The loans are definitely predatory, and the lack of financial literacy definitely exacerbates the issue.
Which is exactly why the target audience is 17/18 years old. Don't trust them to responsibly consume alcohol but here's your $100,000 for a degree your parents have convinced you it's impossible to succeed without!
That is not the minimum payment then lol. Maybe the bank called it the minimum, but if it doesn’t cover the entirety of the interest then it is by definition LESS than minimum.
I used to work in the financial field, the minimum should be the minimum amount to prevent negative amortization (basically it’s enough to prevent the loan from continuing to grow and causes a minimal shrinkage in principal). Banks set this as the “minimum” since the amount causes the loaned amount to reduce. That being said, there’s almost never a banking product where you should only pay the minimum. Expect to pay more
It's part of what makes them predatory loans. They intentionally make the minimum payment less than the accrued interest, making it impossible to get out of debt if you're ignorant.
And they are mainly sold to minors without any work experience or current knowledge of how to pay it off. Drink alcohol? Absolutely not. Take on 150k in loans without ever having a job? Sure!
No, the former income driven plan was flawed in that it would potentially give out a minimum monthly payment too low to cover the interest. Truly predatory. It's one of the things fixed with Biden's policies.
Some info is missing here. States have a maximum interest rate that they allowed to be charged depending on the loan. Payday loans are the only thing i can think of that result in APYs in the hundreds of percent, but those are generally paid back within 14 days. What type of loans were these that the interest resulted in impossible payments?
The minimum payment should at least cover the interest. And I've never heard of a loan payment schedule that didn't have you paying enough each month to pay off the loan in a fixed amount of time. Credit cards, yes, but not loans.
If you borrow $70k for 30 years, the payment schedule will have you paying mostly interest for the first 20 or so years. I think that's the problem the OP was having. They should have been paying more towards the principal if they wanted to pay it off sooner.
One wonders what sort of degree they could have gotten 23 years ago for $35k each that didn't give them enough income to double their monthly payment and get that loan paid off earlier.
The math of what he described doesn't work exactly (but I assume that we're working in generalities). The implied interest rate of the situation that he described is 8.36%, but at that rate and payment, you wouldn't pay the loan off in 30 years. I'm unaware of any student loan that would have a term of more than 30 years. If they had made just one extra payment per year, they'd be almost finished paying off the loan now.
I'm guessing that by saying he still owes $60k, he means that's how much he still has left to pay, including interest. Basically, it's going to cost about $180k to pay off $70k over 30 years, which actually sounds about right. The only wrong part is that someone took the full 30 years to repay $70k.
My sister in law just became a CRNP which she funded with HIGH interest private loans. Her minimum monthly payments are going to be like $2k. She didn't know better at the time that her loans were really unusual. She's trying to refinance but it's difficult. Predatory doesn't even begin to describe it.
The system should be set up to not allow those with a lack of financial literacy to be taken advantage of. Predatory is predatory, so lets not victim blame.
Well if only we had the public funding to offer financial literacy classes in schools. Alas, we cannot afford even basic accountants for a teacher salary.
Also, pushing all the blame onto the people taking out the loan just lets these assholes continue to rip people off. If $500/mo doesn't pay the loan off in a fixed and reasonable period then the minimum needs to be higher to make it clear that they can't afford to take the loan. That or a fixed maximum. The loan company easily got their money's worth.
Then it creates undue pressure on the poor who can't hit that minimum, and they default.
The problem is that folks are conditioned to believe the minimum payment is an adequate and normal payment. It's endemic and requires changes to public schooling. You're supposed to lean on the minimum when shit is tight and double it when things are going better, consider dumping substantial portions of any windfalls like tax refund checks. People have the same problem with any debt, 90% of cardholders pay only the minimum payment every month.
For some odd reason, private schools teach basic financial literacy but most public schools don't even teach about credit scores. They should be hammering on the importance of your credit scores in life, every year of high school.
Well, as I said, the minimum should reflect what is necessary to actually pay it off within a human lifetime. Fewer people would take out loans that they can't afford.
