How can people make payments for 20 years on school loans and barely make a dent in the principal? How are those loans different than a mortgage?
In: Economics
The other difference between a mortgage and student loans is that mortgages are generally calculated for a fixed amount of time (usually 30 years). Assuming you have a fixed rate mortgage, this means that, based on the price of the house, you know exactly how much interest you will be paying. When you first start making mortgage payments, all of your payments go toward the interest, until the interest is paid off. Then your payments go toward the principle. You pay off the interest early. (Not all mortgages work this way, but this is typical)
But student loans you simply make payments until they are paid for. You don’t know how much interest you will ultimately pay, and the amount you pay each month might change. so you have to pay enough each payment to cover both the interest and some of the principle to make a dent.
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