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
Simple interest works the same way everywhere in the world. So if you have a $70,000 loan at 5%, then 70,000*.05 divided by 12 means that your loan is accruing about $292 in interest per month with that balance. On a standard repayment plan over 10 years, your payment would be $742 per month.
Now, many people decide to use an income-based repayment plan. So if you choose to go on income-based repayment which sets your payback according to your monthly income, and you have a low income where your monthly payment is $350 per month, then you are only going to be reducing the balance by $60 per month. If you make a payment 15 days late, then instead of $292 in interest, you accrue $440 in interest which means that you didn’t even pay off any of the balance this month.
So, it’s a combination of choose repayment plans that don’t actually reduce the principal balance of the loan by any meaningful amount, and it’s often combined being disorganized with paying back your debt obligations.
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