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What are the biggest pitfalls to avoid with student loans?
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More often than not I read horror stories of people that acquire college debt, pay monthly for years, and end up owing the same or more than when they started.
What is the deal with these loans? How are they legal? What re-payment detail are people overlooking? How can someone get out of this vicious cycle?
For the record, I graduated with a sub $10,000 loan and paid it off in about a year with no troubles.
student-loan repayment
edited 16 mins ago
Nathan L
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asked 2 hours ago
MonkeyZeus
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More often than not I read horror stories of people that acquire college debt, pay monthly for years, and end up owing the same or more than when they started.
What is the deal with these loans? How are they legal? What re-payment detail are people overlooking? How can someone get out of this vicious cycle?
For the record, I graduated with a sub $10,000 loan and paid it off in about a year with no troubles.
student-loan repayment
edited 16 mins ago
Nathan L
28.4k1472125
asked 2 hours ago
MonkeyZeus
1,0271720
1
Can you cite any specific examples you've seen?
– glibdud
2 hours ago
@glibdud This one comes to mind bustle.com/p/…
– MonkeyZeus
2 hours ago
2
@MonkeyZeus That link you provided tells a pretty straightforward story: a large loan, a variable high interest rate, missed payments, and only paying enough to cover the accumulating interest. This is the exact same trap people fall into when only paying the minimum on their credit cards only for much higher stakes, since the amount is so large and it can't be discharged in bankruptcy.
– Charles E. Grant
2 hours ago
@CharlesE.Grant Credit card balances generally go down (albeit minuscule) when paying the minimum amount assuming you do not add additional debt. Please see my other comment
– MonkeyZeus
2 hours ago
Regarding legality, these are large companies that employ lawyers to ensure they are within the law when offering products. Unfortunately for the mountains of late teens out there there is only so far that the law will go in protecting consumers from their own bad decisions.
– Myles
2 hours ago
 |Â
show 7 more comments
up vote
3
down vote
favorite
up vote
3
down vote
favorite
More often than not I read horror stories of people that acquire college debt, pay monthly for years, and end up owing the same or more than when they started.
What is the deal with these loans? How are they legal? What re-payment detail are people overlooking? How can someone get out of this vicious cycle?
For the record, I graduated with a sub $10,000 loan and paid it off in about a year with no troubles.
student-loan repayment
edited 16 mins ago
Nathan L
28.4k1472125
asked 2 hours ago
MonkeyZeus
1,0271720
More often than not I read horror stories of people that acquire college debt, pay monthly for years, and end up owing the same or more than when they started.
What is the deal with these loans? How are they legal? What re-payment detail are people overlooking? How can someone get out of this vicious cycle?
For the record, I graduated with a sub $10,000 loan and paid it off in about a year with no troubles.
student-loan repayment
student-loan repayment
edited 16 mins ago
Nathan L
28.4k1472125
asked 2 hours ago
MonkeyZeus
1,0271720
edited 16 mins ago
Nathan L
28.4k1472125
asked 2 hours ago
MonkeyZeus
1,0271720
edited 16 mins ago
Nathan L
28.4k1472125
edited 16 mins ago
Nathan L
28.4k1472125
edited 16 mins ago
Nathan L
28.4k1472125
28.4k1472125
asked 2 hours ago
MonkeyZeus
1,0271720
asked 2 hours ago
MonkeyZeus
1,0271720
asked 2 hours ago
MonkeyZeus
1,0271720
1,0271720
1
Can you cite any specific examples you've seen?
– glibdud
2 hours ago
@glibdud This one comes to mind bustle.com/p/…
– MonkeyZeus
2 hours ago
2
@MonkeyZeus That link you provided tells a pretty straightforward story: a large loan, a variable high interest rate, missed payments, and only paying enough to cover the accumulating interest. This is the exact same trap people fall into when only paying the minimum on their credit cards only for much higher stakes, since the amount is so large and it can't be discharged in bankruptcy.
– Charles E. Grant
2 hours ago
@CharlesE.Grant Credit card balances generally go down (albeit minuscule) when paying the minimum amount assuming you do not add additional debt. Please see my other comment
– MonkeyZeus
2 hours ago
Regarding legality, these are large companies that employ lawyers to ensure they are within the law when offering products. Unfortunately for the mountains of late teens out there there is only so far that the law will go in protecting consumers from their own bad decisions.
– Myles
2 hours ago
 |Â
show 7 more comments
1
Can you cite any specific examples you've seen?
– glibdud
2 hours ago
@glibdud This one comes to mind bustle.com/p/…
– MonkeyZeus
2 hours ago
2
@MonkeyZeus That link you provided tells a pretty straightforward story: a large loan, a variable high interest rate, missed payments, and only paying enough to cover the accumulating interest. This is the exact same trap people fall into when only paying the minimum on their credit cards only for much higher stakes, since the amount is so large and it can't be discharged in bankruptcy.