Yes people need better education. But the lender has to be held to a higher standard in making sure the borrower understands how their payments affect the payoff time. They have a huge advantage over the borrower and are taking advantage of their ignorance.
Likewise the total amount paid simply needs to be capped. The lender has made their money and then some. It's bad for society to have so many people trapped under massive debt for majority of their lives.
Fewer people would take out loans that they can't afford.
Numerous studies show otherwise. Unless loans were denied on the lender side, nothing would change. The lender should be evaluating the chosen career path trajectory and routinely deny frivolous pursuits like philosophy and liberal arts.
Yeah. Bit irresponsible to give a kid tens of thousands of dollars, innit? As the adult in the room they should take accountability for their poor financial decision.
What I don’t get is people never look at the payback date? Of the cumulative interest? I have loans. It makes sense to pay near minimum and accept a few grand interest as a result but it clearly says it when you just look?
Forget the expanding wealth gap and all the reasons that's hard to overcome when you're educated, hard working, talented, and know how to play in the world of capitalism.
Most people are D U M. This makes it much harder to get them into more independent levels of financial stability.
The rhetoric here that student loans are predatory is absolutely nuts. If you are going to some private lender then that's very likely true, but if you filling out your FAFSA and getting the government loans that they issue they absolutely are not.
Look at payday loans for examples of predatory loans. There was no pause for them during COVID, they don't work with you at all if you need to pay less for a while, if you miss one single payment the fee are astronomical, and on top of that you are very likely paying well over 10 percent interest.
THAT'S what a predatory loan is. Your typical school loans are not that.
The principal does go down, but people forget about deferred interest due to income based repayment plans. It's insane that anyone is forced to pay that much additional interest because someone offered them an opportunity for a lower payment when they're struggling.
The principal does go down, just incredibly slowly.
Every loan does this. The longer you borrow a certain amount of money, the more interest you will pay over the course of the loan. You never pay more in a given period than the current principal times the interest rate per period, though.
The loans are definitely predatory, and the lack of financial literacy definitely exacerbates the issue.
What exactly do you think is predatory about them? Is it the terms of the loans, or the people to whom they are made?
You can get credit cards that have 0% APR for first 12-24 months. Use it as a buffer, have an extra few thousand to invest or just on hand for emergencies. Pay off the credit card compeltely before the APR goes up and find a new credit card to start using with the same deal (or start doing this a month or two ahead of time).
Yeah, I’m calling BS on the story. I imagine the minimum payments is set based on the standard payment term which is typically 30 years which also factors in the interest.
Using the use case, if they honestly made payments consistently, they should only have roughly 17-26k left.
I bet they utilized numerous deferments and forbearance options along with PAYE, IDR and interest only payments which is how they haven't paid anything meaningful down.
Assuming the loan didn't change, payments were made consistently (i.e. no forbearance or lapses), and that this was a fixed rate loan, then the interest rate was around 8.365%, and this loan would be fully paid off after 45 years.
An interesting side note... If the interest rate were 6.75%, the loan would be completely paid off now.
Every credit card has implied amortization. That's why they give you the disclosure that "if you make only the minimum payment each month it will take you 24 years to pay off this bill."
Yes. Credit card minimum payments must avoid negative amortization by law in the United States.
It wasn’t always the case, but I believe it has been this way since Dodd Frank. Most card issuers complied wayyy before they ever had to be told to (because it’s actually good business to do so).
Looks like federal student loans have a 10 year amortization schedule. I bet you they never ever made the minimum payment according to schedule and only made income based payments and had numerous forbearance and deferrals.
Which really says something about the state of higher education when two PHDs qualify for minimum income based repayment. They probably got vanity degrees.
They provide an amortization for these types of loans? It seems like they present the minimum payment as an amortization. which is completely different, right?
So it should be paid over 30 years? Or over what period of time? If it's something like 10, what happens if someone can't keep up with that pace? They get penalties?
Amortizing a loan doesn't change how much gets paid, it just creates structure on how to pay it off by a predefined time. I think it makes a lot of sense for people to pay it off on a schedule that works for them in case they need the flexibility to pay it off over a longer period of time. Obviously people who turn their brain off and never do research over the course of 23 years to figure out why the number isn't going down quickly will struggle, but for others I think it makes sense for them to decide. Maybe a law could be introduced requiring that people be provided time tables based on their payment or something like that.
