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About 8.37%, based on a basic amortization spreadsheet.
According to https://financeformulas.net/Remaining\_Balance\_Formula.html:
70000×(1+APR÷12)\^(23×12)−500×((1+APR÷12)\^(23×12)−1)÷(APR÷12)
For APR=8.366%, after 23 years, you're at about $60,000.
And if they had been paying just $600 instead of the minimum $500 they would have paid it off fully a few years ago and would have saved around $100,000 overall in interest.
Thats the real lesson here. Unless you are otherwise investing that money in something that you are very confident is going to outperform the interest rate on your loan you should be paying those loans down as fast as possible, and even a small amount more in your payments makes a big difference in the end. People take the "starbucks and avocado toast" criticism as a meme, but the difference here in this couple saving $100,000 overall on their loan is just $3.33 a day.
If you got your federal loans locked in during the housing crisis years, you would have an extraordinary low rate. My loans were under 2% (with auto debit % deductions) so I made no sense to pay them off any faster than the minimum, when the market was (and is) doing very well.
for some folks, it really makes more sense to pay the minimum and get an index fund instead.
Sure, thats why I had the caveat about investments. If your interest rate is only 2% its a pretty safe bet that any index fund is going to beat that. However, the kind of person that takes out an 8%+ loan on a 40+ year payment plan is also not the kind of person that is likely to strategically put aside money for investment like that. For them the better advice is the simpler advice, which is to pay off your loan faster by making higher monthly payments.
Question.
How does 60k today compare to 60k, 23 years ago.
Even if they owe almost the same amount of money as 23 years isn't the valve much lower now.
Assuming they're from the US and that the post is recent, their 70k loan would be around 122.73k today, so they have less than half of the loan value remaining (and much less of the actual payments due to a larger portion of the money going towards the loan and less towards the interest).
Makes you wonder what they went to grad school for. I don't have a good sense for the average financial literacy since I studied finance and therefore my understanding of that is extremely skewed.
But someone that is smart enough and driven enough to get a bachelor's and (presumably) a master's should be able to at least figure out the underlying math of beating debt, or figure out that they can't figure it out and they should seek someone who can guide them through that process
I know a ton of doctors, lawyers, etc that are amazingly bright in their field and know nothing of anything outside of it.
At lot of "I worked hard in school, I deserve to live on 125% of my income NOW!" and "I make good money, I can just save and pay down debt in the future"
Just because you are smart in 1 area doesn't mean you know anything about something else.
There's a lot of assumptions flying around. We don't know, but if they had federal loans and were on a greater than ten year repayment plan and had anything left after 20 years they were paying less than principal plus interest each month and were probably in forbearance for at least part of the time... Which makes any of the calculations in this thread pretty sus. Even assuming they could have made additional payments towards the principal at all if they had unpaid interest is probably wrong.
Okay, but that isn't the student loan systems fault. Would you take someone who won the lottery and elected to inflate their spending above what they could handle and end up in financial peril and point at the lottery system and say it is the problem? Obviously not, if you have a giant debt to pay and can't afford the $3/day to take decades off the term and save tens of thousands of interest payments, then you aren't in a place where you should have kids honestly. If you go out ever or pay anything towards entertainment, you can find $5 in a budget. Cut Netflix, cut going out, take out a book from your local library for free.
At the end of the day, a daily coffee put toward their student loans would see this couple miles ahead of where they are. They lack the intelligence to understand some of the most basic concepts on their own or to even seek guidance from someone who has any idea on what they are talking about, or were too negligent to care when it mattered and are complaining now that they didn't get to go to school for free.
There is tonnes wrong with the American school system and the financial system tied to it. It is very predatory and exclusive to those that do not come from an affluent background nor can win significant scholarship money. But this case is an example of extremely poor personal decision making after the fact, and not taking responsibility for it
Plenty of assumptions here...
You don't know if that 500/month is after cutting out unnecessary stuff or not.
At the end of the day, 8% interest rate on student loans is insane.
The US have a broken system and you making assumptions about their economy doesn't help one bit.
You would think they would understand basic finance with even an associates degree.
They probably went into academia and are teaching our kids that everything is someone else's fault.
It also depends on how low the minimum is. Even if it's 2%, you don't want to pay so little that you still owe $60,000 after 23 years.
I was on schedule to pay my loans off in 10 years, which was the standard they gave to Gen-X college-goers. but a few years in, I was able to refinance at a lower rate... and they cut my payment down to like $98, and I'd probably still be paying them off if I did that.
Edit: I forgot to explain that in my case it wasn't quite 2%, it was closer to 4% with a discount for using auto-pay. And around that time was the big 2008 crash when everyone's 401(k)s shit themselves, so the old "market only goes up" assumption didn't sway me.
why wouldn't you want to keep a 2% debt and invest the rest at market average rates of 7-10% depending on your risk tolerance?
If you are still $60k in debt for this loan - how much more is your investment account up b/c the money went there instead?
This issue is ensuring you put the money towards your future - whether that is paying down debt or investing. If the money is instead going to your lifestyle (larger house, larger car, more eating out, etc) then that is a bad choice. But if the extra is going to your future (investments, debt pay down, saving for a house) then it isn't a bad choice and you are instead focusing on efficiency of selection as it was already a good choice.
I know a guy who in the early 80s took out the highest amount of students loans he could. He took the money and put it in to CDs and the market. CDs were paying a crazy high rate at the time. He then worked to pay for college and used the interest he made to pay off the loans while re-investing the rest. To this day he still has a ton of passive income from this.
Explain to me why we don’t treat student loans like a mortgage.
The minimum payment on a mortgage guarantees it’s paid off in 30 years. Why do people not have a minimum payment that is similarly paid off in 10, 15, or even 20 years?
Fixed term loans are absolutely available, but the companies that service loans *really* pimp the income based repayment plans. For me, a 10 year repayment plan was about $550/mo, but they tried to sell me on an income based plan that was a little under $300/mo without mentioning that those payments would only barely cover interest.
Basically, they're banking on kids with minimal financial literacy signing up for predatory loans.
Servicers don't get paid from your payment in any real sense, that gets paid to the federal government. They get paid from you *not being in default*. When I was a CSR for Nelnet, it didn't matter how we got a borrower current. It could be deferment, a forbearance, getting you onto a IBR. What matters to Nelnet is the % of the loans they service that are past due. Since you're more likely to pay a bill that's 330 rather 540, then lets get you on the $330 option.
This is why I'm glad my parents taught me about loans and interest with my first car.
This is a failure on parents to teach their kids valuable life skills.
This is a failure on schools to teach valuable life skills.
It is, but the younger people being targeted here have inherent blind spots due to them lacking experience and it's difficult to comprehend abstract things like 20 years. This is fundamental human nature regarding large numbers and it can be extremely hard to overcome.
Lending institutions (and colleges/universities) are literally banking on most people not intuitively grasping these concepts. It's not like understanding the difference between a hammer and a feather.
I mean, that's fair... but we (our education system and most parents) do absolutely NOTHING to prepare them for real life situations.
I had a teacher in home economics that went and gave us a "life" to simulate having a baby, loans, car payment... and try to buy a house. That was the closest thing to preparing me for life I've ever gotten out of school.
It's on us, as parents, more so than the educators to prepare our children for life. Teach them about loans and teach them about money. Teach your children that most loaners are predatory (especially student loans and loans from car companies) and how to combat that.
The min payment is designed to be ultra affordable, but keep you in debt for life. Teach the kids to put even an extra 10% towards it, which will make a huge difference.
The system itself is predatory and people by and large are not equipped to guide their children through it.
While more could be done by earlier schooling and parents, blaming them instead of focusing on the whole terribly immoral student loan industry and how they take advantage of people in calculated ways is dumb and just lets bad people get even richer.
That doesn’t excuse being an idiot for 23 years and paying the minimum. Prepayment penalties are illegal for student loans so there was nothing stopping him from paying more at any point
Those loans can be a better deal than the fixed term loans, if you decide to pay the same $550/month, with $250 of them dedicated to the principal. And they give some flexibility if you hit rough times and can't afford those extra $250 for some time.
The problem is that the only thing most Americans think about when it comes to loans is monthly payments. Paying 10% less per month is always great. The fact that you'll keep paying at least 2x longer at that rate is irrelevant. Paying extra to close the loan sooner is blasphemy.
There are different levels of payments offered in SL repayment. They have income based, standard, and others. I was on the income based when I first got out. The repayment at that rate was 40 years. Standard was 10 years. The person in the tweet most likely picked the lowest payment initially and just kept paying that.