– Charles E. Grant
2 hours ago
@CharlesE.Grant Credit card balances generally go down (albeit minuscule) when paying the minimum amount assuming you do not add additional debt. Please see my other comment
– MonkeyZeus
2 hours ago
Regarding legality, these are large companies that employ lawyers to ensure they are within the law when offering products. Unfortunately for the mountains of late teens out there there is only so far that the law will go in protecting consumers from their own bad decisions.
– Myles
2 hours ago
1
1
Can you cite any specific examples you've seen?
– glibdud
2 hours ago
Can you cite any specific examples you've seen?
– glibdud
2 hours ago
@glibdud This one comes to mind bustle.com/p/…
– MonkeyZeus
2 hours ago
@glibdud This one comes to mind bustle.com/p/…
– MonkeyZeus
2 hours ago
2
2
@MonkeyZeus That link you provided tells a pretty straightforward story: a large loan, a variable high interest rate, missed payments, and only paying enough to cover the accumulating interest. This is the exact same trap people fall into when only paying the minimum on their credit cards only for much higher stakes, since the amount is so large and it can't be discharged in bankruptcy.
– Charles E. Grant
2 hours ago
@MonkeyZeus That link you provided tells a pretty straightforward story: a large loan, a variable high interest rate, missed payments, and only paying enough to cover the accumulating interest. This is the exact same trap people fall into when only paying the minimum on their credit cards only for much higher stakes, since the amount is so large and it can't be discharged in bankruptcy.
– Charles E. Grant
2 hours ago
@CharlesE.Grant Credit card balances generally go down (albeit minuscule) when paying the minimum amount assuming you do not add additional debt. Please see my other comment
– MonkeyZeus
2 hours ago
@CharlesE.Grant Credit card balances generally go down (albeit minuscule) when paying the minimum amount assuming you do not add additional debt. Please see my other comment
– MonkeyZeus
2 hours ago
Regarding legality, these are large companies that employ lawyers to ensure they are within the law when offering products. Unfortunately for the mountains of late teens out there there is only so far that the law will go in protecting consumers from their own bad decisions.
– Myles
2 hours ago
Regarding legality, these are large companies that employ lawyers to ensure they are within the law when offering products. Unfortunately for the mountains of late teens out there there is only so far that the law will go in protecting consumers from their own bad decisions.
– Myles
2 hours ago
 |Â
show 7 more comments
4 Answers
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oldest
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up vote
12
down vote
(This answer is based on the article you linked in the comment, but could probably apply in general as well)
What re-payment detail are people overlooking?
There's not many specifics in the article, but here are some possibilities:
- Some interest had accrued while in school, so the amount owed after graduation was significantly more than the original "principal amount"
- A payment was missed (indicated in the article), and the interest plus penalties was added to the balance owed
- She is on a deferment plan in which the monthly payment is less than the interest that is accruing. The payment amount in one image is $171 but she says the interest each month is $480.
How can someone get out of this vicious cycle?
Time and money. Work extra jobs, pay more than the monthly amount (and don't ever miss one), reduce expenses to bare minimums, and keep working until they're gone. There's no magic sauce (even bankruptcy) for student loans.
On a side note, I wish the article had more of a "don't make the same mistake I made" tone, but it reads more like a sob story trying to get support for student debt forgiveness (obviously at the expense of those that aren't paying for student loans). Instead of taking responsibility for bad decisions (singing up for a loan without reading the "multi-page contract", going to private school with no way to pay for it other than borrowing, tacking on another 24K because heaven forbid she give up the "relationships I had cultivated with students and professors"), the whole article feel like another "No one can succeed except the rich" rant.
answered 2 hours ago
D Stanley
45.7k7138149
1
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
1
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
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up vote
3
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Attend a less expensive school
The biggest pitfall to avoid is attending a school at you cannot afford. If you can get a need-based scholarship to Harvard, by all means attend an expensive university, but don't go to a school that costs $30K/year if you have to go into debt for it. There are plenty of cheaper alternatives like attending a community college until your general ed credits are complete (or you have an associates degree to transfer with). Go to an in-state school to take advantage of resident tuition rates instead of non-resident rates.
Prefer government subsidized loans to private loans
After you have avoided as much as you can in tuition costs, try to live within what is available in government subsidized loans. Stafford subsidized loans have a subsidized rate, and no interest accumulated while attending school. Stafford unsubsidized loans accumulate interest immediately, but the rate is still subsidized. Private loans often have the higher variable rates on the loans because they aren't government subsidized; they are generally only offered after the lower-cost loan options are no longer available, perhaps in cases where someone took too long to graduate or because they need more money than is deemed necessary by the financial aid formula.