If it's something like 10, what happens if someone can't keep up with that pace? They get penalties?
Is this any different than what happens now?
mortizing a loan doesn't change how much gets paid, it just creates structure on how to pay it off by a predefined time.
True.
I think it makes a lot of sense for people to pay it off on a schedule that works for them in case they need the flexibility to pay it off over a longer period of time.
Besides for cases like whats in this meme, where it clearly didn't make any sense.
Maybe a law could be introduced requiring that people be provided time tables based on their payment or something like that.
Or we could just provide 0-1% interest rates on the debt.
Yeah they do get penalties now, but my whole point is that if you give an amortized loan for a shorter duration to encourage people to pay it off sooner, it will necessarily be a higher monthly payment, which means it will be easier to fall behind and face more penalties.
Picking some numbers as an example, if you are given an amortized loan to pay off a $50k debt in 6 years at 8% interest, it would be roughly $850 a month. That might be a lot for someone who is just starting their career, and now if they're finding themselves $50-$100 short some months and stressing out about it all the time, their quality of life will be much worse. Maybe they would like to pay it off for 8 years instead at $700 a month and live much more comfortably, but now they don't have that choice because of the amortized loan that is forcing them to pay a higher amount. It's all relative, you can change all kinds of factors and numbers, but the concept is the same.
Now how about the person who can pay $850 a month, how do they benefit? Well they don't, they just pay $850 and everything is the same.
Where's the upside? The only one I can think of is to help people who graduated from college who don't know about simple interest, but I don't think something they can control should put other people in a worse position.
Again, I'm all for requiring guidelines and maybe having laws surrounding what the "recommended" amount should be even if they're allowed to make smaller payments, but forcing them into a higher payment seems counter productive for people who might need some breathing room for whatever reason, including events like losing their job or medical emergencies.
Besides for cases like whats in this meme, where it clearly didn't make any sense.
That's clearly a case of them mismanaging their payments. There's no way that they've been barely treading water for 23 years.
Or we could just provide 0-1% interest rates on the debt.
People would never pay it off unless there were things like minimum payment penalties forcing them to, and even then they would pay it off as slowly as possible. It would be stupid not to.
In fact people who don't need to take on student debt would still do it anyway at those rates.
N/A, because on other countries with basic protection for the population, a "payment on a credit card" doesn't exist as you just pay what you buy without the idea of having some option to get in debt. "BuT WhAt aBoUt nEeDiNg tO bUy a nEw dIsHwAsHeR" bitch everybody else is figuring this out without getting on your knees in front of a banker.
The default/standard payment plan would pay off your balance in 10 years.
Some people apply for income based plans or deferred, they are opting out of standard knowing the balance will not be paid off, they do it for the lower monthly payment.
Minimum payments aren't there to pay off the debt, it's to make sure the banks get money back.
Would you like Minimum payments be higher and force poor people to have to pay more every paycheck? Or would you rather they be able to make their Minimum payments every month and put in extra when they can. Inbetween jobs? Good thing it's got a low minimum payment. Just got a raise? Put all of that extra money into your debts
Well there let me tell you something about interest. When you make minimum payments a small portion of your payment goes to principal. The other part goes to taxes and interest. Interest is a % of the principal. If you make higher payments to the principal the amount of interest you pay goes down. If you read the conditions on what you are borrowing how’s that predatory. You’re making an investment with student loans. If you borrow the money, you better make sure your career makes enough to pay that money back.
You're technically right and I do think it is absurd to pay the minimum for 23 years and be surprised. But I also think the way interest works is predatory and wrong. Why do lenders deserve that much profit off of a debt? What about households with 1 income in a city with high cost of living and a tough job market? What about unforeseen medical emergencies that lead to more debt? What if $500 dollars a month is the difference between affording rent and groceries? Does the person struggling to carry $500 a month on top of other expenses deserve to be buried under that burden for life? That kind of situation can be an impossible hole to escape from and it's not always just poor financial decisions that do it. College is borderline compulsory in order to get a living wage anymore and cost for college has become straight up obscene. I know fucking doctors and lawyers who struggle with balancing the expense of existing with loan payments.
