Student Loan Interest

I've seen various explanations about how student loans work in the U.S., which put Biden's recent forgiveness of $10,000 or $20,000 in context. Yesterday I saw this write-up by a woman named Mary Jacob, which she shared on Facebook, and I thought it was a particularly good one.

I don't know her; she lists herself as a disability rights advocate from Louisiana, and it was shared by a friend of mine.

My final attempt to help those that don’t understand the student loan game.  

Mortgage: At closing, you know exactly what you will pay back. Interest is calculated monthly. Extra payments pay down principal.  

My mortgage was $135k for a 30-year loan in 2004.  Refinanced once for lower interest rates and terms. We made a couple of lump sum principal payments and the house was paid off in 2021.  That's 13 years early.  

Student loan: Interest is compounded daily. Extra payments go toward future payments, not to pay down the principal. If you don’t make a monthly payment because you are paid up in advance, your interest is still calculated daily.  

I was told if I made my payments on time (I never missed a single payment nor paid late) loan would be paid off in 20 years. I won’t say the college financial aid rep lied to me. What I will say is she probably didn’t understand it herself.  

I was also told about the Public Service Forgiveness: make 10 years of payments and the rest is paid off. Well, when I applied, I was told my loans weren’t eligible.  

I borrowed $45,000 in student loans
First 10 years I paid $275/month = $33,000
Next 15 years I paid $550/month = $99,000
1 final lump sum payment = $16,000
Total $148,000

Mortgage $135k paid off in 17 years for a total of $183,000.
Student loan $45k paid off in 25 years after making a final $16k payment for a total of $148,000.  

Yes, you can say everyone should know better, but chances are you wouldn’t have known any better either.  

We are told over and over that your way out of poverty is through education. Yet, the poorest, most vulnerable, first-generation college students are just happy to be living their dream and trying their hardest to escape the cycle of poverty.  

What the government should do is take every penny people have paid toward interest and apply it to the principal and preferably stop charging interest. This would probably pay off many loans.  At the most, the loans should be set up like a mortgage.  

Anyone who reads this and doesn’t understand the system is broken doesn’t want to understand.

And Mary's write-up doesn't mention that student loans cannot be discharged in bankruptcy.

I wish I had my own records handy so I could figure out how much I paid to cover the relatively measly $3,000 in federal student loans I took out in 1981 and ’82. After graduating, I made payments through 1986, was in forbearance while in graduate school into the early/mid-1990s, and then paid them off in the early 2000s. Other than the forbearance time, I'm pretty sure I never missed a payment. I don't remember at all if I understood how the interest would be compounded or even what the interest rate was. I only remember my mother telling me it was "cheap money" at the time, which was true for the early 1980s.

However much it was that I paid in, relative to the original amount, I'm happy for people to have their debt forgiven finally, and even more so now that I have this detailed understanding of how usurious student loans have become.