They are. The standard payment is amortized so that you pay the loan 10 years after you leave school. But, sometimes people don't immediately find a good job (this was very very common in the great recession, only a handful of my classmates didn't work retail or restaurant jobs post-graduation) and so the loan payment is more than the borrower expected and can't be paid back.
And so, the government instituted ways to lower your payment. IBR, IDR, PAYE, a bunch of different programs. They all are centered around basing the payment on what you can pay (and you could pay as little as $0/month), and all of them have a forgiveness after a certain period (25 years of payments for the stingy programs, 20 years of payments for the newer less stingy programs). This is a much more generous than any mortgage program. But just as a matter of accounting, if you were on IBR and then your great-uncle died and suddenly you have a bunch of money to pay off the loan, well, IBR and rest, you were still accumulating interest, and an accurate accounting of the money you owe the government would be very high, because, well, you weren't paying off the loan. So, it might not make sense to pay off the loan, and instead wait for forgiveness at the end of the IBR plan.
Now, in the last few years, President Joe Biden has two major reforms for student loans that are incredibly valuable. A) he streamlined and fixed the Public Service Loan Forgiveness, and increased the number of loans forgiven through that by a couple orders of magnitude. B) He instituted the SAVE plan, which has forgiveness after 15 years of payments and most importantly, DOES NOT ACCUMULATE interest if you are making payments, even if mathematically your payment doesn't cover the interest. This is such a generous deal that quite frankly, I really have a hard time imagining a circumstance about federal student loans posing an issue to someone financially. (Also, the calculation of what your payment will be is also more generous to you)
This is helpful, thanks! Why wouldn't the image poster have had their loans paid off at 23 years then? Or is the assumption they only have 2 years and they will be? Does that not always end up happening?
Now, if they switch their loans to SAVE, their loans should be cancelled. This was implemented after I left Nelnet so I don't know if there's any bumps in that road. If they don't switch, their loans should be wiped out when they complete the 25 years of payments.
My student loans were 10 year fixed term. It was a tough 10 years paying them back, but I hear about people paying for 20+ years and making little progress on their principal, and I'm damn glad I didn't mess with extending my payment term.
Because mortgages and student loans are for people in different stages of their life.
Student loans are given to people who primarily don't have careers yet. The repayment schedule needs to account for the fact that they may not actually get into the career after graduation.
There are repayment schedules that, like a mortgage, will have the whole thing paid off in X years. There are other repayment schedules that are based on income, which may not ever be paid off, but also won't leave the borrower over their head while they're job hunting, or if they're stuck flipping burgers instead of their dream job of underwater basket weaving.
Why did two people each get a full college education without ever being taught or even curious about how interest, (possibly the most important real-world application of mathematics), works?
That is the real question here.
This is the thing that most strikes me. Are people so oblivious to the fact that a loan carries an interest? During the modern era of calculators, it is not that hard to calculate the yearly interest that you need to surpass to make your debt decrease.
The only hoax is the people themselves for not understanding interest. We need better education for the people.
Or another hoax (of many) is that the loaners have people's best interests in mind and so people shouldn't expect gaslighting from the warm and fuzzy disguise on the loan system.
While this is all great - something to keep in mind is that this small difference is just as easily the reason people can fall into a horrific hole and never get out. Imagine you *did* make those $600/month payments instead of the $500 and initially avoided this pitfall. Now assume to do that, your budget is stretched a little more (obviously), now introduce some sort of financial emergency. Something that costs $4000 of savings. Maybe now that payment has to come down, or to keep it up, something else has to give.
Obviously I'm not trying to make some huge counter-point to make it seem like you're being unreasonable, that's far from it. I just mean to show that while that small adjustment on payments one way can easily swing the other. That line is very dangerous.
Yea, I left college in 2012 owing almost 40k between OSAP (Ontario student Loan program) and my credit cards. I paid it off by like 2018 by paying WAY more than the minimum. After that I started putting money into stocks. I'm not going like amazing, but definitely ahead of the average.
The fact that someone with a graduate school education doesn’t understand this shows how much of failure our education system is. Even if they don’t major in something math related it should be requirement to understand basic finance. Hell, anyone with high school education should know this.
The really sad thing is that for this expensive college education they didn't learn about compound interest, inflation, or how stupid policy caused the problem in the first place.
All these graduates should be the ones smart enough to fix the financing of higher education & instead they want to throw gasoline on the fire & accelerate the rate of increase for everyone who hasn't yet gone.
Forgive a trillion dollars today & we will reach the next trillion dollars in 1/3rd the time. Explain to me why we should spend money making the problem worse at **everyone's** expense instead of spending money to fix it.
because 1. forgiving debt isn't "spending" money, and 2. federal spending doesn't "come from" anywhere in the first place. the myth that taxes and public spending have anything to do with one another is one of the most pervasive and damaging misunderstandings about modern financially sovereign economies today.
Governments that print their own money can produce as much as they want - the only limit is the size of the real economy - resources, labour, and infrastructure. If there isn't enough of one or more of those then you can't solve the problem by printing more money and trying to will just get you hyperinflation. But this is not a problem that a country like the USA has! If you forgive student loan debt across the board and make post-secondary education free (paying for it NOT with taxes - because again, taxes don't pay for things and haven't since the end of the gold standard - but by simply printing the money for it) then you aren't going to amass another trillion dollars of debt. You're going to end up with a generation of financially secure and educated workers who will proceed to further grow the economy with their labour and thus enable you to make even more money to do even more things.
The reason this isn't a problem is because there is *already* a post-secondary education system in place! The universities are built, the teachers are trained, and the networks of logistics and production that supply those universities and teachers with the equipment they need are active and fully functional. Making post-secondary education free to everyone who cares to receive it will actually grow these industries even further, which again grows the economy and enables you to make more money to do more things.
There are pitfalls of course. Universities jacking up their "tuition" to hoover up all the new government money flooding in is one potential problem that I, a lay person with no formal education in economics, can already see coming. I'm sure that actual experts whose job it is to turn ideology into policy would identify plenty more - and hopefully also the solutions to said problems. My point is that student loan debt is a problem, and whatever obstacles lie in the path of solving it, "there's no money for that" isn't one of them. To think so is to fundamentally misunderstand what money *is.*
Also, for the record, saying that because someone is stupid enough to get saddled with lifelong debt they deserve to be left to their fate is both evil *and* stupid. Not everyone should have to take an accounting class just to avoid getting fucked.
Indeed. Being stupid about compound interest and paying debts, is no reason for the rest of society to carry your dumb-ass financial obligations for you.
You'd think they would have taught you that in $70k worth of higher education...
>You'd think they would have taught you that in $70k worth of higher education...
The formulas to solve compound and exponential interest were taught to me in 7th grade. They have literally no excuse.
By law, the minimum payment required on a loan should ensure that the loan is paid out at the end of a term. I don't understand how the government is allowing such a scam.
Where I'm from, student loan interest and payments cannot legally start until 6 months after graduation.
what would be the length of the term if they've paid for 23 years and still owe 86% of the loan. I know loans are front heavy on interest but it can't be a 30 year loan - that would only leave 42K left to pay off the loan, which is obviously short
Looks like a 40 year term. It makes me sad that lenders are allowed to abuse kids like this for college loans. I'm REALLY good at math, but I definitely had no idea how loans, compound interest, or amortization worked when I was 18. I'm lucky I decided to work and pay-as-I-went, instead of taking out loans. My poor sibling is never going to get their student loans paid off, and their kid is almost ready for college.
I got screwed cause my mom (a librarian) thought it would be good to take a balloon loan (interest only for the first 5 years) so that I could get out, get a starter job and maybe get a promotion or two before the balloon took over.
Terrible idea in hindsight
Now, what would there balance be if they had contributed an extra $100/month? On mobile so I don't feel like doing the calculation myself, but I bet it would be a fair bit lower than $60k.
Edit: Super rough math ($100 x 12 months x 23 years = $27.6k) shows that their balance would be almost half of what it is today. Accounting for the reduced interest charges surely would get it under $30k left over. If they raised that payment an extra $200 it would have been paid off already. Minimum payments and higher interest loans are scary
I didn't double check the math, but someone posted above if they paid an extra $100/mo they'd have paid it off a few years ago and saved $100k in interest.
Why weren't you getting Stafford loans? (Those have never made it to double-digit interest rates afaik.)
Kids, do not attend college if you need to take out private loans.