Pay down the loans with the highest interest rate first
The next biggest pitfall is not paying down the loans with the highest interest rates first. In the article you linked in your comments, I saw $2000 worth of payments going to 8 loans, but the extra $500 payment was paying down a loan with 6.5% interest. If the extra money all went to the 11% loan, that loan could be repaid in less than 2 years. (Without the extra payment it would still be retired in 3 years at the current repayment rate.)
Pay off an high interest loans before grad school
Other pitfalls are mentioned in other answers. The article you linked mentions that this individual attended grad school outside the US and allowed the loans to default, accumulating significant interest and fees before finally initiating repayment a few years later. Perhaps she should have considered paying down the private loans before attending grad school as that would have saved her many years of payments. In any case if you have loans that are accumulating interest, it's not a great idea to allow that interest to be accumulating while attending grad school, even if doing that will allow you to delay repayment.
answered 1 hour ago
Nathan L
28.4k1472125
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
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2
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Many people borrow more than they can repay, then take advantage of loan forgiveness on an income-based repayment plan. From what I've seen this is the most common scenario by which people make so little progress on their student loan principal.
A federal student loan with a standard repayment plan will be paid back in 10-years barring any periods of forbearance/deferment, in those plans you do see principle decrease each month.
When it comes to loans with higher or adjustable rates, people who borrow too much will quickly be unable to keep up with the standard repayment schedule and will have to get into an alternative arrangement that drags on repayment or periods of forbearance where interest accrues.
Regarding breaking the cycle, the worst part of that linked article is that they seem to have learned little, each time they upgraded their living situation they dragged on repayment further. That much debt at those interest rates should be treated like an emergency, true bare-bones living is in order with that kind of debt-load.
Warning others not to make the same mistakes would be nice too, nothing will break the cycle faster than people refusing to play the game of going into massive debt for some college classes.
answered 2 hours ago
Hart CO
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The thing that comes to my mind here is that they are only making the minimum monthly payment. Doing this with any type of loan, not just a student loan will prolong the process of getting rid of debt. If you want to become debt free you always have to make more than the minimum monthly.
Take a credit card for example say you owe $100 on that card at 18% monthly. The minimum monthly payment is something like $15. It would take you about 7 months to pay this off just sticking to the min monthly because interest has accrued on the loan.
If the first payment is $10. Next month you owe 90 before interest, with interest you owe an additional $16.2. Now you owe $106.2 (90+16.2). This is more than the original amount because the didn't make the minimum. If you miss a few payments, or make less than the minimum monthly, you will owe them more money. Even if you make the minimum exactly it still leads to a longer loan, the longer the loan occurs, the more interest is paid instead of principal on the original loan.
If instead you paid $50 it would take 3 months to pay off the loan, and you would pay less interest on it overall. The same thing happens with student loans, just at a lower interest rate, and with a different payment schedule. The reason you got out of debt fast was that you paid off more than your minimum monthly. That's why you didn't take so long to pay back the loan, and they did (they took out a loan they couldn't afford likely).
This is legal because they basically outline this in the contract you sign, or at least give you enough information to figure it out on your own. If you don't then the government sees it as your fault for being financially irresponsible not the lenders.
answered 2 hours ago
billy-bob
68719
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4 Answers
4
active
oldest
votes
4 Answers
4
active
oldest
votes
active
oldest
votes
active
oldest
votes
up vote
12
down vote
(This answer is based on the article you linked in the comment, but could probably apply in general as well)
What re-payment detail are people overlooking?
There's not many specifics in the article, but here are some possibilities:
- Some interest had accrued while in school, so the amount owed after graduation was significantly more than the original "principal amount"
- A payment was missed (indicated in the article), and the interest plus penalties was added to the balance owed
- She is on a deferment plan in which the monthly payment is less than the interest that is accruing. The payment amount in one image is $171 but she says the interest each month is $480.
How can someone get out of this vicious cycle?
Time and money. Work extra jobs, pay more than the monthly amount (and don't ever miss one), reduce expenses to bare minimums, and keep working until they're gone. There's no magic sauce (even bankruptcy) for student loans.
On a side note, I wish the article had more of a "don't make the same mistake I made" tone, but it reads more like a sob story trying to get support for student debt forgiveness (obviously at the expense of those that aren't paying for student loans). Instead of taking responsibility for bad decisions (singing up for a loan without reading the "multi-page contract", going to private school with no way to pay for it other than borrowing, tacking on another 24K because heaven forbid she give up the "relationships I had cultivated with students and professors"), the whole article feel like another "No one can succeed except the rich" rant.
answered 2 hours ago
D Stanley
45.7k7138149
1
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
1
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
add a comment |Â
up vote
12
down vote
(This answer is based on the article you linked in the comment, but could probably apply in general as well)
What re-payment detail are people overlooking?