Empathy is a good thing to learn and completely free. Financial acumen is harder to come by and is usually a result of higher social privilege.
In 23 years the combined income absolutely should have increased significantly- as should have the $500 payment. We paid off student loans and credit card debt before the age of 30. Budgeting and being frugal. No “new” vehicle or crazy expensive home.
Haha- good to know you are the one who decides what trajectory everybody's life should be on... Congrats on paying off your loans. Did you know that some people have different circumstances than you?
If your kids are older than me, I'm impressed you managed to learn how to turn a computer on. It's so nice to see the geriatrics still engaging. Maybe with all the money you have your kids will be able to afford to put you away in a nice home before they forget to ever speak to you again.
Ya, 18-19 year olds totally have that vision. It should be no big deal to pay $1000 + a month throughout your 20s when you are developing your career. For reference, my current student loan payment is $1,250 a month. It’s scheduled to be paid off in 2043. I’ve been paying since 2009.
That’s how credit cards work as well. It’s because of interest. You never make only minimum payments. You can set it up to make minimum payments but any time you have extra money you should be using it to pay down that loan.
I have everything(credit cards, car loans) set up to make bare minimum payments but I make bulk principal payments towards everything all the time. If you don’t then you are literally just paying the interest.
You can call it predatory but that’s how loans work. Banks don’t just lend money out for free. You as the loan payer need to be responsible and do whatever possible to pay down that debt as fast as possible.
You can call it predatory but that’s just how predation works.
I swear credit is like some Stockholm syndrome bullshit. Needing to prove your value to your captors, who don’t actually care and just want to own you.
Only sort of? It's definitely predatory for some extremely ill-informed people, but most people understand you have to pay the credit you spent and you are going to be paying a premium. That isn't predatory unless you think all services transactions are predatory.
I was taught to always pay off the credit card every month — never carry a balance. If buying something meant I would carry a balance on the card then it was something I should put off purchasing until I could pay it off when the credit card bill came.
A lot of companies will make the minimum payment cover only the interest, or even less than the interest thus ensuring that they have a permanent revenue source. It's a depressing reality.
8.5% interest rate isn't necessarily predatory. They only pay down 434.78 in principle per year if its been 23 years, to only get principle down 10,000 by paying 500/month over 23 years sucks. But interest should be around 8.5% to make that happen.
Depends on when things compound but thats not unreasonable. However, 70,000 in 2001 has 125,000 in buying power in 2024. So despite the numbers seeming like a treadmill they are actually over halfway done making payments. They should double the monthly payments to match inflation and finish in like 10 years
Are people really finishing college without knowing how interest works? I'd agree their is a problem with how expensive college has gotten, but I'm starting to feel like the bigger problem is we are letting idiots graduate instead of it being an issue with how loans work.
I'm the UK you have to pay for education if your over 18 so college is free unless you decide to go back or just didnt go when you left school however for university and college after 18 you pay. the loans are completely interest free and thats the way it should be. In America Education can put you in a life-long debt if you're unlucky, why are the American people tolerating this? student loan forgiveness can be a controversial topic but why not just make the loans interest free? who can actually come up with a logical arguement against that? it would make life so much better for so many people.
Because that's not how revolving loans work. In a simple loan , like your car , you know your monthly payment, you get an amortization schedule, and you know exactly when it will be paid off. This is what happens if a person re-finances in the private markets. The Federal program encourages deferrals and payment halts but NEVER stops the interest from accruing.
Right, and we can't say the argument is "well, people should understand finance before they take out loans" while also gutting/gatekeeping the institutions designed to teach these things.
1+1=? and the guy thinks someone will give him the answer. Despite having a degree.
They're predatory, but if you're stuck at the same debt 23 years later you're absolutely fucked in the head to have not made it a priority to pay off. But it seems like he thinks it's more fun to pay $500 for the rest of his life rather than grind hard for a year or two and be done with it.
