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Student Loans Should Be Federalized, But What do We Replace Compound Interest With?

Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Honestly the government ought not be making mortgage sized student loans that might not get paid back in 20 years in the first place.

A huge percentage of the rapidly expanding tab will never get paid as things stand now, we simply dont have the jobs, and the job situation is getting worse all the time, especially because of technology. $1.4 Trillion it is now, tripled in just ten years, which should scare you.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Student Loans are the bane of my existence.

I've used them several times to get my various degrees, and each time as costs went up it got tougher to pay them off.

That's because of that wonderful invention, "Compound Interest."

Compound Interest

In layman's terms, if you don't pay off the interest by the end of the year, the remaining balance is treated like principal and the next years interest is based on this new higher amount.

I'm not a mathematician, but from long experience with this process, what this means is that for a long, looong time you are paying mostly interest on the interest, and never really touching principal. This because the small amount of the payment assigned to principal is replenished and then some by the unpaid interest compounded into the end of year balance.

Now I don't want to tell you how long I've been paying this current loan off, but I can tell you that I've paid back more then 2/3's of what I originally borrowed and still owe $10,000 more than I originally borrowed.

That is insanely profitable for the banks and a drain on those who borrow. Remember too that these are guaranteed loans, and if defaulted the Feds pay the bank the whole remaining balance and then come after YOU!

So I say, cut out the middleman. Set up loans directly from the Federal government; and since it is not supposed to make a profit, then use the simplest repayment formula possible to cover the costs of processing the loan.

Perhaps some economist in here could provide some suggestions?

Unless your payments are delinquent, I don't see how this could happen. But it happens on credit cards that way every month. In June you get a bill for $300. You don't pay it. In July you get a bill for $353 which includes a late fee and interest. (I'm making up interest amounts, just for example.) If you don't pay THAT one, next month's bill is going to have another late fee and interest on the $353. And so in until you're homeless.

Be glad it's not a car loan. They are what they call front loaded. At least I think they still are. You borrow $15,000 for seven years at 3%. They don't start reducing your principle until you've paid 7 years' interest.

What's sad is that people have to go into such astronomical debt before their feet even hit the ground. We fail Americans when it comes to higher education.

Hang in there...
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

This is going to seem harsh but it needs to be said, did you do a cost benefit analysis before you took out loans to get your degrees? Are they paying for themselves? If not then then they are vanity degrees. Second are you just paying the minimum? If you are then that's why you are getting hammered by interest. Paying back loans and credit EARLY is the fastest easiest return on your money. I am gona be blunt you are not finding much in the way of sympathy here. This hole you are in is completely and totally on you. Sorry buddy. :shrug:

My last degree was my J.D. (Law Degree). I took the job I went to school for..."Public Defender."

Not much money in that job, but you need to be as skilled as those higher paid Prosecutors everyone is willing to shell out for. :shrug:
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Meh, if say a law were made to require simple interest on SL then rates will go up to make up the difference and then we'll be back where we started.

Only if it is a private bank loan.

My suggestion was eliminate banks and simply lend the money directly from the Feds. Preferably at a minor flat rate with proportional repayment...i.e. 95% of the payment goes to principal and 5% to the set interest amount. Neither is compounded. So if you borrow 10,000 at 1% interest? Total repayment is $10,100.00
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

My last degree was my J.D. (Law Degree). I took the job I went to school for..."Public Defender."

Not much money in that job, but you need to be as skilled as those higher paid Prosecutors everyone is willing to shell out for. :shrug:

Sounds to me like a vanity degree, your not making your degree pay. They need to pay, at least till your student loans are paid off. I suggest either put your own shingle out as a criminal defense attorney and take on occasional pro bono cases or join a firm and take the occasional pro bono case. Being a public defender is not enough to pay your bills and until your bills are paid you cant afford to be a PD. Pay yours bills off then go back to doing what you like. Believe me you will be MUCH happier without the stress in your life. You would be surprised how much stress that relieves.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Sounds to me like a vanity degree, your not making your degree pay. They need to pay, at least till your student loans are paid off. I suggest either put your own shingle out as a criminal defense attorney and take on occasional pro bono cases or join a firm and take the occasional pro bono case. Being a public defender is not enough to pay your bills and until your bills are paid you cant afford to be a PD. Pay yours bills off then go back to doing what you like. Believe me you will be MUCH happier without the stress in your life. You would be surprised how much stress that relieves.

Vanity degree?

Well, the whole point of being a public defender is to provide the best defense for those who can't afford a lawyer.