There's not many specifics in the article, but here are some possibilities:
- Some interest had accrued while in school, so the amount owed after graduation was significantly more than the original "principal amount"
- A payment was missed (indicated in the article), and the interest plus penalties was added to the balance owed
- She is on a deferment plan in which the monthly payment is less than the interest that is accruing. The payment amount in one image is $171 but she says the interest each month is $480.
How can someone get out of this vicious cycle?
Time and money. Work extra jobs, pay more than the monthly amount (and don't ever miss one), reduce expenses to bare minimums, and keep working until they're gone. There's no magic sauce (even bankruptcy) for student loans.
On a side note, I wish the article had more of a "don't make the same mistake I made" tone, but it reads more like a sob story trying to get support for student debt forgiveness (obviously at the expense of those that aren't paying for student loans). Instead of taking responsibility for bad decisions (singing up for a loan without reading the "multi-page contract", going to private school with no way to pay for it other than borrowing, tacking on another 24K because heaven forbid she give up the "relationships I had cultivated with students and professors"), the whole article feel like another "No one can succeed except the rich" rant.
answered 2 hours ago
D Stanley
45.7k7138149
1
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
1
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
add a comment |Â
up vote
12
down vote
up vote
12
down vote
(This answer is based on the article you linked in the comment, but could probably apply in general as well)
What re-payment detail are people overlooking?
There's not many specifics in the article, but here are some possibilities:
- Some interest had accrued while in school, so the amount owed after graduation was significantly more than the original "principal amount"
- A payment was missed (indicated in the article), and the interest plus penalties was added to the balance owed
- She is on a deferment plan in which the monthly payment is less than the interest that is accruing. The payment amount in one image is $171 but she says the interest each month is $480.
How can someone get out of this vicious cycle?
Time and money. Work extra jobs, pay more than the monthly amount (and don't ever miss one), reduce expenses to bare minimums, and keep working until they're gone. There's no magic sauce (even bankruptcy) for student loans.
On a side note, I wish the article had more of a "don't make the same mistake I made" tone, but it reads more like a sob story trying to get support for student debt forgiveness (obviously at the expense of those that aren't paying for student loans). Instead of taking responsibility for bad decisions (singing up for a loan without reading the "multi-page contract", going to private school with no way to pay for it other than borrowing, tacking on another 24K because heaven forbid she give up the "relationships I had cultivated with students and professors"), the whole article feel like another "No one can succeed except the rich" rant.
answered 2 hours ago
D Stanley
45.7k7138149
(This answer is based on the article you linked in the comment, but could probably apply in general as well)
What re-payment detail are people overlooking?
There's not many specifics in the article, but here are some possibilities:
- Some interest had accrued while in school, so the amount owed after graduation was significantly more than the original "principal amount"
- A payment was missed (indicated in the article), and the interest plus penalties was added to the balance owed
- She is on a deferment plan in which the monthly payment is less than the interest that is accruing. The payment amount in one image is $171 but she says the interest each month is $480.
How can someone get out of this vicious cycle?
Time and money. Work extra jobs, pay more than the monthly amount (and don't ever miss one), reduce expenses to bare minimums, and keep working until they're gone. There's no magic sauce (even bankruptcy) for student loans.
On a side note, I wish the article had more of a "don't make the same mistake I made" tone, but it reads more like a sob story trying to get support for student debt forgiveness (obviously at the expense of those that aren't paying for student loans). Instead of taking responsibility for bad decisions (singing up for a loan without reading the "multi-page contract", going to private school with no way to pay for it other than borrowing, tacking on another 24K because heaven forbid she give up the "relationships I had cultivated with students and professors"), the whole article feel like another "No one can succeed except the rich" rant.
answered 2 hours ago
D Stanley
45.7k7138149
edited 2 hours ago
answered 2 hours ago
D Stanley
45.7k7138149
answered 2 hours ago
D Stanley
45.7k7138149
answered 2 hours ago
D Stanley
45.7k7138149
45.7k7138149
1
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
1
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
add a comment |Â
1
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
1
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
1
1
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
I was trying to avoid pointing to any specific references because I too felt that they are far too sob story-ish. I was hoping my question would garner answers which point to the specific pitfalls and traps of student loans and their re-payment programs from a numbers standpoint rather than entitlement. For the record I know someone who has been paying $400/month against their 20K student loan and after 10 years now they still owe 20K. I tried offering help by reading their loan terms but they never got around to showing me.
– MonkeyZeus
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
@MonkeyZeus Yeah hopefully I gave a few reasons why one could not touch principal after months or repayment. I did add a few comments to try and address the more general questions.
– D Stanley
2 hours ago
1
1
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@MonkeyZeus That example doesn't hold up to scrutiny, a $20,000 loan at 20% interest would be paid off in 10 years with payments of $386/month.
– Hart CO
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
@HartCO Unfortunately I am not aware of the terms of their loan nor the accuracy of their story...
