I saw a post saying that two people left school 23 years ago with a combined debt of 70k. They paid 500 USD monthly for 23 years and still owe 60k.
I’m thoroughly confused. obligatory not from America.
In: Mathematics
There’s an additional factor most people here are not mentioning: while in school, most students are not working. That means that they are paying NOTHING on their loan for at least 4 years, maybe longer depending on how long they are in school. Yet the loans are still accumulating interest.
Periodically, that interest compounds and ALSO accrues interest. So it is not just the original 70k that generates interest. But the 10k in unpaid interest adds onto that and now interest is accumulating on 80k in loans.
When the student graduates and starts working, they are already way behind on interest payments and, in a very large number of cases, the payments they make for several years don’t even touch a cent of the principle of the loan.
Other types of loans, like mortgages, are typically amortized in a way where this is not possible– 23.6% of my very first mortgage payment, for instance, went toward principle. If loan payments never touch principle because they don’t cover the full interest amount accumulated each month, the loan size only grows and it becomes impossible to pay off without a very large monthly payment.
Latest Answers