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

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 (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Click to expand...

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?

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

I want to cut the number of University spots by 40%, have them 100% paid by the government, with a 4 year national service requirement after graduation.

Admission would be by merit, not campus demographics engineering as it is now.

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

Hawkeye10 said:

I want to cut the number of University spots by 40%, have them 100% paid by the government, with a 4 year national service requirement after graduation.

Admission would be by merit, not campus demographics engineering as it is now.

Click to expand...

Cutting the spots is an idea, though across the whole of the US there are different university's that are more sought after. Also they are for lack of a better word, a bitch to get into most of the time.

Can I suggest that we eliminate a vast majority of the "affirmative action" policies to help even out the playing field? Possibly all of them if that can be done, because you have people who work their entire lives of suffering through school to come out with the highest grade possible. Only to lose their chance to someone base on the fact that they are a different race, or gender.

National service is good, because I acquired my first degree using my GI bill. This would basically be the same principle, though working in an off kilter process. Not to mention that would give plenty of the out of college crowd some valuable life experience. Not the least of which is the discipline that comes with it.

Lets see.. 100%.. 1 year full tuition scholarships in the US, across the whole country. 33,200k as a (near) standard tuition, with what was around 18.2 million different applications around a year (high end) not taking into account people attending no-degree institutes.

comes to around 365 Billion rounding up slightly... still far less then he US spends on its military, so I am alright with that number.

Now if we can legalize pot so that we can tax it, and the churches as well. The country could be rather well set for whatever the rest of the world can throw at it.

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

Captain Adverse said:

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?

Click to expand...

I see you point. But there is a "but". Three "buts", actually.
- interest is a result of the way economics works and cannot be avoided other than superficially. Where forbidding interest is attempted it is built into the prices in various ways thus circumventing the law. This is less efficient and harms the economy.
Compound interest is similarly a fundamental derivative of interest. In fact, an interest rate can be understood as an infinite succession of interest payments on lending for miniscule periods each with its own rate and charged on the new capital amount of the amount lent plus the interest, which is withheld. This is why interest dealees have to look at the whole rate structure curve and not individual rates, when calculating the correct rate to charge.
- educatiin is a private good and it is better produced under competition and almost certainly not centrally and managed by societal goals. It is extremely improbable that the administrative costs are enough high to exceed the national costs of political distribution instead of price allocation.
- education is expensive and must be rationed by some mechanism, unless you want to waste enormous amounts of resources. Because of externalities connected with losing exceptional people it probably makes sense to have a program to identify them and support them through school. In gerneral subsidies could be granted on a success based system of testing. If a student were for instance to get 100 percent on the test she would get two thousand dollars a month. Get fifty percent and the student gets nothing.

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

Captain Adverse said:

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?

Click to expand...

I think your idea is certainly better than the current method.

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

Captain Adverse said:

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?

Click to expand...

Aren't many of your posts against government in the lives of the people? I may have you confused.......

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

Captain Adverse said:

Student Loans are the bane of my existence.

Click to expand...

I believe one of the greatest crimes being perpetrated today involves higher education and the enslavement of young people trying to obtain it.

At the heart of this crime are the colleges and universities who coordinated with banks, and now their friends in government, to provide a means for young people with little to no credit history to take on lifelong debt to obtain something that will most likely have no value to them in the future.

As an employer, a college degree has become something of lessoning importance to me in terms of new hires. Certainly some positions require the knowledge assumed by a degree. Electrical Engineer for example. But for the most part, with degrees handed out like candy, they no longer represent the focus and sacrifice they once did.

Make colleges so called "free", and they become even more irrelevant.

I'd be more impressed with an applicant with a two year associates degree in a specific field I'm interested in, along with real work experience, than one with a 4 year degree in something that has little relevance to the position and little to no work experience.

Starve the beast and refuse to pay the outrageous tuition costs of these frauds in higher education. That's the only way to drain that swamp.

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

Hawkeye10 said:

I want to cut the number of University spots by 40%, have them 100% paid by the government, with a 4 year national service requirement after graduation.

Admission would be by merit, not campus demographics engineering as it is now.

Click to expand...

That plan makes 0 sense, what about those unfit for national service or international students? I am also sure you know that most would make horrible soldiers regardless, why also waste four years of these people's lives where they will essentially be unproductive in society? My grandfather had to do national service and the most productive thing he ever did was peel labels off of soup cans for recycling.

Spend 4-5 years to teach people to think critically then spend another 4 forcing that out of them. I guarantee you find that the US suddenly sees far lower levels of innovation and career growth.

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

They should be largely replaced with grants and low interest loans.

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

Captain Adverse said:

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?

Click to expand...

I've been plagued by a single small loan that I've paid back three times over since graduating. So I'm with ya. And I think the key to getting rid of compound interest on student loans is convincing the Majority Christian population that it's a form of usury. Which we all know is condemned in the bible. Once Christians are made aware of how this is Usury, I'm completely confident their representatives will take the easy win and make the changes.

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

Carjosse said:

That plan makes 0 sense, what about those unfit for national service or international students? I am also sure you that most would make horrible soldiers regardless, why also waste four years of these people's lives where they will essentially be unproductive in society? My grandfather had to do national service and the most productive thing he ever did was peel labels off of soup cans for recycling.

Click to expand...

National service is not just the military, and while I expect most doing national service to be doing some sort of government work either at the national level or lower that would not be a requirement. Also doing national service would not be a requirement, people would still be free to pay their own way, though getting a university spot would become much more difficult. As for international students I dont care about them, America is for Americans.