– MonkeyZeus
2 hours ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
The image showing 171$ is not showing a single payment, it is showing the sum of all her payments to a specific loan... 171$ total has been applied to the principal, 18,000$ to interest. The interest she cites as 480$/month is on all of her loans combined.
– user3067860
12 mins ago
add a comment |Â
up vote
3
down vote
Attend a less expensive school
The biggest pitfall to avoid is attending a school at you cannot afford. If you can get a need-based scholarship to Harvard, by all means attend an expensive university, but don't go to a school that costs $30K/year if you have to go into debt for it. There are plenty of cheaper alternatives like attending a community college until your general ed credits are complete (or you have an associates degree to transfer with). Go to an in-state school to take advantage of resident tuition rates instead of non-resident rates.
Prefer government subsidized loans to private loans
After you have avoided as much as you can in tuition costs, try to live within what is available in government subsidized loans. Stafford subsidized loans have a subsidized rate, and no interest accumulated while attending school. Stafford unsubsidized loans accumulate interest immediately, but the rate is still subsidized. Private loans often have the higher variable rates on the loans because they aren't government subsidized; they are generally only offered after the lower-cost loan options are no longer available, perhaps in cases where someone took too long to graduate or because they need more money than is deemed necessary by the financial aid formula.
Pay down the loans with the highest interest rate first
The next biggest pitfall is not paying down the loans with the highest interest rates first. In the article you linked in your comments, I saw $2000 worth of payments going to 8 loans, but the extra $500 payment was paying down a loan with 6.5% interest. If the extra money all went to the 11% loan, that loan could be repaid in less than 2 years. (Without the extra payment it would still be retired in 3 years at the current repayment rate.)
Pay off an high interest loans before grad school
Other pitfalls are mentioned in other answers. The article you linked mentions that this individual attended grad school outside the US and allowed the loans to default, accumulating significant interest and fees before finally initiating repayment a few years later. Perhaps she should have considered paying down the private loans before attending grad school as that would have saved her many years of payments. In any case if you have loans that are accumulating interest, it's not a great idea to allow that interest to be accumulating while attending grad school, even if doing that will allow you to delay repayment.
answered 1 hour ago
Nathan L
28.4k1472125
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
add a comment |Â
up vote
3
down vote
Attend a less expensive school
The biggest pitfall to avoid is attending a school at you cannot afford. If you can get a need-based scholarship to Harvard, by all means attend an expensive university, but don't go to a school that costs $30K/year if you have to go into debt for it. There are plenty of cheaper alternatives like attending a community college until your general ed credits are complete (or you have an associates degree to transfer with). Go to an in-state school to take advantage of resident tuition rates instead of non-resident rates.
Prefer government subsidized loans to private loans
After you have avoided as much as you can in tuition costs, try to live within what is available in government subsidized loans. Stafford subsidized loans have a subsidized rate, and no interest accumulated while attending school. Stafford unsubsidized loans accumulate interest immediately, but the rate is still subsidized. Private loans often have the higher variable rates on the loans because they aren't government subsidized; they are generally only offered after the lower-cost loan options are no longer available, perhaps in cases where someone took too long to graduate or because they need more money than is deemed necessary by the financial aid formula.
Pay down the loans with the highest interest rate first
The next biggest pitfall is not paying down the loans with the highest interest rates first. In the article you linked in your comments, I saw $2000 worth of payments going to 8 loans, but the extra $500 payment was paying down a loan with 6.5% interest. If the extra money all went to the 11% loan, that loan could be repaid in less than 2 years. (Without the extra payment it would still be retired in 3 years at the current repayment rate.)
Pay off an high interest loans before grad school
Other pitfalls are mentioned in other answers. The article you linked mentions that this individual attended grad school outside the US and allowed the loans to default, accumulating significant interest and fees before finally initiating repayment a few years later. Perhaps she should have considered paying down the private loans before attending grad school as that would have saved her many years of payments. In any case if you have loans that are accumulating interest, it's not a great idea to allow that interest to be accumulating while attending grad school, even if doing that will allow you to delay repayment.
answered 1 hour ago
Nathan L
28.4k1472125
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
add a comment |Â
up vote
3
down vote
up vote
3
down vote
Attend a less expensive school
The biggest pitfall to avoid is attending a school at you cannot afford. If you can get a need-based scholarship to Harvard, by all means attend an expensive university, but don't go to a school that costs $30K/year if you have to go into debt for it. There are plenty of cheaper alternatives like attending a community college until your general ed credits are complete (or you have an associates degree to transfer with). Go to an in-state school to take advantage of resident tuition rates instead of non-resident rates.
Prefer government subsidized loans to private loans
After you have avoided as much as you can in tuition costs, try to live within what is available in government subsidized loans. Stafford subsidized loans have a subsidized rate, and no interest accumulated while attending school. Stafford unsubsidized loans accumulate interest immediately, but the rate is still subsidized. Private loans often have the higher variable rates on the loans because they aren't government subsidized; they are generally only offered after the lower-cost loan options are no longer available, perhaps in cases where someone took too long to graduate or because they need more money than is deemed necessary by the financial aid formula.