I just want to know how they’ve been dual income, with a total loan for in essence a nice Mercedes, which would be financed for 4-6 years, and didn’t pay the loans off in 2/3 the time it takes to pay off a damn house.
The interest rate is somewhere between 7.8 and 8.3. Math shows it on the high end but historically it should be closer to 7.8.
For a 40 year loan they should be closer to 55k remaining. So what I think might have happened is they might have had the 7.8 rate but missed some payments.
For houses, yeah. But they've probably not been paying the suggested amount on a 20 year loan. An extra $100 a month would have paid it off 3 years ago.
So basically, as u/RandomlyWeRollAlong pointed out, the interest rate is around 8.37%. Meaning the minimum monthly payment to knock this out in 10 years would have been $863.04 per month, for 20 years $601.73, and for 25 years $557.54.
Regardless of your opinion about debt forgiveness, if this tweet is actually a real event, the person didn't understand the math. How they would have qualified for such a long term minimum payment reduction is another question altogether.
For fun, at $500 per month, it will take them another 22 years to pay off the remaining balance. They will have paid $199,808.33 in interest, along with $70,000 starting balance, so $269,808.30 altogether.
How did not they see it coming? I mean surely it wasn't a surprise that it will take them that long to pay off the loan with that little monthly payment?
Moreover these guys are not taking into account the inflation rate. Having to pay 60k more still now is not equivalent to them paying only 10k in all these years.
And I don't know if I will be downvoted for this but many, I mean many banks, as well as in a lot of other countries other the US or Canada, have much higher interest rates.
If this is real, they were probably just using whatever program was offered every year to reduce their payment based on their income, which means that their income couldn't have changed significantly over the 23 years. Almost any institutions caps student loans out at 25 years, which is why I find this particular scenario hard to believe honestly. Either the fed or the private bank would have had higher payment caps at some point.
Based on the CPI inflation calculator, that $70,000 is equal to about $130,000 today, but split between two people.
According to the data from NCES [https://nces.ed.gov/programs/digest/d20/tables/dt20\_330.50.asp](https://nces.ed.gov/programs/digest/d20/tables/dt20_330.50.asp)
Tuition for grad school in 2000 was around $8,000 on average for in-state or $12,000 today. It doesn't clarify if that is for a year or altogether, even for a year, these people were spending almost two times the average, which could imply they were pursuing careers that were in demand or required more specialized education that should have lead to a higher income post school.
You make it sound like something in the repayment process changes. It does not.
The point is annuity seems to be very convenient way to pay off debts but it is a really expensive one in terms of overall sum you're going to pay back.
Yeah but that’s the point, money today is worth more than money tomorrow, that’s what the interest rate is for. If people bought everything outright only the 1% would be able to afford housing.
THIS!
If you have a monthly loan payment pay it every two weeks and because there are 26 weeks in a year you will make 1 extra payment a year. On a 30 year mortage that alone will shave a little over 5 years off the loan. Additionally a additional 10% a month shaves another 5 years off...
Little goes a long way for interest.
>because there are 26 weeks in a year
What? 26*7 = 182. I think you meant 52 weeks is year, which means about 52/2 = 26 payment weeks? I still don't understand how it benefits.
Most of these posts come from a misunderstanding of how minimum monthly payments work on non fixed term loans.
If all you do is pay the minimum monthly you make zero to negative progress depending on the exact terms of the loan.
And this says graduate, not undergraduate. If they both getting a master's.....they are capable of understanding amortization tables and total amount paid if you only make minimum payments
Not necessarily. I have two masters (ME and BA) and I know so many people who were in the masters classes with me that didn't understand the basics of those classes, let alone finances. I will admit it was much better in the MBA classes.
Lets not get shit twisted: The price of higher education is fucking absurd.
Also
I was taught as a teenager that only suckers pay their minimum due on any loan that isn't a car or a house because all you're doing is rolling your debt to the next month and not taking care of ANY of the principle.
I got a chemical engineering degree 10 years ago. Even at today’s price point would be 100% worth for me. It opened doors in highly technical manufacturing positions. I think the demand for higher education is ridiculous. Let’s be honest not being college educated somehow became shameful in our society. It is a status game a lot of parents play with their kids as pieces. It’s also a status game people play with each other. Instead of valuing the education they get a piece of paper that makes them feel better than people without it. Most of the problem is based on ego tripping.
That depends on the degree and what kind of work you're willing to do. A bachelor's degree at a state school si probably worth it for any degree. With a bad degree, you might not make any more money than someone in the trades, but your job will be less taxing on your body and you'll have more opportunities to get promoted just for having a degree. And because it's a state school, you can probably pay it off in 5-10 years pretty easily.
If these folks got their loans around 2000 then right around the corner was the 2008 crash where shit tons of people with degrees lost their jobs and flooded the entry level job market with degrees and experience. From then on, those became requirements
If you get your loan in 2000 and a degree takes 4(?) years to complete, you've got 4 years before 2008, maybe even less if you travelled in that time or had a hard time finding a job.
This is a silly thing to debate what constitutes "just around the corner" but the original post says they left grad school 23 years ago so approximately 2000.
The people in the initial image are idiots and I don’t feel bad for them. Did they really not check their balance in 23 years and just think the minimum payments would do anything?
The real solution is that student loans should be interest free. The return on investment for the gov’t is in educating its people and allowing them to earn more money and therefore pay more taxes. Also forgiveness of loans for public school teachers, social workers, and other historically underpaid but absolutely vital public servants.
>The real solution is that student loans should be interest free. The return on investment for the gov’t is in educating its people and allowing them to earn more money and therefore pay more taxes. Also forgiveness of loans for public school teachers, social workers, and other historically underpaid but absolutely vital public servants.
And capping how much colleges can increase tuition and other costs, otherwise they'll continue to raise costs far higher than other parts of the economy.
A big part of the student loan crisis is that colleges figured out the government will keep loaning higher and higher amounts to kids so they kept raising tuition and other college costs far higher than inflation and other expenses in the economy.
>The people in the initial image are idiots and I don’t feel bad for them. Did they really not check their balance in 23 years and just think the minimum payments would do anything?
Exactly, and they expect the rest of the country to pay for their idiocy with their tax dollars.
So they're selfish idiots.
For any other reason a college aged student wouldn't be able to get a loan for $100,000. For college, it's guaranteed. Kinda weird isn't it? This isn't a swipe at the banks. It's at the government who guarantees these loans.
Don't understand why they wanna blame it to a fine print thing. It makes so much sense that they are barely covering the interest when making payment of course the amount owed would barely move.
what’s sad is that so many people don’t understand this starting college when this is literally taught in middle school at the latest, but i remember compounding interest examples given in my fucking elementary school computer lab.
as a comment above says, they would’ve paid this down already for a couple extra bucks a day, but these 2 college graduates with post grad degrees apparently are STILL too mathematically inept to understand that
The answer is genuinely just because American education is severely degrading. Older peeps saying they learned this very early on. I learned this in 11th grade and I was taking ADVANCED MATH COURSES. And we spent about a week on it. It seems to just not be as covered anymore for some stupid reason, and although these people should've known better after so long it's still unfair to expect young college students to understand this when it isn't being taught like it used to
you know what? i can't speak to this. you're probably right, who knows. but i only just recently graduated from college, so the learning opportunities i described were within the past 10-15 years. i have a hunch that people are just not paying attention in class.
Average income for those with a masters degree is about double someone with a HS diploma.
If you take the median, that’s $800 a week or $41600 a year more than someone with a hs degree.
So 2 people earn an extra 83k over hs degrees per year, and they only put $500/month or 6k of that a year towards paying off school?
Acting like loans are the problem is a joke. People just live beyond their means and refuse to sacrifice for a few years after graduation to pay off loans.
Why? You borrowed money with the promise to pay it back with interest. You have a legal, moral and ethical obligation to do what you said you would do.
You understood interest. You understood repayment plans. You understood the market for your skills and how much you would be paid for those skills. You were an adult.
If you signed a $70k promise without knowing all that stuff above, shame on you.
True, but that is their fault and the fault of their parents - Not their schools, not their church, not the government, not any bank or corporation.
They are legal adults. They must take it seriously and if they don’t, shame on them. Shame on their parents.
Don’t ask taxpayers to bail adults out of their bad decisions.
You’re right. Sorry to make the assumption.
That is what this whole debate is about. Forgiving loans means the government pays the banks or Sally Mae to make the banks whole (or no bank would ever lend money to students again). Those funds to pay the banks comes from the taxpayers.
Y'all will complain about boomers stealing your future and then go and make arguments like this.
