Yep, the principal, especially early on, is THE single mostimportant factor. A quick calculation leaves me with 80$ off the principal a month when you do 500$ payments at the start. Which really isn't a lot. 600$ more than doubles it to 180$. No wonder there is such a huge jump. And because of compound interest, that makes even more of a difference Edit, I made a calculation error. It seems the initial principal at 500 is 12ish bucks. So, an increase of 20% for the payment to 600 would result in a more than 9fold increase in the principal
@@bgrl6422 8% interest year over year doesn't strike me as excessive. What does strik me as "ought to be illegal" is making student loans government backed and non-dischargeable. There is exactly 0 risk to the schools with those loans, so they can set the costs essentially as high as they want.
@@annekekramer3835 I found that pretty funny. I know other countries use a "." instead of a "," like america but still made me laugh. in america what you just wrote is that your student loans were 7 dollars and zero cents lmao.
@@expiredmilk5435they can , instead of going out and eating in fancy restaurant for 2-3 in a month they could just go once and save that money, or instead of drinking coffee in Starbucks or any other place they could make in home for much cheaper price, it's just an excuse after all
@@user-mo4mu9eb8s Idk much about this but I'd assume they usually do it bc they're unaware of the debt or bc they need the extra money a job that requires a degree gets compared to another job
Or, don't allow predatory for-profit interest rates into your education system. My country actually invests in education. The interest rate for student loans as of last year was 1.23%
@@PallidumSweden? It has been as low as 0% interest! I've taken the loan and have made $10 000 on global index funds and I've paid $30 so far in interest. Truly great for people starting out in life.
@@Pallidum If you want to flex, in my country college is free. There are still things like student loans, but they are not for paying for the college but for accomodation, food and stuff like that if your parents or you dont have the money to stay alive.
@@ThePsycho211It's like that in certain parts of the US. In Florida, my tuition was 100% paid for by the state. I took out a small amount of money for my living expenses, but I paid it all off relatively easily. They fund education through the taxes on the state lottery of all things.
I'm old and i thought it was a law that student loans were 0 interest... which is why you can't bankruptcy out of them... idk man... banks charging almost ten percent on students is crazy
@@mintythreetwentysix4629 lo, isn't that cute... That's the problem, out of touch people think others simply don't what to pay what they borrowed, no they're fucked by a predatory system.
@@mintythreetwentysix4629 I think the deal is that they don't accrue interest while you're in school, but even colleges will recommend in their orientation that you pay down the principle as you can while you're still taking classes, as does the FAFSA application.
@@mintythreetwentysix4629it's not the banks. ever since the department of education got involved in granting loans, most people are getting federal loans over private ones nowadays, and congress sets the annual interest rate every year. It's the government doing this shit
How do people who graduate college not understand this and fix their own problems? It's almost as if their education has no value or merit. Great explanation of the math.
It is mostly the people that sell the loans and the faith these young naive people have that their loan will be paid off at that amount for a monthly payment. How the loan is typically sold is "you just have to make enough for this monthly payment" and that is it there is no saying " you can increase this to pay it off sooner" it is just typical loan scumy behavior
@@dylansmith6078 agreed. Hard to blame the young borrowers when the education system failed them and the institutions that they were forced to be indoctrinated into are lying to them. This is definitely a losing argument for conservatives as they fail to fully comprehend the gravity of the situation. So many things need to be fixed and unfortunately that means getting rid of a lot of debt probably in the form of interest rates.
70,000 at 8.69% interest is about $6,000 interest in year one, or about $500 a month. By paying just the $500, they're barely covering interest. Actually in the first month, the interest is $488, so only bringing down the capital by $12 after one month. Loved this video btw
The numbers are in the video: 0.697% interest per month is 487.90 $ in the first month, based on 70,000$ owed. So they were paying back 12.10$ with the next month asking for a similar amount of interest. They were basically only paying back interest. A simple 10$ more per month would already have helped.
I think that's why they figured $500 was a good amount, because they decrease the principal by $12 every month. But by doing some simple math ($70k/(12*12)) we can see it'll take 40 years to pay the whole thing off (which isn't far from the true number). Right then and there they should have figured this wasn't enough.
@@CST1992 I'm not sure you can do that simplifying calc. $70 / (12*12) = 486 but this would be the number of years as your denominator already multiplies the $12 by 12. Also, in the last momnth of paying off the loan, you are paying pretty much all capital.