Pay down the loans with the highest interest rate first
The next biggest pitfall is not paying down the loans with the highest interest rates first. In the article you linked in your comments, I saw $2000 worth of payments going to 8 loans, but the extra $500 payment was paying down a loan with 6.5% interest. If the extra money all went to the 11% loan, that loan could be repaid in less than 2 years. (Without the extra payment it would still be retired in 3 years at the current repayment rate.)
Pay off an high interest loans before grad school
Other pitfalls are mentioned in other answers. The article you linked mentions that this individual attended grad school outside the US and allowed the loans to default, accumulating significant interest and fees before finally initiating repayment a few years later. Perhaps she should have considered paying down the private loans before attending grad school as that would have saved her many years of payments. In any case if you have loans that are accumulating interest, it's not a great idea to allow that interest to be accumulating while attending grad school, even if doing that will allow you to delay repayment.
answered 1 hour ago
Nathan L
28.4k1472125
Attend a less expensive school
The biggest pitfall to avoid is attending a school at you cannot afford. If you can get a need-based scholarship to Harvard, by all means attend an expensive university, but don't go to a school that costs $30K/year if you have to go into debt for it. There are plenty of cheaper alternatives like attending a community college until your general ed credits are complete (or you have an associates degree to transfer with). Go to an in-state school to take advantage of resident tuition rates instead of non-resident rates.
Prefer government subsidized loans to private loans
After you have avoided as much as you can in tuition costs, try to live within what is available in government subsidized loans. Stafford subsidized loans have a subsidized rate, and no interest accumulated while attending school. Stafford unsubsidized loans accumulate interest immediately, but the rate is still subsidized. Private loans often have the higher variable rates on the loans because they aren't government subsidized; they are generally only offered after the lower-cost loan options are no longer available, perhaps in cases where someone took too long to graduate or because they need more money than is deemed necessary by the financial aid formula.
Pay down the loans with the highest interest rate first
The next biggest pitfall is not paying down the loans with the highest interest rates first. In the article you linked in your comments, I saw $2000 worth of payments going to 8 loans, but the extra $500 payment was paying down a loan with 6.5% interest. If the extra money all went to the 11% loan, that loan could be repaid in less than 2 years. (Without the extra payment it would still be retired in 3 years at the current repayment rate.)
Pay off an high interest loans before grad school
Other pitfalls are mentioned in other answers. The article you linked mentions that this individual attended grad school outside the US and allowed the loans to default, accumulating significant interest and fees before finally initiating repayment a few years later. Perhaps she should have considered paying down the private loans before attending grad school as that would have saved her many years of payments. In any case if you have loans that are accumulating interest, it's not a great idea to allow that interest to be accumulating while attending grad school, even if doing that will allow you to delay repayment.
answered 1 hour ago
Nathan L
28.4k1472125
edited 18 mins ago
answered 1 hour ago
Nathan L
28.4k1472125
answered 1 hour ago
Nathan L
28.4k1472125
answered 1 hour ago
Nathan L
28.4k1472125
28.4k1472125
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
add a comment |Â
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
The whole thing reads like someone who has no clue how debt works and is complaining about how bad things are while doing nothing about it the whole time. What kind of masters degree did she get where she gets a job starting out at 20k a year in New York? The article does call it an office job so it's quite possible it isn't even related to her masters degree. Sadly I don't think her story is unique. We have a generation or two of kids who were sold college as the route to a good future and college loans as the way to get it.
– Evan Steinbrenner
1 hour ago
add a comment |Â
up vote
2
down vote
Many people borrow more than they can repay, then take advantage of loan forgiveness on an income-based repayment plan. From what I've seen this is the most common scenario by which people make so little progress on their student loan principal.
A federal student loan with a standard repayment plan will be paid back in 10-years barring any periods of forbearance/deferment, in those plans you do see principle decrease each month.
When it comes to loans with higher or adjustable rates, people who borrow too much will quickly be unable to keep up with the standard repayment schedule and will have to get into an alternative arrangement that drags on repayment or periods of forbearance where interest accrues.
Regarding breaking the cycle, the worst part of that linked article is that they seem to have learned little, each time they upgraded their living situation they dragged on repayment further. That much debt at those interest rates should be treated like an emergency, true bare-bones living is in order with that kind of debt-load.
Warning others not to make the same mistakes would be nice too, nothing will break the cycle faster than people refusing to play the game of going into massive debt for some college classes.
answered 2 hours ago
Hart CO
21.9k15267
add a comment |Â
up vote
2
down vote
Many people borrow more than they can repay, then take advantage of loan forgiveness on an income-based repayment plan. From what I've seen this is the most common scenario by which people make so little progress on their student loan principal.