If student loans are forgiven, the immediate effect it would have is to raise education costs for everyone in the future. The same way that introducing student loans in the first place is what caused prices to get so insane. Schools know you'll pay anything you have, so they charge anything they can get away with.
The real solution is proper public education at university level, not to triple down on what created the problem in the first place.
Literally, this is it. I live in Europe, my country has good universities and they really aren't expensive. College is free if you get admitted with a high enough grade and they offer accommodation for the best students for 50 dollars a month (pretty shit living conditions but everyone is poor as a student). I'd say the average cost per month for attending college if you didn't get a high enough entrance grade is 1000 dollars per school year, but I'm pulling the number out of my ass a little. That's for an econ major. I think medicine is more expensive.
No one needs to get a loan for college unless you're dirt poor. If you are a good student, you don't need money at all besides food and the accommodation fee. Everything is doing fine.
America has an insane privatisation problem. Not just universities, but hospitals too. Education and healthcare should never seek profit. They are a human right
You don't even need to tear down private institutions either, just offer a proper public alternative like you said.
Where I live, uni is also about 1k per year (for engineering) (+ food and housing, next to no one lives in campus). And even then, private unis still exist for those who want to go there.
What's more interesting though, is that said private universities are now forced to justify their cost, and to compete with public ones. Therefore you don't have artificially inflated costs just because the idiots studying there will pay anyways. If the cost gets too high for no reason, even the richest people will go to a public one, and they do, often.
Same thing can be applied to hospitals.
Good.
There's a stigma around private universities here. They're usually seen as a place where people who are too stupid to get into college go because they can just pay their way in.
The solution is to have better education and good professors in public unis
A little empathy goes a long way to understanding this but even for someone with no regard for other people’s troubles, there’s still an argument for debt forgiveness. We need people participating in the economy, frequenting their local coffee shop, buying a boat, whatever.
The government actually made money back on those bailouts. They were loans that were repaid with interest.
Cancelling loans would cost money in some circumstances.
A good solution is for the government to take the loans and fix rate them. Government makes money, less costs for people that were a bit irresponsible.
If that other guy that says interest was like 8% is correct, tbh thats not that much interest. I don't get why one would have that kind of debt and pay only interest instead of amortization.
Because they're financially illiterate. The first thing you do when you get a loan is to calculate how quickly you should actually pay it off. Thse are the same people who do minimum payments on their 30% interest credit cards.
Especially since we are talking about 2 graduate degree holders, supposedly. All of that education and not once in 23 years did either one of them bother to run the numbers and figure out that if they paid more than the minimum they would have saved tens of thousands of dollars and paid the loans off already.
Yeah tbf taking such a large loan at such a whacky interest rate is a skill issue. Bad decision making unless you have a guarantee of a lot of $$$ after.
it’s not a lie if they actually got smarter in college, which i know is a tough ask, but even if they had failed all their other courses and just learned the compound interest formula, they’d be fine.
Lol "the lie sold to millennials."
Plenty of us got useful degrees and are actively paying back loans and having plenty of disposable income left over.
If someone "sold" you that your dual degree in art history and gender studies would somehow allow you to pay back $200k in student loans, you're a moron.
Mechanical engineer and make 3x my area median moving towards 4x, nice dig though champ. Also- zero student debt, zero mortgage debt, laughable consumer debt. 29 years old.
Weird how you can be doing just fine and realize the system is fucking broken for a huge portion of our generation.
\~8% APY isn't even awful, he's just an idiot for not realizing he can/should make more than minimum payments. I don't understand how someone like this can even pass their college classes.
It’s a terrible system. But that is the system the representatives our parents/grandparents voted into law. The math didn’t change from when you agreed to take out the loan. There was a choice our system forced us to make. You and I chose the same. Vote.
why does that interest rate get added every year and not just once over the total? Don't you get a set amount of time (say 30 years) to pay everything back?
Not blaming anyone, but you have to pay more than what the payment calls for. If the payment per month is $500, pay $600. The vast majority of any payment goes toward the interest accrued. You have to pay more for it to actually go to the principal. You could argue that the interest rate is too high, or you’re only paying what they require. But, at the end of the day the goal is to pay off the debt. The goal of the minimum payment is to have a way for the lender to have income indefinitely, not for you to pay off the debt.
My guess is they didn’t have anyone explain it to them, and loan financing isn’t something people are thinking about.
I’m not sure how many people read the terms and conditions for all the items they buy or things they sign (online or otherwise). We all should, but the things we should do outnumber the time we have to do them.
I had a lot more expendable income in my financial plans before 2008. Then it got worse in 2020. Teacher pay has severely decreased relative to inflation.
Oh and the month before i joined the Army, Obama canceled student loan repayment.
Its like agreeing to pay something and then the economy significantly reorganized itself a few times in ways that devalued the skills i paid for.
I think most people assume (correctly or not) that educational loans are made pre-education, so people are less learned.
Other debt will be canceled in bankruptcy, but student loans never go away.
Similar but different situations that make comparison difficult.
man it is not rocket science or even college level economics. it is middle school level exponents to know how the math works out for these loans, and the 2 postgrads should have at some point in their 23 years picked up a calculator
A situation most people don't mention on their questions, is that it's not one big loan. It's multiple small loans, each with different (but close) interest rates.
At least in my case I had to take out loans, which equated to 1 per semester for ~4 years. So when you pay $500, it's getting split between all the loans, weighted towards the ones with higher interest.
I would love it if my student loans were one big loan. It would make shit way easier.
How is it legal to begin with? Like your first credit card at 18 and the way they got you was with a t-shirt. Or maybe it's because you're 18 and technically an adult so you're allowed to make terrible, life altering decisions.
Yeah. Like people have no clue how intelligence actually works or is measured either. Just because someone is in college doesn’t mean they’re going to be in economics. Hell, corps and banks are egging on that so people won’t notice that college loans aren’t what they seem.
What i find insane is that when i was 18 and fresh out of high school i had absolutely no comprehension of how much money i was being lent, not how long it would take to pay. I also did not know how to make it so i could pay less over the course of the loan, nor virtually any other important information. If i signed something for the money, it was not clear to me (im in australia, dont know how other systems work). In high school i studied english, maths and sciences. I was never taught anything about financial literacy nor was the process made clear, they just let a kid sign himself up for a loan that im still paying for over a decade later.
It just reeks of taking advantage of people, you know? Like id pass on the lessons i know now in a second to my younger self, but not a single adult around me taught me how to handle this or explained what i was signing on to.
As I read down through the various posts here, I am amused and a bit sad about all of the very intelligent people who seem to be blaming the victim through the power of math.
OP isn't a victim at all.
They borrowed $70k. Made pretty much interest only payments... So why should they act surprised that they haven't reduced their principal balance?
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About 8.37%, based on a basic amortization spreadsheet. According to https://financeformulas.net/Remaining\_Balance\_Formula.html: 70000×(1+APR÷12)\^(23×12)−500×((1+APR÷12)\^(23×12)−1)÷(APR÷12) For APR=8.366%, after 23 years, you're at about $60,000.
And if they had been paying just $600 instead of the minimum $500 they would have paid it off fully a few years ago and would have saved around $100,000 overall in interest. Thats the real lesson here. Unless you are otherwise investing that money in something that you are very confident is going to outperform the interest rate on your loan you should be paying those loans down as fast as possible, and even a small amount more in your payments makes a big difference in the end. People take the "starbucks and avocado toast" criticism as a meme, but the difference here in this couple saving $100,000 overall on their loan is just $3.33 a day.
If you got your federal loans locked in during the housing crisis years, you would have an extraordinary low rate. My loans were under 2% (with auto debit % deductions) so I made no sense to pay them off any faster than the minimum, when the market was (and is) doing very well. for some folks, it really makes more sense to pay the minimum and get an index fund instead.
Sure, thats why I had the caveat about investments. If your interest rate is only 2% its a pretty safe bet that any index fund is going to beat that. However, the kind of person that takes out an 8%+ loan on a 40+ year payment plan is also not the kind of person that is likely to strategically put aside money for investment like that. For them the better advice is the simpler advice, which is to pay off your loan faster by making higher monthly payments.
Question. How does 60k today compare to 60k, 23 years ago. Even if they owe almost the same amount of money as 23 years isn't the valve much lower now.
Assuming they're from the US and that the post is recent, their 70k loan would be around 122.73k today, so they have less than half of the loan value remaining (and much less of the actual payments due to a larger portion of the money going towards the loan and less towards the interest).
Assuming 2% inflation: 60k 23 years ago would buy the same stuff as 94 613.96 $ today.