That’s actually insane lol they could’ve doubled their first year principal payment with just an extra $12 a month 💀 they’d essentially save a year’s worth of payments by just paying an extra $150 that first year, an extra 9 days of payment. I don’t agree with the “your daily coffee is keeping you poor” videos but they could literally save a year of payment by cutting back on a Starbucks each once per month
Many payment slips in the US, I think for credit cards and for student loans, have to state what the financial consequence will be if you just pay the minimum. As in, "If you just make the minimum payment, you will spend $264,000 to pay off your $70k loan". These people are either really poor college grads or are just stupid. Or, more likely, have just been making the minimum payment banking on Bernie Sanders or some other socialist getting elected and wiping out their debt. I knew several attorneys making $100k+ a year that didn't pay their student debts down because they expected the government to release them from their obligations eventually. Meanwhile, I was making way less than them and had already paid mine off within a couple years of graduation. They called me a schmuck.
@@SoftwareSimian_ But it all is using maths. To all the people asking "when do I ever need maths again?" the simplest answer is: "Every day, you just don't notice it when you don't know maths".
@@SoftwareSimian_ it was taught in accounting. As a fun anecdote, my school's accounting class was cancelled because I was the only one that signed up
The depressing part is these college educated people weren’t educated enough to understand how all this works. They weren’t educated enough to figure out if the jobs at the end of the degree would pay enough to make the loan worth it in the first place
I had a class that explained this stuff in college, I recognized how important it was as soon as we started talking about calculations like this. It was also the second worst taught class I ever took, and the teacher was the worst one I ever had who actually showed up to teach, she barely understood half of the material and didn’t emphasize it’s importance or teach it very well. Despite my knowing of its importance, I wasn’t able to learn it very well with all the other classes and course work I had to do. This video is a good reminder and starting point to re-learn it properly this time. I’m not surprised most students don’t recognize its importance or understand how to do this math if other schools teach it in any way similar to how it was taught at my school. If I wasn’t getting a business degree I probably wouldn’t have been required to take the class, so most students not studying business or finance probably wouldn’t even learn as much as I did about it. It’s really sad, and not knowing this can really significantly harm or even destroy people’s lives.
@@garrettparks7439 It is so sad because of how many people haven’t learned it. I learned it in school, I learned it from my parents, I was taught enough critical thinking a basic math to figure it out. It only takes a couple of payments to see a balance not going to down to figure it out. It doesn’t take much education to figure out if no term for loan has been defined, it is open ended and will extend indefinitely unless action is taken to ensure it doesn’t
I had classes in high school that explained this easily, and in college. People who are too lazy or stupid to read what they sign can cry me a river. The reality is, most people do understand this, they just want someone else to pay for it
I took money management in high school and we talked about saving for college or university and safe too say it's not really worth the debt unless you truly want an office job, medical field positions etc. Even then you are still just passing by with each week's paycheck going towards bills, groceries, loan debt etc. People need too be more smart about their spending especially know with how high everything is.
In student loans, people aren't supposed to understand that a minimum payment does not mean they'll reduce the principal. They'd have to go to college to learn something like that.
They paid like 4/5 of debt., if you calc it for real, accounting 23 YEARS of inflation, which is what interest payments are for. Financially illiterate people spreading misinformation on the internet again 🤦♂️
@powbong7735 If you don't understand price gouging, predatory practices, the need for education, the advantage that's taken of that need, and greed overall, there's a deeper seated issue here. If you don't think that the current system doesn't milk students, then why would this be such a big topic and why would the government recently forgive billions in loans?
The biggest problem to me is they BOTH have grad degrees but never figured out they were basically just paying interest and would take 40+ years to get $70k paid off. That totals over $250k in payments for a $70k debt.
could be that the economy died multiple times and many people especially today are living paycheck to paycheck or worse. Perspective is important we do not know the whole story.
@@coinlazergaming8516 If they are truly living paycheck to paycheck then it shows the fundamental problem with government school loans being given to anybody with no questions asked. Maybe the degrees they got were worthless. Maybe they never should have gotten them. Also, 70000 is their combined debt so that is 2 people who could be working and paying towards this. For 23 years they each put in $250 a month...
Yeah, lets spread misinformation over internet, that compound interest over 23 years is predatory, but compounded inflation over 23 years is something you can ignore.
to put that into context if they had paid $487 per month ($13 less) they would have never been able to pay it off and at $488 it would have taken them little over 100 years.
I tried explaining this to my wife when we bought a house. We were young, had no kids, and each had a pretty nice nest egg. In 2007 we each threw in 15 grand, and took out a home loan for 100,000. We got locked in at 5.86%. Monthly payments of $590. I said, "okay, we make $700 payments every month." She said, "why, we'll be wasting the money." Me, " We'll have the house paid for in 20 years instead of 30." Her, with surprised Pikachu face, "That doesn't add up."