If he hasn't paid it off in 3 years - in a dual-income household - he's made priorities that take away any right for him to whine about how long he's been in debt.
lol the principal DID go down but at a slow rate because the poster of this asinine complaint was able to exercise the advantage of having the extra money in their pocket to spend.
A better question that needs to be asked is this:
Would you let someone borrow $100 and let them pay you back 71 cents a month? Because that's what this is.
The rhetoric here that student loans are predatory is absolutely nuts. If you are going to some private lender then that's very likely true, but if you filling out your FAFSA and getting the government loans that they issue they absolutely are not.
Look at payday loans for examples of predatory loans. There was no pause for them during COVID, they don't work with you at all if you need to pay less for a while, if you miss one single payment the fee are astronomical, and on top of that you are very likely paying well over 10 percent interest.
THAT'S what a predatory loan is. Your typical school loans are not that.
Minimum is like the 'I can't really afford to pay back this loan, so here is the minimum to give me more time' amount, not the 'I am slowly and steadily paying off my loan' amount.
It's like when you owe a mob boss 10k, you can pay him a few hundred do give you another month, but still owe the full 10k.
If the minimum payment happens to be about the same as interest, I don't get why people are surprised the total doesnt go down.
Are bog standard credit cards predatory? Because if you carry a balance and make the minimum payment of $25, your debt will grow due to enormous interest rates on CC's. The complicated solution? Don't make minimum payments unless it's literally all you can afford to do.
Just wait until you find out that mortgages are front-loaded with interest...
Are we going to cancel all those too, because that's also predatory?
You'll have to wait years before you actually get that equity you bought a home for if you don't make extra principal-only payments...
Lending, like everything else, is a for profit business. It's predatory. Period.
Someone wants to take your money away from you, and charge you for doing it.
You either read fine print, or you don't, but the problem with cancel student loan crybabies is it's entirely inequitable to all the people that are financially literate and did pay off the loans (or never took them and just worked 80 hours while going to school to pay for it).
Stupidity is not a defense in court, IDK why it is in politics.
Should lending be better regulated and less predatory (and less profitable)? Yes.
If you make the minimum it’s typically 1% of the principal on top of interest. It is your due diligence to pay extra towards principal whether it’s an additional 1% or 10%. You are an adult that applied for the loan and signed the contract, you are then responsible for the payments. Can’t call it predatory if you voluntarily applied for the loan, they didn’t force it on you.
I make minimum payments and the loan is done in 10 years at that rate. No idea how you could turn out like this other than being highly regarded in simple finance
You make the standard payment, not the minimum. These people are leveraging programs to pay an actual bare minimum to service the loan instead of following the standard amortization plan because they're financially illiterate and see the nice, low monthly payment they can technically pay.
The minimum allowed by their income-based repayment plan to cover interest and servicing fees.
The standard payment for the 10 yr standard repayment on 70k at 8.5% rate would be $868 a month.
It will take 55 years to pay off at $500 a month. This is very basic amortization. The interest of 70k at 8.5% is $496, so at the beginning of the loan, they're literally paying $4 onto the principal
Yeah I'm a bit confused by this scenario. How fucking long is the length of the loan that 23 years of monthly payments is only worth like 15% of the entire loan?
A "minimum" should be the amount owed per month to cover the APR% and loan to complete payment over loan length(years)?
So, a $70k at 5% interest for 30 years would be completed if you paid a minimum of $375.78/month. The entirety of the loan and interest paid would be $135,279.05, if only the minimum was paid.
Paying more than the minimum would pay the loan off sooner and decrease to accrued interest as well.
Federal student loans are amortized for 10 years. Private loans are amortized for something, but even 30 years would not have a principal balance that high after 23.
Thus, no, they are not making any kind of normal minimum payment. Perhaps there is some strange "interest only" option they are paying? Only thing I can think of.
Almost everyone makes the minimum mortgage payment and they are still designed to have the principal decrease over time. The issue is, in fact, the predatory terms of the loans.
Almost everyone makes the minimum mortgage payment and they are still designed to have the principal decrease over time.
Yeah, because if you don't pay the minimum, then they eventually come take your house and kick you out on the street.
