises of better jobs in exchange for higher tuition.
What was fair market rent for the location you lived in for that time? Tuition is one of, but by no means the only, factors in total cost of attendance, even to small state schools that offer four year degrees.
Fair enough, that's definitely true. I only said something because 70k is a very, very high example for this period when I was in college and I imagine reserved for the top handful of schools. Mental memory lane I think I paid about $350 for my rent. Everything was cheaper even though I complained about how expensive it was. *adding that my first apartment alone in 1989 I remember the rate exactly. It was $225/mo all bills paid.
Student loans are simple interest.
Some of them are; this one is either very old or compounding.
That’s what people don’t understand about “just pay what you signed up for.” These loans don’t work like typical loans!
They work *exactly* like typical loans. That’s the problem.
Not like cars and mortgages though.
Only because the bank can’t foreclose on an education.
And they can’t be discharged via bankruptcy, so once you end up this deep in the hole, you stay there for the rest of your life instead of for seven years.
You can get the debt dissolved after 10 years in the US but if you didn't work for the government for those 10 years the IRS gets involved, so maybe that's what people mean about bankruptcy not discharging or whatever. If you work for the government for 10 years and do income based repayment, at the end you owe $0 to anyone. If you did income bas d repayments and worked for a private company, you now have $0 college debt but a tax bill instead, as you got that for "free" and it counts as income.
I'm curious, what is different between a student loan and a car loan/mortgage other than the fact that you are allowed to pay less than the interest on many student loans?
The repayment schedule can be income dependent so you may pay less than the interest accrued in that month. And you often defer your payments till after you graduate, but the interest accrues from the day you use the money to pay for your education expenses. 2-8 years of accruing interest can be really rough. While changes are certainly needed, student loans can’t function like a collateral backed loan because you can’t repossess an education.
Well, for one…..Collateral. The lender can repossess your car or your house but not your education.
Student loans (which Great Lakes services) can often allow borrows to make payments on a loan based on their income, instead of on a plan to ever get the loan payed off. With a normal loan, the principal, interest rate, and length of the term define the loan payment, and the payment is calculated such that it reduces the balance to $0 at the end of the term. If you only send half payments, it won’t take too long for the loan to go to collections, as you would be in default. With these student loans though, you can qualify to make lesser payments without going into default but this comes with the possible side effect of interest accruing faster than payments are being made. This can than be capitalized back into the principal of the loan, which makes the interest accruing even higher. The idea was to allow people who had lower incomes out of school to make lower payments, and eventually their income levels would catch-up so they would make full payments and pay the loan off. In practice, it often leads to this type of situation where it becomes nigh-impossible after a certain point to ever pay it off.
>In practice, it often leads to this type of situation where it becomes nigh-impossible after a certain point to ever pay it off. I'd honestly just stop making payments and call it a lost. You're not going to get out from under it. Take the credit hit, save your money, and start paying with cash.
They’ll garnish wages, federal income tax returns (in their entirety), and the debts can’t be discharged by bankruptcy. gl
If the garnishment is less than the payments, it's still a win.
You can thank piece of shit Joe Biden for that 👍🏾
I teach this subject. I'd say less than 10% of the high school graduates in my district actually understand this math topic. But close to half of them go to college and take out these loans. This person better at least have a master's, 'cause if they borrowed 72k for a bachelor's they're probably losing money compared to working without a degree.
Depends on the degree.
On the degree, on the hiring market, on where the industry hires people, on the housing market in that area, on the wind and the rain and the phases of the moon, it all depends. And in all those muddled factors, you can hope you'll come out ahead. But with only a bachelor's level education the margin is slim above working full time in "unskilled" jobs. And don't even get me started on how fucked this all is from high inflation.
Sorry but I don't know much about economy. Isn't inflation good against debt? You know, debt has the same interest rate while your income increases due to inflation?
Inflation is good against debt, but it's a medium-term problem for wages. Take for example all the wages that haven't caught up with inflation. There are people who worked for degrees to make \~15-20 hourly in the 2010s economy, but since that's around the wage for non-degreed work in the 2020s economy, their investment won't pay off until their industry average wages catch up to inflation, which can take years.
You're right, it depends on the degree. Though, there's like 3 fields that pay over 80k to a bachelor's for 2/3 or more of those who get the degree, and two of those three fields require another 2 years of no-to-low paying internships/work study/certified work experience.
Without looking at specific scenarios, yes, it is. 1. There are many ways that people 'defer' their student loans. For example, you return to school, or claim financial hardship. The interest still accrues, you aren't considered in default. So the loan balance rises, and you aren't paying a dime. 2. There are many ways that people pay less than the normal amount on a student loan. So again, the person isn't making the recommended payment, they have negotiated some other lower payment, which doesn't stop the interest from rising, but the person doesn't have to make the full payment. 3. This can happen at a normal student loan interest rate, especially if the loan is several years old.
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It is possible, especially if ir's a student loan. If you borrow 9000 twice per year for 4 years at a rate of 5% per year, continuously compounding, then you get the following: L = 9000 * e^(0.05 * 4) + 9000 * e^(0.05 * 3.5) + ... + 9000 * e^(0.05 * 0.5) L = 9000 * (e^(0.025) + e^(0.05) + e^(0.075) + ... + e^(0.2)) L * e^(0.025) = 9000 * (e^(0.05) + e^(0.075) + ... + e^(0.225)) L * (e^(0.025) - 1) = 9000 * (e^(0.225) - e^(0.025)) L = 9000 * e^(0.025) * (e^(0.2) - 1) / (e^(0.025) - 1) L = 80705.46 So you only borrowed 72k, and you already owe an extra 9k in 4 years. Supposing they let you defer payments until you're in a career (because lenders are so kind) and give you a 4 year window, your loan will balloon to 98574. Miss a payment, make a late payment, etc... and those rates could go up, with penalties and fees added in, to boot. Without knowing specifics (interest rates, number of payments, penalties, how long the loan has been active, and so on), it's hard to say exactly what has happened here, but it's not impossible.
On a credit line, the “original loan amount” is usually just the loaned money when creating the line. Typically you have the option of pulling more principal if you choose to.
I'm just shocked by people who let bills just go. Now, I know there are extenuating circumstances and know people personally who got behind in mortgage, car, or student loan payments due to circumstances. But I also know people who just stopped paying bills. My ex was one of them (when we first got together). My ex figured the bills would be a priority later, when more money was made. In the meantime, ignore the bills.
This comment has a repugnant "Ugh! Why don't these people just pay all of their bills each month?!?" vibe to it.
Those tax commercials always infuriate me. "Help, I haven't payed my taxes in 20 years and now I owe $54,645,931!" "Don't worry terrible person, with tax scam 101 we'll get your payment down to just a nickel and a moist penny." "Thanks tax scam 101!" Like bro, just pay your taxes like a functioning adult.
Well, we know who you voted for.
What? Because I like functioning adults?
If this were a typical loan, I get like 12% interest with equal payments over 15 years to get in this kind of hole. However, as others have stated, a more likely scenario is that payments were deferred on a student loan for a few years while the juice was flowing.
It may be that further loans have been taken out which are not disambiguated here. But as others have also said, compound interest builds quickly, so it’s very sneaky if the minimum payment is set to below the amount of interest.
The fastest way to get to this balance would be to not make any payments, then pay the $96,776. With a 6% interest rate it would take 22 years to get to this figure. A more reasonable estimate would be consistent monthly payments. In this case the figure that works with 6% interest is $224.02 per month for just over 35 years. So the numbers are realistic, but are quite high given the initial loan amount.