Fun fact: usury isnt about high interest loans, its about koans with no collatoral. So a car or house loans with only the car or house as collatoral is fine. But a student loan with no collatoral is usury.
@@reilysmith5187 Where did you get that definition? The Oxford dictionary defines usury as "the illegal action or practice of lending money at unreasonably high rates of interest." In fact, every definition I could find defined usury be interest rate. Not a single mention of collateral. Usury is 100% about interest rates, not collateral. Student loans are not usury, as the interest rates are generally quite low for loans without collateral.
@@onehorsetoomany8006I agree, the interest rates are significantly low for something with no collateral, no credit worthiness or history, no income. Monthly payments should be obligated to be paid at higher amounts and not at minimums. But to solve the student loans issue the federal government should not give loans, at all. Especially to private institutions. Maybe only to state colleges of residency since they also have low tuition rates and are government regulated. Private institutions will have to become more competitive and slash rates 60-70%, also include education for blue collar jobs, short 3, 6 month programs. Eliminate those first 2 years for bachelor degree requirements. I can keep going but… sigh 😔
Most likely social work or psychology. Those career fields don't pay worth a shit, everybody knows it, but they are obtainable by anyone that is just willing to put in the hours. Lots of people with graduate degrees in either, and few jobs that pay much better than waiting tables.
schedule of payments should have been given or known at the beginning of the loan. at least they would have known if it was worth it or not before they burdened themselves
@@rpfour4 They've been telling this lie for at least 45 years at this point: ANY college degree means that you're going to make more money than you would if don't have one. The mere presence of a diploma, from ANY school, for ANY major = $$$. Therefore, it's ALWAYS "worth it" (as long as the school gets paid). The people that burdened themselves with outrageous levels of government-funded school debt for degrees that lead to low-paying, low-opportunity careers should likely never have been accepted to attend college to begin with. When student loans were something you went to a bank to acquire they would have refused to give you the loan. You used to have to give the loan officer your high school transcripts, your SAT scores, a copy of your acceptance letter, and your intended major. Sometimes they would interview you to make sure you weren't a flake - after all, you aren't offering up any collateral that could be seized to pay off the loan if you flunked out.
And if they didn't or couldn't consolidate the loan. Back in 2001, you could, at a 3% rate, but maybe they didn't know. At some point, a sensible person would see how little progress they were making and speed things up.
The Federal student loan rate then, 20 years ago, was a based off the 10 year note plus a percent or two. Then they switched it to a fixed rate around 15 years ago.
Many years ago we financed a car and the monthly payment was $181. I wanted to pay $200 per month to pay it off sooner. My wife said no, the payment is $181. It took several charts, examples, arguments to never ever ever pay the minimum monthly payment. Ever. But guess what. No car payments today. No student debt. No credit card interest. I learned early the Interest will either work for me or against me.
@@sawderf741 right idea but wrong example its like sailing 800 miles but you can only sail 10 miles per day but the wind pushes you back 8 miles per day
1. Why are you arguing over finances with your wife 2. If you can't afford the car in cash you can't afford the car don't finance a depreciating asset just pay cash for an older second hand car still gets you from A to B.
I thought it was because psychology graduates wanted to afford something. There's nothing wrong with long payment times... unless you would rather save money (or they're forced to be long).
No collage teaches this in thier programs unless you are going right into finance or law. This should be shit you learn in your last year of highschool but banks have paid the government very large amounts of money to take this out of the highschool because the most money can be made by fooling the financially illiterate
This brought me back to my financial and actuarial mathematics classes. It seems counterintuitive to pay significantly more due to a mere $100 difference in monthly payments, but ultimately, you have to account for the whopping 44 years of loaning the money, where you’re essentially only paying the usufruct for the first few years. Financial literacy courses at school should be fundamental in a country like yours, where such life-altering decisions are so widespread even from a young age.
Yeh, I absolutely *LOATHE* being in any kind of debt. When I went to get my car, I wasn't fully liquid and needed another 10kbux to pay it off. So I got the quickest cheapest 2yrs note and paid it off in 5mos. Would've been 4mos, but I paid the "you still owe this amount" and next month got a bill for about 3bux! Paid that after asking how much to *actually* pay it off, did, and got back a check from them for a penny! Seriously, even if you gotta eat ramen 3 meals/day, do it, to pay off what you owe as quickly as possible. Even if interest is tax-deductible, you're still only getting a slight discount based on your tax rate. And don't forget that according to them, *paying* 9% interest is "reasonable", while *getting* 0.6% interest is "generous".