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

Hawkeye10 said:

National service is not just the military, and while I expect most doing national service to be doing some sort of government work either at the national level or lower that would not be a requirement. Also doing national service would not be a requirement, people would still be free to pay their own way, though getting a university spot would become much more difficult. As for international students I dont care about them, America is for Americans.

Click to expand...

So in other words force graduates to do busy work for 4 YEARS when most other countries only require 1 if at all just to get an affordable education. I see you want America to lose any and all international competitiveness it has.

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

Carjosse said:

So in other words force graduates to do busy work for 4 YEARS when most other countries only require 1 if at all just to get an affordable education. I see you want America to lose any and all international competitiveness it has.

Click to expand...

We are talking free...not affordable...housing, food, all of it.

And they get paid for the 4 years national service.

Everybody wins.

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

Subsidized post secondary schools that have reasonable tuition

Including technical schools that promote trades and have a focus on purely job training.

Make those schools in general merit based (but the primary education system will have to more fairly funded in the US) with grants for low income families.

Allow private institutions to operate as normal, but with no government grants or money

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

Hawkeye10 said:

We are talking free...not affordable...housing, food, all of it.

And they get paid for the 4 years national service.

Everybody wins.

Click to expand...

What exactly is the benefit to society there instead of say providing grants for people studying certain subjects? You would drastically reduce America's competitiveness just so the taxpayer can pay for Billy to study philosophy then pay him to do busywork for 4 years?

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

Captain Adverse said:

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?

Click to expand...

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:

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

ThoughtEx. said:

I've been plagued by a single small loan that I've paid back three times over since graduating. So I'm with ya. And I think the key to getting rid of compound interest on student loans is convincing the Majority Christian population that it's a form of usury. Which we all know is condemned in the bible. Once Christians are made aware of how this is Usury, I'm completely confident their representatives will take the easy win and make the changes.

Click to expand...

Are you paying the minimum? If you are stop and double or triple it and that bill gets gone quickly.

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

Captain Adverse said:

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?

Click to expand...

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.

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

ThoughtEx. said:

I've been plagued by a single small loan that I've paid back three times over since graduating. So I'm with ya. And I think the key to getting rid of compound interest on student loans is convincing the Majority Christian population that it's a form of usury. Which we all know is condemned in the bible. Once Christians are made aware of how this is Usury, I'm completely confident their representatives will take the easy win and make the changes.

Click to expand...

Good lord that hardly seems possible... did you let it go into deferment for a long, long time?

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

Captain Adverse said:

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?

Click to expand...

Many loans are set up directly with the Department of Education, your payments can be income based, and any amount you haven't paid back in 20 years gets written off. Unfortunately you have to take that write-off in as income unless you work for the government or qualified non-profit. That throw you into the IRS fire pit is the only part of that arrangement I don't like.

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

Winchester said:

Good lord that hardly seems possible... did you let it go into deferment for a long, long time?

Click to expand...

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.

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

backpacker said:

Many loans are set up directly with the Department of Education, your payments can be income based, and any amount you haven't paid back in 20 years gets written off. Unfortunately you have to take that write-off in as income unless you work for the government or qualified non-profit. That throw you into the IRS fire pit is the only part of that arrangement I don't like.

Click to expand...

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

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

ThoughtEx. said:

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.

Click to expand...

Ah, yeah once you get tossed to the collection agencies things can go shady fast. Out of curiosity and partially ignorance was it a federal student loan that got turned over?

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

Winchester said:

Ah, yeah once you get tossed to the collection agencies things can go shady fast. Out of curiosity and partially ignorance was it a federal student loan that got turned over?

Click to expand...

Yeah it was I think, it was from a student loan company called Edsouth that was handing them out like candy on move in day. Got one for 2500 buck to cover books, computer, and some personal expenditures. Also got a credit card from the booth next door, and looking back now, it was kind of predatory. Handing out money to 18 year olds with no jobs, and telling them they don't have to pay it back til after they graduate is never going to work out in favor of the 18 year olds. Especially, when the job market isn't so great after they graduate.

It was literally a one page application that just required my signature, no credit check, or anything. It was bull****.

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

Carjosse said:

What exactly is the benefit to society there instead of say providing grants for people studying certain subjects? You would drastically reduce America's competitiveness just so the taxpayer can pay for Billy to study philosophy then pay him to do busywork for 4 years?

Click to expand...

Going to university would mean something again, we would eliminate all the money we waste on drop outs, we would eliminate all the money wasted on people who get awarded a degree but who dont learn much because they dont have to do much to graduate, and we would be teaching that serving the society not just yourself is important.

America at heart is suffering from deep spiritual problems, demanding work and service is one very good way to work on improving the situation.

Re your hypothetical philosophy major you are aware that humanities at University are dying, and nobody expects the trend to change as things stand now.... my plan is actually an effort to save them by giving these trained minds 4 years of work experience, making "dont study that if you want to have a job" go away. The University has gone a long way towards being dead, towards being nothing but a lifestyle and/or career ticket punch stop.....I want to save the university by shrinking and refocusing them back on education, to include the humanities.

If we fix the University we will all be better off.

Edit: This is also a social justice mission, for I think it is the last two decades the underclass and middle class have increasingly not been able to go to University at all or they are crushed by the debt of the experience (which they often dont get much of of because the University now sucks), my plan would completely rub out that inequity, thus serving this country, because it is inequity that destroys society just as sure as the sun will rise tomorrow.