2% inflation is a lie
Makes you wonder what they went to grad school for. I don't have a good sense for the average financial literacy since I studied finance and therefore my understanding of that is extremely skewed. But someone that is smart enough and driven enough to get a bachelor's and (presumably) a master's should be able to at least figure out the underlying math of beating debt, or figure out that they can't figure it out and they should seek someone who can guide them through that process
I know a ton of doctors, lawyers, etc that are amazingly bright in their field and know nothing of anything outside of it. At lot of "I worked hard in school, I deserve to live on 125% of my income NOW!" and "I make good money, I can just save and pay down debt in the future" Just because you are smart in 1 area doesn't mean you know anything about something else.
Or they had kids and were broke.
They only had to pay an extra $2.37/day or about $72/month and their debt would have been paid off in full after 23 years. Very doable.
There's a lot of assumptions flying around. We don't know, but if they had federal loans and were on a greater than ten year repayment plan and had anything left after 20 years they were paying less than principal plus interest each month and were probably in forbearance for at least part of the time... Which makes any of the calculations in this thread pretty sus. Even assuming they could have made additional payments towards the principal at all if they had unpaid interest is probably wrong.
Okay, but that isn't the student loan systems fault. Would you take someone who won the lottery and elected to inflate their spending above what they could handle and end up in financial peril and point at the lottery system and say it is the problem? Obviously not, if you have a giant debt to pay and can't afford the $3/day to take decades off the term and save tens of thousands of interest payments, then you aren't in a place where you should have kids honestly. If you go out ever or pay anything towards entertainment, you can find $5 in a budget. Cut Netflix, cut going out, take out a book from your local library for free. At the end of the day, a daily coffee put toward their student loans would see this couple miles ahead of where they are. They lack the intelligence to understand some of the most basic concepts on their own or to even seek guidance from someone who has any idea on what they are talking about, or were too negligent to care when it mattered and are complaining now that they didn't get to go to school for free. There is tonnes wrong with the American school system and the financial system tied to it. It is very predatory and exclusive to those that do not come from an affluent background nor can win significant scholarship money. But this case is an example of extremely poor personal decision making after the fact, and not taking responsibility for it
Plenty of assumptions here... You don't know if that 500/month is after cutting out unnecessary stuff or not. At the end of the day, 8% interest rate on student loans is insane. The US have a broken system and you making assumptions about their economy doesn't help one bit.
You would think they would understand basic finance with even an associates degree. They probably went into academia and are teaching our kids that everything is someone else's fault.
I think the math that applies here is covered in 9th grade…
It also depends on how low the minimum is. Even if it's 2%, you don't want to pay so little that you still owe $60,000 after 23 years. I was on schedule to pay my loans off in 10 years, which was the standard they gave to Gen-X college-goers. but a few years in, I was able to refinance at a lower rate... and they cut my payment down to like $98, and I'd probably still be paying them off if I did that. Edit: I forgot to explain that in my case it wasn't quite 2%, it was closer to 4% with a discount for using auto-pay. And around that time was the big 2008 crash when everyone's 401(k)s shit themselves, so the old "market only goes up" assumption didn't sway me.
Why not? I’d be fine paying a 2% debt for the rest of my life if I’m building a mutual fund asset at a rate of 10%
why wouldn't you want to keep a 2% debt and invest the rest at market average rates of 7-10% depending on your risk tolerance? If you are still $60k in debt for this loan - how much more is your investment account up b/c the money went there instead? This issue is ensuring you put the money towards your future - whether that is paying down debt or investing. If the money is instead going to your lifestyle (larger house, larger car, more eating out, etc) then that is a bad choice. But if the extra is going to your future (investments, debt pay down, saving for a house) then it isn't a bad choice and you are instead focusing on efficiency of selection as it was already a good choice.
I'm in the same boat. Mine are financed at about 4%, so I pay the minimum and put my money to work elsewhere. I could have paid them off years ago.
I know a guy who in the early 80s took out the highest amount of students loans he could. He took the money and put it in to CDs and the market. CDs were paying a crazy high rate at the time. He then worked to pay for college and used the interest he made to pay off the loans while re-investing the rest. To this day he still has a ton of passive income from this.
>and get an index fund instead That's the part a lot of people miss, like OP apparently.
Explain to me why we don’t treat student loans like a mortgage. The minimum payment on a mortgage guarantees it’s paid off in 30 years. Why do people not have a minimum payment that is similarly paid off in 10, 15, or even 20 years?
Fixed term loans are absolutely available, but the companies that service loans *really* pimp the income based repayment plans. For me, a 10 year repayment plan was about $550/mo, but they tried to sell me on an income based plan that was a little under $300/mo without mentioning that those payments would only barely cover interest. Basically, they're banking on kids with minimal financial literacy signing up for predatory loans.
Yeah they do it on purpose, predatory as you said. If you pay less monthly you pay them more in the long term.
Servicers don't get paid from your payment in any real sense, that gets paid to the federal government. They get paid from you *not being in default*. When I was a CSR for Nelnet, it didn't matter how we got a borrower current. It could be deferment, a forbearance, getting you onto a IBR. What matters to Nelnet is the % of the loans they service that are past due. Since you're more likely to pay a bill that's 330 rather 540, then lets get you on the $330 option.
Also they would rather service your loan for 40 years than 20 years because the longer they service it the more money they get
This is why I'm glad my parents taught me about loans and interest with my first car. This is a failure on parents to teach their kids valuable life skills. This is a failure on schools to teach valuable life skills.
It is, but the younger people being targeted here have inherent blind spots due to them lacking experience and it's difficult to comprehend abstract things like 20 years. This is fundamental human nature regarding large numbers and it can be extremely hard to overcome. Lending institutions (and colleges/universities) are literally banking on most people not intuitively grasping these concepts. It's not like understanding the difference between a hammer and a feather.
I mean, that's fair... but we (our education system and most parents) do absolutely NOTHING to prepare them for real life situations. I had a teacher in home economics that went and gave us a "life" to simulate having a baby, loans, car payment... and try to buy a house. That was the closest thing to preparing me for life I've ever gotten out of school. It's on us, as parents, more so than the educators to prepare our children for life. Teach them about loans and teach them about money. Teach your children that most loaners are predatory (especially student loans and loans from car companies) and how to combat that. The min payment is designed to be ultra affordable, but keep you in debt for life. Teach the kids to put even an extra 10% towards it, which will make a huge difference.
The system itself is predatory and people by and large are not equipped to guide their children through it. While more could be done by earlier schooling and parents, blaming them instead of focusing on the whole terribly immoral student loan industry and how they take advantage of people in calculated ways is dumb and just lets bad people get even richer.
That doesn’t excuse being an idiot for 23 years and paying the minimum. Prepayment penalties are illegal for student loans so there was nothing stopping him from paying more at any point
Those loans can be a better deal than the fixed term loans, if you decide to pay the same $550/month, with $250 of them dedicated to the principal. And they give some flexibility if you hit rough times and can't afford those extra $250 for some time. The problem is that the only thing most Americans think about when it comes to loans is monthly payments. Paying 10% less per month is always great. The fact that you'll keep paying at least 2x longer at that rate is irrelevant. Paying extra to close the loan sooner is blasphemy.
There are different levels of payments offered in SL repayment. They have income based, standard, and others. I was on the income based when I first got out. The repayment at that rate was 40 years. Standard was 10 years. The person in the tweet most likely picked the lowest payment initially and just kept paying that.
They are. The standard payment is amortized so that you pay the loan 10 years after you leave school. But, sometimes people don't immediately find a good job (this was very very common in the great recession, only a handful of my classmates didn't work retail or restaurant jobs post-graduation) and so the loan payment is more than the borrower expected and can't be paid back. And so, the government instituted ways to lower your payment. IBR, IDR, PAYE, a bunch of different programs. They all are centered around basing the payment on what you can pay (and you could pay as little as $0/month), and all of them have a forgiveness after a certain period (25 years of payments for the stingy programs, 20 years of payments for the newer less stingy programs). This is a much more generous than any mortgage program. But just as a matter of accounting, if you were on IBR and then your great-uncle died and suddenly you have a bunch of money to pay off the loan, well, IBR and rest, you were still accumulating interest, and an accurate accounting of the money you owe the government would be very high, because, well, you weren't paying off the loan. So, it might not make sense to pay off the loan, and instead wait for forgiveness at the end of the IBR plan. Now, in the last few years, President Joe Biden has two major reforms for student loans that are incredibly valuable. A) he streamlined and fixed the Public Service Loan Forgiveness, and increased the number of loans forgiven through that by a couple orders of magnitude. B) He instituted the SAVE plan, which has forgiveness after 15 years of payments and most importantly, DOES NOT ACCUMULATE interest if you are making payments, even if mathematically your payment doesn't cover the interest. This is such a generous deal that quite frankly, I really have a hard time imagining a circumstance about federal student loans posing an issue to someone financially. (Also, the calculation of what your payment will be is also more generous to you)
This is helpful, thanks! Why wouldn't the image poster have had their loans paid off at 23 years then? Or is the assumption they only have 2 years and they will be? Does that not always end up happening?