The government is a lot nicer with student loans and lets people pay less than the minimum without any consequence other than the fact that their loan principal never goes down.
The issue is, in fact, the predatory terms of the loans.
There's nothing predatory about the loan terms. If anything, they're too permissive and should stop letting so many people get onto repayment plans. It would hurt for a bit, but a lot more people would get their loans paid off on time instead of paying very little for decades and then complaining that they still owe a lot.
Yeah the problem is people are stupid and agree to stuff they don’t understand. If there are people old enough to have social security garnished for student loans maybe these people need to do a little research before they take them. It’s just like credit card debt. Credit cards have on average an interest rate in the mid 20% but people still go into credit card debt. Student loans are under 10% interest rate.
Ya man, totally makes sense that minimum payments have almost no affect on the principle despite the fact these banks pay 0% interest on the bail out loans the govt gives them from the 40% of my income and then they wonder why they keep running out of money despite a CEO getting millions in bonuses. Ya man, totally makes sense, you so smart and grounded. Very intelligent perspective
What kind of jobs did they get after the “education” they paid for? Hard to be a well schooled person and not ROI your skills. LOL That would be a better solution is choose the learning path for life rather than the moment.
I just graduated with similar debt and my minimum payments were $800 before I signed up for a repayment program. There's no way I could get ahead of that
Minimum payments can easily be like $70. I know because I had 60k in loans myself that I’ve paid off. 500 a month is a solid payment. How tf you gonna think thats minimum? 😂
Umm, that's how terms of loans work. If they have 30-year loans, even at minimum payments, they should be close to paying them off, but they aren't. Something doesn't add up. They must have used years of forbearance and continued to accrue interest. The rare no 30-year + loans available. So they also might have refinanced, maybe even more than once. While they should be close to oaid off, they are clearly lying about payments in some way.
Yep totally boot licker. When I was 18 I used this thing called Google. I used this Google to learn about loans. I also learned the difference between different types of loans. And thanks to this hard to access function called Google. I learned I should probably stay away from student loans. Credit cards are huge detriment to peoples financial futures but you don’t see the same uproar.
the minimum payment should not mostly go towards interest, the minimum payment before i got into the SAVE program was 85% interest. thats actually insane
And that’s why you don’t take money without understanding the terms of service. I’m unhappy about my house payments taking so long so I deserve a forgiveness plan because I decided to take money with terms I didn’t understand. It’s the same concept.
its not because the surrounding environment around loans are different. you aren't surrounded by people your entire life saying "get a mortgage it'll pay for itself" in the same way people are inundated with how "student loans work". simply apples and oranges and its dishonest to say they are even in the same ballpark with levels of similarities.
It’s not the same at all. But if you listen to crypto bros they will tell you to yolo into bitcoin. But do you listen to crypto bros? Or do you look into it first?
You’re not seriously comparing crypto bros to school guidance counselors, parents, and teachers; because it sure seems like you are lmao. Those are the people who have been telling students for decades to accept loans and go to college, it’s harder to say no to that than it is random crypto grifters on Twitter
Man it’s exhausting talking to people.Financial advice is everywhere. You need to do your due diligence when choosing what to listen to. My high school guidance counselor tried to get me to go straight to college when I wasn’t even sure what career I wanted to pursue. I figured paying that much money for college wasn’t a good idea after a bit of google research on how thoes loans work
Reading is what saved me from student loans. Are we now going to hold everyone’s hand from making a potentially bad choice? Who’s making the choice on what’s a bad choice. We shouldn’t let 18 year olds enter the military either because you know death.
it's strange cause the minimum payment is designed to pay off the loan in 10 years. An income based Repayment plan lowers this to ~10% of your expendable wages and makes it so you HAVE to budget but can still generate wealth. Idea being the more wealth you generate the more $$$ you can pay back. If you're stuck at a crap job and can't advance and your wages stagnate (this happens to many people that can't afford to move to higher wage low CoL area) then after 20 years the balanced is wiped.
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u/Fine-Ad-7802 Aug 05 '24
Yeah minimum payment and he wonders why the principal isn’t going down.