A federal student loan with a standard repayment plan will be paid back in 10-years barring any periods of forbearance/deferment, in those plans you do see principle decrease each month.
When it comes to loans with higher or adjustable rates, people who borrow too much will quickly be unable to keep up with the standard repayment schedule and will have to get into an alternative arrangement that drags on repayment or periods of forbearance where interest accrues.
Regarding breaking the cycle, the worst part of that linked article is that they seem to have learned little, each time they upgraded their living situation they dragged on repayment further. That much debt at those interest rates should be treated like an emergency, true bare-bones living is in order with that kind of debt-load.
Warning others not to make the same mistakes would be nice too, nothing will break the cycle faster than people refusing to play the game of going into massive debt for some college classes.
answered 2 hours ago
Hart CO
21.9k15267
add a comment |Â
up vote
2
down vote
up vote
2
down vote
Many people borrow more than they can repay, then take advantage of loan forgiveness on an income-based repayment plan. From what I've seen this is the most common scenario by which people make so little progress on their student loan principal.
A federal student loan with a standard repayment plan will be paid back in 10-years barring any periods of forbearance/deferment, in those plans you do see principle decrease each month.
When it comes to loans with higher or adjustable rates, people who borrow too much will quickly be unable to keep up with the standard repayment schedule and will have to get into an alternative arrangement that drags on repayment or periods of forbearance where interest accrues.
Regarding breaking the cycle, the worst part of that linked article is that they seem to have learned little, each time they upgraded their living situation they dragged on repayment further. That much debt at those interest rates should be treated like an emergency, true bare-bones living is in order with that kind of debt-load.
Warning others not to make the same mistakes would be nice too, nothing will break the cycle faster than people refusing to play the game of going into massive debt for some college classes.
answered 2 hours ago
Hart CO
21.9k15267
Many people borrow more than they can repay, then take advantage of loan forgiveness on an income-based repayment plan. From what I've seen this is the most common scenario by which people make so little progress on their student loan principal.
A federal student loan with a standard repayment plan will be paid back in 10-years barring any periods of forbearance/deferment, in those plans you do see principle decrease each month.
When it comes to loans with higher or adjustable rates, people who borrow too much will quickly be unable to keep up with the standard repayment schedule and will have to get into an alternative arrangement that drags on repayment or periods of forbearance where interest accrues.
Regarding breaking the cycle, the worst part of that linked article is that they seem to have learned little, each time they upgraded their living situation they dragged on repayment further. That much debt at those interest rates should be treated like an emergency, true bare-bones living is in order with that kind of debt-load.
Warning others not to make the same mistakes would be nice too, nothing will break the cycle faster than people refusing to play the game of going into massive debt for some college classes.
answered 2 hours ago
Hart CO
21.9k15267
edited 1 hour ago
answered 2 hours ago
Hart CO
21.9k15267
answered 2 hours ago
Hart CO
21.9k15267
answered 2 hours ago
Hart CO
21.9k15267
21.9k15267
add a comment |Â
add a comment |Â
up vote
2
down vote
The thing that comes to my mind here is that they are only making the minimum monthly payment. Doing this with any type of loan, not just a student loan will prolong the process of getting rid of debt. If you want to become debt free you always have to make more than the minimum monthly.
Take a credit card for example say you owe $100 on that card at 18% monthly. The minimum monthly payment is something like $15. It would take you about 7 months to pay this off just sticking to the min monthly because interest has accrued on the loan.
If the first payment is $10. Next month you owe 90 before interest, with interest you owe an additional $16.2. Now you owe $106.2 (90+16.2). This is more than the original amount because the didn't make the minimum. If you miss a few payments, or make less than the minimum monthly, you will owe them more money. Even if you make the minimum exactly it still leads to a longer loan, the longer the loan occurs, the more interest is paid instead of principal on the original loan.
If instead you paid $50 it would take 3 months to pay off the loan, and you would pay less interest on it overall. The same thing happens with student loans, just at a lower interest rate, and with a different payment schedule. The reason you got out of debt fast was that you paid off more than your minimum monthly. That's why you didn't take so long to pay back the loan, and they did (they took out a loan they couldn't afford likely).
This is legal because they basically outline this in the contract you sign, or at least give you enough information to figure it out on your own. If you don't then the government sees it as your fault for being financially irresponsible not the lenders.
answered 2 hours ago
billy-bob
68719
add a comment |Â
up vote
2
down vote
The thing that comes to my mind here is that they are only making the minimum monthly payment. Doing this with any type of loan, not just a student loan will prolong the process of getting rid of debt. If you want to become debt free you always have to make more than the minimum monthly.
Take a credit card for example say you owe $100 on that card at 18% monthly. The minimum monthly payment is something like $15. It would take you about 7 months to pay this off just sticking to the min monthly because interest has accrued on the loan.