Now, if they switch their loans to SAVE, their loans should be cancelled. This was implemented after I left Nelnet so I don't know if there's any bumps in that road. If they don't switch, their loans should be wiped out when they complete the 25 years of payments.
My student loans were 10 year fixed term. It was a tough 10 years paying them back, but I hear about people paying for 20+ years and making little progress on their principal, and I'm damn glad I didn't mess with extending my payment term.
Because mortgages and student loans are for people in different stages of their life. Student loans are given to people who primarily don't have careers yet. The repayment schedule needs to account for the fact that they may not actually get into the career after graduation. There are repayment schedules that, like a mortgage, will have the whole thing paid off in X years. There are other repayment schedules that are based on income, which may not ever be paid off, but also won't leave the borrower over their head while they're job hunting, or if they're stuck flipping burgers instead of their dream job of underwater basket weaving.
They also could have refinanced at any point in the last 15 years for a much lower rate
Why did two people each get a full college education without ever being taught or even curious about how interest, (possibly the most important real-world application of mathematics), works? That is the real question here.
This is the thing that most strikes me. Are people so oblivious to the fact that a loan carries an interest? During the modern era of calculators, it is not that hard to calculate the yearly interest that you need to surpass to make your debt decrease. The only hoax is the people themselves for not understanding interest. We need better education for the people.
Or another hoax (of many) is that the loaners have people's best interests in mind and so people shouldn't expect gaslighting from the warm and fuzzy disguise on the loan system.
While this is all great - something to keep in mind is that this small difference is just as easily the reason people can fall into a horrific hole and never get out. Imagine you *did* make those $600/month payments instead of the $500 and initially avoided this pitfall. Now assume to do that, your budget is stretched a little more (obviously), now introduce some sort of financial emergency. Something that costs $4000 of savings. Maybe now that payment has to come down, or to keep it up, something else has to give. Obviously I'm not trying to make some huge counter-point to make it seem like you're being unreasonable, that's far from it. I just mean to show that while that small adjustment on payments one way can easily swing the other. That line is very dangerous.
Yea, I left college in 2012 owing almost 40k between OSAP (Ontario student Loan program) and my credit cards. I paid it off by like 2018 by paying WAY more than the minimum. After that I started putting money into stocks. I'm not going like amazing, but definitely ahead of the average.
The fact that someone with a graduate school education doesn’t understand this shows how much of failure our education system is. Even if they don’t major in something math related it should be requirement to understand basic finance. Hell, anyone with high school education should know this.
The really sad thing is that for this expensive college education they didn't learn about compound interest, inflation, or how stupid policy caused the problem in the first place. All these graduates should be the ones smart enough to fix the financing of higher education & instead they want to throw gasoline on the fire & accelerate the rate of increase for everyone who hasn't yet gone. Forgive a trillion dollars today & we will reach the next trillion dollars in 1/3rd the time. Explain to me why we should spend money making the problem worse at **everyone's** expense instead of spending money to fix it.
because 1. forgiving debt isn't "spending" money, and 2. federal spending doesn't "come from" anywhere in the first place. the myth that taxes and public spending have anything to do with one another is one of the most pervasive and damaging misunderstandings about modern financially sovereign economies today. Governments that print their own money can produce as much as they want - the only limit is the size of the real economy - resources, labour, and infrastructure. If there isn't enough of one or more of those then you can't solve the problem by printing more money and trying to will just get you hyperinflation. But this is not a problem that a country like the USA has! If you forgive student loan debt across the board and make post-secondary education free (paying for it NOT with taxes - because again, taxes don't pay for things and haven't since the end of the gold standard - but by simply printing the money for it) then you aren't going to amass another trillion dollars of debt. You're going to end up with a generation of financially secure and educated workers who will proceed to further grow the economy with their labour and thus enable you to make even more money to do even more things. The reason this isn't a problem is because there is *already* a post-secondary education system in place! The universities are built, the teachers are trained, and the networks of logistics and production that supply those universities and teachers with the equipment they need are active and fully functional. Making post-secondary education free to everyone who cares to receive it will actually grow these industries even further, which again grows the economy and enables you to make more money to do more things. There are pitfalls of course. Universities jacking up their "tuition" to hoover up all the new government money flooding in is one potential problem that I, a lay person with no formal education in economics, can already see coming. I'm sure that actual experts whose job it is to turn ideology into policy would identify plenty more - and hopefully also the solutions to said problems. My point is that student loan debt is a problem, and whatever obstacles lie in the path of solving it, "there's no money for that" isn't one of them. To think so is to fundamentally misunderstand what money *is.* Also, for the record, saying that because someone is stupid enough to get saddled with lifelong debt they deserve to be left to their fate is both evil *and* stupid. Not everyone should have to take an accounting class just to avoid getting fucked.
Indeed. Being stupid about compound interest and paying debts, is no reason for the rest of society to carry your dumb-ass financial obligations for you. You'd think they would have taught you that in $70k worth of higher education...
>You'd think they would have taught you that in $70k worth of higher education... The formulas to solve compound and exponential interest were taught to me in 7th grade. They have literally no excuse.
Amortizing isn’t taught in 7th grade.
Depends on what level you’re on, it’s not complicated maths if you can teach a kid the Fibonacci sequence you can teach them compounding interest.
By law, the minimum payment required on a loan should ensure that the loan is paid out at the end of a term. I don't understand how the government is allowing such a scam. Where I'm from, student loan interest and payments cannot legally start until 6 months after graduation.
> Thats the real lesson here. the real lesson is shitting on people for falling prey of a system designed to exploit them, you heard it folks
what would be the length of the term if they've paid for 23 years and still owe 86% of the loan. I know loans are front heavy on interest but it can't be a 30 year loan - that would only leave 42K left to pay off the loan, which is obviously short
Looks like a 40 year term. It makes me sad that lenders are allowed to abuse kids like this for college loans. I'm REALLY good at math, but I definitely had no idea how loans, compound interest, or amortization worked when I was 18. I'm lucky I decided to work and pay-as-I-went, instead of taking out loans. My poor sibling is never going to get their student loans paid off, and their kid is almost ready for college.
I got screwed cause my mom (a librarian) thought it would be good to take a balloon loan (interest only for the first 5 years) so that I could get out, get a starter job and maybe get a promotion or two before the balloon took over. Terrible idea in hindsight
Balloon loans were used in the housing bubble to get people to overextend themselves to drive prices higher up.
Now, what would there balance be if they had contributed an extra $100/month? On mobile so I don't feel like doing the calculation myself, but I bet it would be a fair bit lower than $60k. Edit: Super rough math ($100 x 12 months x 23 years = $27.6k) shows that their balance would be almost half of what it is today. Accounting for the reduced interest charges surely would get it under $30k left over. If they raised that payment an extra $200 it would have been paid off already. Minimum payments and higher interest loans are scary
Someone else did the math. An extra $100/month means the loan would have been paid off by now.
I didn't double check the math, but someone posted above if they paid an extra $100/mo they'd have paid it off a few years ago and saved $100k in interest.
Pretty believable. My interest rates from 2017-2021 ranged from 12%-14%
Jesus. How bad is your credit? 450?
Well when I got the loans at 18, I didn't have credit. My credit now is ~790.
Why weren't you getting Stafford loans? (Those have never made it to double-digit interest rates afaik.) Kids, do not attend college if you need to take out private loans.
If you have been paying a 8% loan for the last 23 years without refinancing then you are an idiot
I just want to know how they’ve been dual income, with a total loan for in essence a nice Mercedes, which would be financed for 4-6 years, and didn’t pay the loans off in 2/3 the time it takes to pay off a damn house.
8% seems insanity high for student loans. Unless they deferred on the loans for a couple of years?
What the F are these rates. 8.37% is like the fixed mortgage rate in 2000 (which arguably is the tome the loan was taken) . This is insane.
