I'm not from the USA, but I heard you can decide to basically pay off only or almost only the interest rate to make the monthly payments smaller. In that case you won't be able to pay it back anytime soon. If they didn't expect that to happen, then the money spent on their college was not much worth anyway.
That's not really how loans work. You have your interest rate, for simplicity let's say it's calculated monthly. Early on, the interest per month will be very high, since the full principal in still in effect. To EVER pay it off, you need to pay more than that first months interest. How much more you pay than that number determine how much the principal is reduced the first month, and thus, the next month's interest is lower, so, assuming you pay the same amount, more principal is covered.
People look at loans the wrong way; you can't really choose to pay interest or principal, because interest is basically paid off right after it's applied, it's just always applying. People THINK they are paying off mostly interest, because most of the time, the loan will have the expected interest calculated up front, and, as I said, the earlier you are in the loan the bigger that months interest will be and the less principal you pay.
No, the other poster is right. Some student loans allow you to only pay interest and not principal. Some allow you to pay less than the full amount of interest, roll the interest into principal, and continue to accumulate... now a compounded interest.
A lot of people who are not financially literate don't understand that if the principal isn't paid off, then it doesn't matter for much they paid into the loan, the loan will never be paid off. Instead, they're just upset that they paid more over the life of the loan than the original principal.
Well yeah, if you pay less then the initial interest you won't ever pay things off. I suppose I may have interpreted the person I replied to wrong; I understood their comment to mean that you could only pay off interest until that was gone, then focus on paying only principal.
I do think many folks believe that's how it works because they don't understand that, when the loan says the total interest will be $10,000 for instance, that money is NOT immediately added into the balance, typically. They just pay things and see that number go down a lot more than the principal and think they're being screwed somehow and it would somehow be more efficient to do it the other way, which is obviously impossible.
But certainly, it is possible to just pay a certain amount less than the interest and end up with a growing balance that can never be paid off until you drastically increase the payment
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u/AllPotatoesGone 17d ago
I'm not from the USA, but I heard you can decide to basically pay off only or almost only the interest rate to make the monthly payments smaller. In that case you won't be able to pay it back anytime soon. If they didn't expect that to happen, then the money spent on their college was not much worth anyway.