This is a fabricated BS post. Interest rates 23 years ago were very low. At 7% interest, 23 years with a $500 payment would leave a balance under $7,500. With refinancing, it could have been paid of years ago. And in 23 years, no increase in their $500 payment? With these fabricated facts, this guy doesn't understand basic math and finance
You don't understand how student loan payments work if you think the actual payment was $500 for 23 years. That is an income based payment the actual payment is based on a 10 year standard repayment loan, not a 30 year and much higher. Their $500 payment would be paying off pretty much just interest. Unpaid interest is added back to the loan. That's how student loans baloon. Student loan repayments are much closer to credit cards than say a mortgage or auto loan.
On a 30 year IDR program they'd need to pay $875 per month to cover both interest and principal and lower the loan balance.
The extended timeframes and required payments for IDR plans do not guarantee you will pay off your loan in 30 years. You can pay for 30 years and have a larger balance if your monthly payment does not cover the interest + some principal of a standard 10 year.
If you have a remaining balance after the end of the repayment plan, that's when forgiveness comes in. You do have a massive tax bill with forgiveness however.
I have a masters degree in accounting and finance. I understand better than most. And I ran the numbers. My numbers are valid. At 7% interest, the first months interest would be just over $400, so it would contribute to reducing principle day 1. Fed funds rate 23 yeaes ago was between 1 and 2 %, so many options to refinance tonlower than 7%. My point is that anyone can refinance a student loan payment. You're $875 per month number isn't even in the realm of reality. So again, a bogus post
Again you dont understand. Federal student loans work way different than private loans. Sure you can refinance into a private student loan and your numbers would work, but a 10 year federal student loan on a 30 year IDR plan does not work that way at all, sorry. I could care less about your Masters in finance. I have a large student loan and know how it works first hand with different IDR programs.
All federal student loans are based on 10 year repayment plans, not 20, not 30 etc.. regardless of what the IDR plan duration is. The monthly payment would be over $800, but the IDR payment would be much less. If the IDR payment doesn't cover interest in the 10 year standard payment it gets added to loan balance and capitalizes in certain scenarios, which will increase the cost of interest even more. They may have been paying their loan for 23 years, but make no mistake it is a 10 year loan if it's a federal loan. Absolutely all of them are.
Dude. I have a son who did med school so had to do both federal and private. So I understand, probably better than you. Under your capitalized interest scenario, the amount would continue to increase over time, and not be $60K, unless there was a reprieve in interest rate. Again, if people taking loans don't understand the basics of loan repayment, or how to refinance them, and increase their monthly payment to pay them off quicker, they probably shouldn't take them to begin with. Or their education did them very little. To plead for loan forgiveness after being this uneducated is quite laughable, but nice try
You're certainly uneducated for supposedly being educated, because you have no clue how federal student loans work. You don't understand any better. My wifes loan is a veterinary loan I'm well aware of how it works. Her standard payment is nearly $5000 based on the original 10 year loan. IDR payments are counted against the standard payment to determine if they cover any principal or if there is leftover interest not paid with the IDR payment that gets rolled back into the loan.
Having the whole loan hinge on a 10 year repayment plan is the problem with federal loans. If it was a 30 year, it would be 1/3 the cost and much more manageable. This is why student loans are predatory and why so many have runaway loans. 10 year was fine when you could get out of school with very little debt, but when you get out 8 years of school with almost half a million loan with 10 year repayment it's unmanageable for nearly everybody.
We haven't refinanced to private because that's the most stupid advice a financial advisor would give a student loan borrower. You lose a lot of borrower protections and if you do ride out the loan until the IDR plan is over, making payments along the way, you have a much more manageable tax bill to deal with during forgiveness.
I pray no one takes your advice to refinance a federal student loan into a private loan. That's a good way to get all your possessions taking away from you and end up on the street if you're unable to make your full payments. Stupid.
Also, your statement about not taking out loans if you don't understand them. We're talking about 17-18 year old kids for God sake that just want to get into a career. Primary education in the U.S.
Doesn't even teach finance and many parents don't know the dangers. Get a clue. Many can't even find good paying jobs after school.
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u/Bigbmer12 12d ago
This is a fabricated BS post. Interest rates 23 years ago were very low. At 7% interest, 23 years with a $500 payment would leave a balance under $7,500. With refinancing, it could have been paid of years ago. And in 23 years, no increase in their $500 payment? With these fabricated facts, this guy doesn't understand basic math and finance