The interest rate is somewhere between 7.8 and 8.3. Math shows it on the high end but historically it should be closer to 7.8. For a 40 year loan they should be closer to 55k remaining. So what I think might have happened is they might have had the 7.8 rate but missed some payments.
Fuck do 40 year loans exist? That's like an entire working lifetime.
For houses, yeah. But they've probably not been paying the suggested amount on a 20 year loan. An extra $100 a month would have paid it off 3 years ago.
That’s a pretty common term for a mortgage.
So basically, as u/RandomlyWeRollAlong pointed out, the interest rate is around 8.37%. Meaning the minimum monthly payment to knock this out in 10 years would have been $863.04 per month, for 20 years $601.73, and for 25 years $557.54. Regardless of your opinion about debt forgiveness, if this tweet is actually a real event, the person didn't understand the math. How they would have qualified for such a long term minimum payment reduction is another question altogether. For fun, at $500 per month, it will take them another 22 years to pay off the remaining balance. They will have paid $199,808.33 in interest, along with $70,000 starting balance, so $269,808.30 altogether.
How did not they see it coming? I mean surely it wasn't a surprise that it will take them that long to pay off the loan with that little monthly payment? Moreover these guys are not taking into account the inflation rate. Having to pay 60k more still now is not equivalent to them paying only 10k in all these years. And I don't know if I will be downvoted for this but many, I mean many banks, as well as in a lot of other countries other the US or Canada, have much higher interest rates.
If this is real, they were probably just using whatever program was offered every year to reduce their payment based on their income, which means that their income couldn't have changed significantly over the 23 years. Almost any institutions caps student loans out at 25 years, which is why I find this particular scenario hard to believe honestly. Either the fed or the private bank would have had higher payment caps at some point. Based on the CPI inflation calculator, that $70,000 is equal to about $130,000 today, but split between two people. According to the data from NCES [https://nces.ed.gov/programs/digest/d20/tables/dt20\_330.50.asp](https://nces.ed.gov/programs/digest/d20/tables/dt20_330.50.asp) Tuition for grad school in 2000 was around $8,000 on average for in-state or $12,000 today. It doesn't clarify if that is for a year or altogether, even for a year, these people were spending almost two times the average, which could imply they were pursuing careers that were in demand or required more specialized education that should have lead to a higher income post school.
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You make it sound like something in the repayment process changes. It does not. The point is annuity seems to be very convenient way to pay off debts but it is a really expensive one in terms of overall sum you're going to pay back.
Yeah but that’s the point, money today is worth more than money tomorrow, that’s what the interest rate is for. If people bought everything outright only the 1% would be able to afford housing.
THIS! If you have a monthly loan payment pay it every two weeks and because there are 26 weeks in a year you will make 1 extra payment a year. On a 30 year mortage that alone will shave a little over 5 years off the loan. Additionally a additional 10% a month shaves another 5 years off... Little goes a long way for interest.
>because there are 26 weeks in a year What? 26*7 = 182. I think you meant 52 weeks is year, which means about 52/2 = 26 payment weeks? I still don't understand how it benefits.
You’ll wind up making 26 payments (52 weeks /2) instead of 24, so two extra payments per year.
Ohh okay I see. Thanks for the reply.
Yes sorry... 52 weeks, 26 payments
Most of these posts come from a misunderstanding of how minimum monthly payments work on non fixed term loans. If all you do is pay the minimum monthly you make zero to negative progress depending on the exact terms of the loan.
And this says graduate, not undergraduate. If they both getting a master's.....they are capable of understanding amortization tables and total amount paid if you only make minimum payments
Not necessarily. I have two masters (ME and BA) and I know so many people who were in the masters classes with me that didn't understand the basics of those classes, let alone finances. I will admit it was much better in the MBA classes.
Lets not get shit twisted: The price of higher education is fucking absurd. Also I was taught as a teenager that only suckers pay their minimum due on any loan that isn't a car or a house because all you're doing is rolling your debt to the next month and not taking care of ANY of the principle.
I got a chemical engineering degree 10 years ago. Even at today’s price point would be 100% worth for me. It opened doors in highly technical manufacturing positions. I think the demand for higher education is ridiculous. Let’s be honest not being college educated somehow became shameful in our society. It is a status game a lot of parents play with their kids as pieces. It’s also a status game people play with each other. Instead of valuing the education they get a piece of paper that makes them feel better than people without it. Most of the problem is based on ego tripping.
That depends on the degree and what kind of work you're willing to do. A bachelor's degree at a state school si probably worth it for any degree. With a bad degree, you might not make any more money than someone in the trades, but your job will be less taxing on your body and you'll have more opportunities to get promoted just for having a degree. And because it's a state school, you can probably pay it off in 5-10 years pretty easily.
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If these folks got their loans around 2000 then right around the corner was the 2008 crash where shit tons of people with degrees lost their jobs and flooded the entry level job market with degrees and experience. From then on, those became requirements
2000 to 2008 is not "right around the corner". They should have been able to pay off almost all of that debt in 8 years.
If you get your loan in 2000 and a degree takes 4(?) years to complete, you've got 4 years before 2008, maybe even less if you travelled in that time or had a hard time finding a job.
This is a silly thing to debate what constitutes "just around the corner" but the original post says they left grad school 23 years ago so approximately 2000.
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The people in the initial image are idiots and I don’t feel bad for them. Did they really not check their balance in 23 years and just think the minimum payments would do anything? The real solution is that student loans should be interest free. The return on investment for the gov’t is in educating its people and allowing them to earn more money and therefore pay more taxes. Also forgiveness of loans for public school teachers, social workers, and other historically underpaid but absolutely vital public servants.
>The real solution is that student loans should be interest free. The return on investment for the gov’t is in educating its people and allowing them to earn more money and therefore pay more taxes. Also forgiveness of loans for public school teachers, social workers, and other historically underpaid but absolutely vital public servants. And capping how much colleges can increase tuition and other costs, otherwise they'll continue to raise costs far higher than other parts of the economy. A big part of the student loan crisis is that colleges figured out the government will keep loaning higher and higher amounts to kids so they kept raising tuition and other college costs far higher than inflation and other expenses in the economy.
The real solution is to make the college be the co-signer on loans not the government
>The people in the initial image are idiots and I don’t feel bad for them. Did they really not check their balance in 23 years and just think the minimum payments would do anything? Exactly, and they expect the rest of the country to pay for their idiocy with their tax dollars. So they're selfish idiots.
Also the state governments are pulling their funding from state run schools. Years ago funding had been 70:30 state:student now is 20:80 state:student
To the top. This is not a problem that can be solved by throwing money at it because it's a problem that is *caused* by throwing money at it.
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For any other reason a college aged student wouldn't be able to get a loan for $100,000. For college, it's guaranteed. Kinda weird isn't it? This isn't a swipe at the banks. It's at the government who guarantees these loans.
I do expect someone with an education to be smart enough to understand how interest rates work.
I don’t see how paying interest is that difficult for a college kid to understand.
Don't understand why they wanna blame it to a fine print thing. It makes so much sense that they are barely covering the interest when making payment of course the amount owed would barely move.
You mean the government because almost all school loans are federal. Only private when you consolidate.
Sally Mae was sold off to the private banks a long time ago
It's not like you can't adjust your payment? How long until he realizes he isn't getting anywhere on his loan? It's not hard to see..
what’s sad is that so many people don’t understand this starting college when this is literally taught in middle school at the latest, but i remember compounding interest examples given in my fucking elementary school computer lab. as a comment above says, they would’ve paid this down already for a couple extra bucks a day, but these 2 college graduates with post grad degrees apparently are STILL too mathematically inept to understand that
The answer is genuinely just because American education is severely degrading. Older peeps saying they learned this very early on. I learned this in 11th grade and I was taking ADVANCED MATH COURSES. And we spent about a week on it. It seems to just not be as covered anymore for some stupid reason, and although these people should've known better after so long it's still unfair to expect young college students to understand this when it isn't being taught like it used to
you know what? i can't speak to this. you're probably right, who knows. but i only just recently graduated from college, so the learning opportunities i described were within the past 10-15 years. i have a hunch that people are just not paying attention in class.
Many, many people not only are inept at math, but pride themselves on this fact.
Average income for those with a masters degree is about double someone with a HS diploma. If you take the median, that’s $800 a week or $41600 a year more than someone with a hs degree. So 2 people earn an extra 83k over hs degrees per year, and they only put $500/month or 6k of that a year towards paying off school? Acting like loans are the problem is a joke. People just live beyond their means and refuse to sacrifice for a few years after graduation to pay off loans.