Yeah, studying law for that purpose is the equivalent on getting a degree in a underwater basket-weaving. :roll:

If I was concerned about money, I'd have gone into corporate law.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Vanity degree?

Well, the whole point of being a public defender is to provide the best defense for those who can't afford a lawyer.

Yeah, studying law for that purpose is the equivalent on getting a degree in a underwater basket-weaving. :roll:

If I was concerned about money, I'd have gone into corporate law.

You are unconcerned about money? Yet here you are whining about how difficult it is to pay your loans. I'd say when the bills started coming due you became quite concerned about money. You brought these problems on yourself. If you want to relieve yourself of them then get a job that pays which you should be able to do easily. Hell you can still do criminal law, and do the occasional pro bono case and be paid quite handsomely too. You only have to do it till your bills are paid. I don't understand why you didn't think of that yourself, and haven't done it.

And yes anybody that gets a degree the don't use or make pay to its fullest has what amounts to a vanity degree, it may well be in underwater basket weaving.

I am being blunt to be clear. Nothing personal.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Honestly the government ought not be making mortgage sized student loans that might not get paid back in 20 years in the first place.

I partially agree. Any time the government becomes involved, the markets get distorted. My dad went to a private university a generation ago and was able to pay for most of his tuition working part time and in the summers full time. Can't do that any more. The easier it is to get the money, the higher the prices have gone.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Student Loans are the bane of my existence.

I've used them several times to get my various degrees, and each time as costs went up it got tougher to pay them off.

That's because of that wonderful invention, "Compound Interest."

Compound Interest

In layman's terms, if you don't pay off the interest by the end of the year, the remaining balance is treated like principal and the next years interest is based on this new higher amount.

I'm not a mathematician, but from long experience with this process, what this means is that for a long, looong time you are paying mostly interest on the interest, and never really touching principal. This because the small amount of the payment assigned to principal is replenished and then some by the unpaid interest compounded into the end of year balance.

Now I don't want to tell you how long I've been paying this current loan off, but I can tell you that I've paid back more then 2/3's of what I originally borrowed and still owe $10,000 more than I originally borrowed.

That is insanely profitable for the banks and a drain on those who borrow. Remember too that these are guaranteed loans, and if defaulted the Feds pay the bank the whole remaining balance and then come after YOU!

So I say, cut out the middleman. Set up loans directly from the Federal government; and since it is not supposed to make a profit, then use the simplest repayment formula possible to cover the costs of processing the loan.

Perhaps some economist in here could provide some suggestions?

The interest is only compounded if you don't pay on it.
So technically you can go do school 4 years without having to pay back your loans.
however depending on the loan the interest compounds on it.

For federal loans there is subsidized and un-subsidized. on the subsidized part the federal government pays the interest on the loan. the un-subsidized you do.
if you do not pay on that part of your loan which you don't have too at the end of 4 years it will compound into principle.

what you owe on it compounds because you are taking out more money.
also under the new student loan program the interest if variable not fixed like it use to be.

i fell under the fixed program so my student loans are relatively cheap.

now after you graduate you get at least a 3 month grace period (interest still will compound).
after that your student loans become due.

federal student loans are already done like that.

Feds take over student loan program from banks - SFGate

as for repayment the standard repayment is 10 years.
if you consolidate you can break it up further into 20-30 years.

it is like paying off a house. at the end of that period your loan will be paid off.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Vanity degree?

Well, the whole point of being a public defender is to provide the best defense for those who can't afford a lawyer.

Yeah, studying law for that purpose is the equivalent on getting a degree in a underwater basket-weaving. :roll:

If I was concerned about money, I'd have gone into corporate law.

Umm most states have loan forgiveness for lawyers that do public defender work.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Start a thread and then dissapear? I ask again, aren't many of your posts favoring less government?
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

Start a thread and then dissapear? I ask again, aren't many of your posts favoring less government?

everything works to how he wants it now. i am not sure what more of what he is looking for.
 
Re: Student Loans Should Be Federalized, But What do We Replace Compound Interest Wit

I had the misfortune of not getting a good job, right after college. And then getting caught up with shady collection agencies, when I could afford to pay it. They would say pay this much and we will clear the balance. I would pay it, and then they wouldn't clear the balance. Fast forward and that balance built up again, and then would be sold to another collection agency who would seek the balance from me. I've gotten lawyers involved and everything, lost the case, and had to pay the balance once again. Hopefully this time it stays paid.

Did you get these agreements in writing before you paid them?
 
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