If the first payment is $10. Next month you owe 90 before interest, with interest you owe an additional $16.2. Now you owe $106.2 (90+16.2). This is more than the original amount because the didn't make the minimum. If you miss a few payments, or make less than the minimum monthly, you will owe them more money. Even if you make the minimum exactly it still leads to a longer loan, the longer the loan occurs, the more interest is paid instead of principal on the original loan.
If instead you paid $50 it would take 3 months to pay off the loan, and you would pay less interest on it overall. The same thing happens with student loans, just at a lower interest rate, and with a different payment schedule. The reason you got out of debt fast was that you paid off more than your minimum monthly. That's why you didn't take so long to pay back the loan, and they did (they took out a loan they couldn't afford likely).
This is legal because they basically outline this in the contract you sign, or at least give you enough information to figure it out on your own. If you don't then the government sees it as your fault for being financially irresponsible not the lenders.
answered 2 hours ago
billy-bob
68719
add a comment |Â
up vote
2
down vote
up vote
2
down vote
The thing that comes to my mind here is that they are only making the minimum monthly payment. Doing this with any type of loan, not just a student loan will prolong the process of getting rid of debt. If you want to become debt free you always have to make more than the minimum monthly.
Take a credit card for example say you owe $100 on that card at 18% monthly. The minimum monthly payment is something like $15. It would take you about 7 months to pay this off just sticking to the min monthly because interest has accrued on the loan.
If the first payment is $10. Next month you owe 90 before interest, with interest you owe an additional $16.2. Now you owe $106.2 (90+16.2). This is more than the original amount because the didn't make the minimum. If you miss a few payments, or make less than the minimum monthly, you will owe them more money. Even if you make the minimum exactly it still leads to a longer loan, the longer the loan occurs, the more interest is paid instead of principal on the original loan.
If instead you paid $50 it would take 3 months to pay off the loan, and you would pay less interest on it overall. The same thing happens with student loans, just at a lower interest rate, and with a different payment schedule. The reason you got out of debt fast was that you paid off more than your minimum monthly. That's why you didn't take so long to pay back the loan, and they did (they took out a loan they couldn't afford likely).
This is legal because they basically outline this in the contract you sign, or at least give you enough information to figure it out on your own. If you don't then the government sees it as your fault for being financially irresponsible not the lenders.
answered 2 hours ago
billy-bob
68719
The thing that comes to my mind here is that they are only making the minimum monthly payment. Doing this with any type of loan, not just a student loan will prolong the process of getting rid of debt. If you want to become debt free you always have to make more than the minimum monthly.
Take a credit card for example say you owe $100 on that card at 18% monthly. The minimum monthly payment is something like $15. It would take you about 7 months to pay this off just sticking to the min monthly because interest has accrued on the loan.
If the first payment is $10. Next month you owe 90 before interest, with interest you owe an additional $16.2. Now you owe $106.2 (90+16.2). This is more than the original amount because the didn't make the minimum. If you miss a few payments, or make less than the minimum monthly, you will owe them more money. Even if you make the minimum exactly it still leads to a longer loan, the longer the loan occurs, the more interest is paid instead of principal on the original loan.
If instead you paid $50 it would take 3 months to pay off the loan, and you would pay less interest on it overall. The same thing happens with student loans, just at a lower interest rate, and with a different payment schedule. The reason you got out of debt fast was that you paid off more than your minimum monthly. That's why you didn't take so long to pay back the loan, and they did (they took out a loan they couldn't afford likely).
This is legal because they basically outline this in the contract you sign, or at least give you enough information to figure it out on your own. If you don't then the government sees it as your fault for being financially irresponsible not the lenders.
answered 2 hours ago
billy-bob
68719
edited 12 mins ago
answered 2 hours ago
billy-bob
68719
answered 2 hours ago
billy-bob
68719
answered 2 hours ago
billy-bob
68719
68719
add a comment |Â
add a comment |Â
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1
Can you cite any specific examples you've seen?
– glibdud
2 hours ago
@glibdud This one comes to mind bustle.com/p/…
– MonkeyZeus
2 hours ago
2
@MonkeyZeus That link you provided tells a pretty straightforward story: a large loan, a variable high interest rate, missed payments, and only paying enough to cover the accumulating interest. This is the exact same trap people fall into when only paying the minimum on their credit cards only for much higher stakes, since the amount is so large and it can't be discharged in bankruptcy.
– Charles E. Grant
2 hours ago
@CharlesE.Grant Credit card balances generally go down (albeit minuscule) when paying the minimum amount assuming you do not add additional debt. Please see my other comment
– MonkeyZeus
2 hours ago
Regarding legality, these are large companies that employ lawyers to ensure they are within the law when offering products. Unfortunately for the mountains of late teens out there there is only so far that the law will go in protecting consumers from their own bad decisions.
– Myles
2 hours ago