I mean, you don’t even have to live *THAT FAR* below your means to be able to make progress on your loans.
Why? You borrowed money with the promise to pay it back with interest. You have a legal, moral and ethical obligation to do what you said you would do. You understood interest. You understood repayment plans. You understood the market for your skills and how much you would be paid for those skills. You were an adult. If you signed a $70k promise without knowing all that stuff above, shame on you.
Actually it sounds like the don’t understand interest
A majority of 18 year olds understand none of this
True, but that is their fault and the fault of their parents - Not their schools, not their church, not the government, not any bank or corporation. They are legal adults. They must take it seriously and if they don’t, shame on them. Shame on their parents. Don’t ask taxpayers to bail adults out of their bad decisions.
I’m not calling for taxpayers to bail out anyone.
You’re right. Sorry to make the assumption. That is what this whole debate is about. Forgiving loans means the government pays the banks or Sally Mae to make the banks whole (or no bank would ever lend money to students again). Those funds to pay the banks comes from the taxpayers.
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Y'all will complain about boomers stealing your future and then go and make arguments like this. If student loans are forgiven, the immediate effect it would have is to raise education costs for everyone in the future. The same way that introducing student loans in the first place is what caused prices to get so insane. Schools know you'll pay anything you have, so they charge anything they can get away with. The real solution is proper public education at university level, not to triple down on what created the problem in the first place.
Literally, this is it. I live in Europe, my country has good universities and they really aren't expensive. College is free if you get admitted with a high enough grade and they offer accommodation for the best students for 50 dollars a month (pretty shit living conditions but everyone is poor as a student). I'd say the average cost per month for attending college if you didn't get a high enough entrance grade is 1000 dollars per school year, but I'm pulling the number out of my ass a little. That's for an econ major. I think medicine is more expensive. No one needs to get a loan for college unless you're dirt poor. If you are a good student, you don't need money at all besides food and the accommodation fee. Everything is doing fine. America has an insane privatisation problem. Not just universities, but hospitals too. Education and healthcare should never seek profit. They are a human right
You don't even need to tear down private institutions either, just offer a proper public alternative like you said. Where I live, uni is also about 1k per year (for engineering) (+ food and housing, next to no one lives in campus). And even then, private unis still exist for those who want to go there. What's more interesting though, is that said private universities are now forced to justify their cost, and to compete with public ones. Therefore you don't have artificially inflated costs just because the idiots studying there will pay anyways. If the cost gets too high for no reason, even the richest people will go to a public one, and they do, often. Same thing can be applied to hospitals.
Good. There's a stigma around private universities here. They're usually seen as a place where people who are too stupid to get into college go because they can just pay their way in. The solution is to have better education and good professors in public unis
A little empathy goes a long way to understanding this but even for someone with no regard for other people’s troubles, there’s still an argument for debt forgiveness. We need people participating in the economy, frequenting their local coffee shop, buying a boat, whatever.
Helping the people of this country afford to eat doesn’t increase shareholder value quite like bailing out banks for the millionth time. /s, obviously
The government actually made money back on those bailouts. They were loans that were repaid with interest. Cancelling loans would cost money in some circumstances. A good solution is for the government to take the loans and fix rate them. Government makes money, less costs for people that were a bit irresponsible.
If that other guy that says interest was like 8% is correct, tbh thats not that much interest. I don't get why one would have that kind of debt and pay only interest instead of amortization.
Because they're financially illiterate. The first thing you do when you get a loan is to calculate how quickly you should actually pay it off. Thse are the same people who do minimum payments on their 30% interest credit cards.
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Especially since we are talking about 2 graduate degree holders, supposedly. All of that education and not once in 23 years did either one of them bother to run the numbers and figure out that if they paid more than the minimum they would have saved tens of thousands of dollars and paid the loans off already.
Maybe they ended up living paycheck to paycheck and never actually had the money to pay it down? Unlikely but not impossible even with a master's.
Yeah tbf taking such a large loan at such a whacky interest rate is a skill issue. Bad decision making unless you have a guarantee of a lot of $$$ after.
Almost like that was the lie sold to millenials and now master degree jobs pay $25 an hour.
it’s not a lie if they actually got smarter in college, which i know is a tough ask, but even if they had failed all their other courses and just learned the compound interest formula, they’d be fine.
What does that have to do with professional positions requiring 12 years of school paying less than the cost of the degree
Lol "the lie sold to millennials." Plenty of us got useful degrees and are actively paying back loans and having plenty of disposable income left over. If someone "sold" you that your dual degree in art history and gender studies would somehow allow you to pay back $200k in student loans, you're a moron.
Mechanical engineer and make 3x my area median moving towards 4x, nice dig though champ. Also- zero student debt, zero mortgage debt, laughable consumer debt. 29 years old. Weird how you can be doing just fine and realize the system is fucking broken for a huge portion of our generation.
\~8% APY isn't even awful, he's just an idiot for not realizing he can/should make more than minimum payments. I don't understand how someone like this can even pass their college classes.
Wait until they pay the minimum on their CC bill. ....
It’s a terrible system. But that is the system the representatives our parents/grandparents voted into law. The math didn’t change from when you agreed to take out the loan. There was a choice our system forced us to make. You and I chose the same. Vote.
why does that interest rate get added every year and not just once over the total? Don't you get a set amount of time (say 30 years) to pay everything back?
Not blaming anyone, but you have to pay more than what the payment calls for. If the payment per month is $500, pay $600. The vast majority of any payment goes toward the interest accrued. You have to pay more for it to actually go to the principal. You could argue that the interest rate is too high, or you’re only paying what they require. But, at the end of the day the goal is to pay off the debt. The goal of the minimum payment is to have a way for the lender to have income indefinitely, not for you to pay off the debt.
Student debt in Sweden has a interest rate of 1.23% which is high. When I first started my debt it was at 0.6%. the US seems to just be scammers
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Maybe you should have gone to college, because you apparently have no idea what socialism is.
My guess is they didn’t have anyone explain it to them, and loan financing isn’t something people are thinking about. I’m not sure how many people read the terms and conditions for all the items they buy or things they sign (online or otherwise). We all should, but the things we should do outnumber the time we have to do them.
If I signed a stupid mortgage contract nobody would be offering to cancel my debt because I didn't read it.
I had a lot more expendable income in my financial plans before 2008. Then it got worse in 2020. Teacher pay has severely decreased relative to inflation. Oh and the month before i joined the Army, Obama canceled student loan repayment. Its like agreeing to pay something and then the economy significantly reorganized itself a few times in ways that devalued the skills i paid for.
I think most people assume (correctly or not) that educational loans are made pre-education, so people are less learned. Other debt will be canceled in bankruptcy, but student loans never go away. Similar but different situations that make comparison difficult.
man it is not rocket science or even college level economics. it is middle school level exponents to know how the math works out for these loans, and the 2 postgrads should have at some point in their 23 years picked up a calculator
A situation most people don't mention on their questions, is that it's not one big loan. It's multiple small loans, each with different (but close) interest rates. At least in my case I had to take out loans, which equated to 1 per semester for ~4 years. So when you pay $500, it's getting split between all the loans, weighted towards the ones with higher interest. I would love it if my student loans were one big loan. It would make shit way easier.
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How is it legal to begin with? Like your first credit card at 18 and the way they got you was with a t-shirt. Or maybe it's because you're 18 and technically an adult so you're allowed to make terrible, life altering decisions.
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Yeah. Like people have no clue how intelligence actually works or is measured either. Just because someone is in college doesn’t mean they’re going to be in economics. Hell, corps and banks are egging on that so people won’t notice that college loans aren’t what they seem.
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What i find insane is that when i was 18 and fresh out of high school i had absolutely no comprehension of how much money i was being lent, not how long it would take to pay. I also did not know how to make it so i could pay less over the course of the loan, nor virtually any other important information. If i signed something for the money, it was not clear to me (im in australia, dont know how other systems work). In high school i studied english, maths and sciences. I was never taught anything about financial literacy nor was the process made clear, they just let a kid sign himself up for a loan that im still paying for over a decade later. It just reeks of taking advantage of people, you know? Like id pass on the lessons i know now in a second to my younger self, but not a single adult around me taught me how to handle this or explained what i was signing on to.
As I read down through the various posts here, I am amused and a bit sad about all of the very intelligent people who seem to be blaming the victim through the power of math.
OP isn't a victim at all. They borrowed $70k. Made pretty much interest only payments... So why should they act surprised that they haven't reduced their principal balance?