Absolutely, and conversely the feeling of being debt free is awesome. I do make an exception for my mortgage. I could pay it off by now, but a few years ago I locked in my mortgage rate at 1.5% for 20 years. It makes zero financial sense to pay that off, when that money earns twice that in a bog standard savings account.
@@ivancho5854 Arguing that investing in land/property is bad because it "limits your mobility" show you don't understand basic economic principles. Which I guess it's a good thing you are here watching this video then. Although, all the power to you, if you want to Exit with Zero and "live free".
@@tokeeistrup829 Quite the opposite my friend. I'm not against investing in land or property and certainly not in your own home! I was only pointing out, probably the only downside that I could think of of the original comment. Home owners in the USA are INCREDIBLY lucky to have a system where you can lock in an interest rate. Here in the UK and all of Europe there are only variable rate mortgages, so called fixed rate mortgages are actually only fixed for a very few years and then become variable. Are you may be reading a wee bit more into my comment than I actually wrote. Have a great one mate. 👍
No, the worst part is that they make such terrible decisions and then want to have their loan "forgiven", which really means the loan should be paid for by all the people who didn't make terrible decisions!
As a personal banker, it’s really fun to see some written out math compared to just plugging numbers in software to get loan pmts, dividend projections, etc. My everyday tasks are made so easy due to math like this
My issue is, you are giving people who are 18 these loans. Sure you might see it as a risk, but you cannot clear this loan. So we are giving people who we say haven't fully developed their brains, we do not trust them to vote etc. These massive loans that you can pay twice the original amount on and still have most of it left.
@@christopherjones7191 blame the government for deciding that "everyone should go into debt for higher education" and then putting effectively unlimited money on the table for the collages.
@ARockRaider by 17-18 you should be smart enough to decide whether to take out a loan for a degree which will pay itself off, abstain from higher education or take out a huge loan for a degree which will never pay itself off. Or does intelligence in the work differently from the rest of the world?
That was the best math problem solving exercise I’ve ever seen. Illustrative and practical. The cost of a fancy coffee beverage a day applied to the loan could save decades of loan repayments.
This is why I moved off campus as soon as possible, only took loans for my first two years, worked in college, and aggressively paid off loans once I graduated. I’m 32 now and have actually been able to own a home. Debt is the enemy. It’s only smart to take on debt when you have the capital to leverage it.
Debt isn't the enemy. Living beyond your means and not leveraging your debt are the enemy. Most wealthy people carry quite sizable debts, but they are always using it to their advanatge.
Excel (and its FOSS counterparts) can do all of this for you very easily. Learning how to calculate payments and amortize a loan yourself is a very useful skill
I was about to say, a general rule of thumb, on debt, try to pay down the original principal .1% a payment. (Or more) Especially in your first few years, to ease that compounding interest.
I'm considering becoming an actuary. I enjoy probability and financial math, but I've heard the exams are extremly difficult. Thing is, this particular question really doesnt seem that hard. How much harder than this would you say the questions in exam 2 get? Double? Quadruple?
@@holeefuk5214go look at exam 2 practice tests to see for yourself. There are many free materials online. But being an actuary is much much more than solving word problems. Good luck, I hope that if youre set on becoming an actuary then your dedication is rock solid, passing exams while working in the field (most common path) is no joke.
I came out of high school back in 2005 with just _one_ bit of financial literacy. Never trust the minimum or recommended payment for a loan. They're calculated to have you pay far far more than you have to. The other bit to this is, say you're paying monthly $500, you might think it's the same if you paid a quarter of that weekly, but not so. If you paid $125 weekly instead of $500 monthly, you would pay it off faster, because you're bringing that principle down before interest is calculated. To go super crazy with this, if you paid 74 cents an hour constantly over the month, it would be even better, though I doubt even if you could set up an hourly 74c recurring transaction, that the bank would be impressed.
My parents always said not to make 12 monthly mortgage payments, but 26 bi-weekly half payments. They knocked a few years off the term just by doing that.
@@philsmith2444 This is true but not entirely because you are paying more frequently. This scenario of paying 26 half bi-weekly payments also includes making an extra monthly payment since you are making 26/2=13 full month payments which is what the majority of the quicker payoff is attributed too. There are also savings like the original commenter said about not letting the interest accrue.
True but most people get a mortgage they can barely afford so they need their paycheck first to pay it, and otherwise would risk having no money to pay the payment on the 15th of the month.
this is why Im not getting into debt period and instead live relatively chesply while investing agressively so I can benefit from compounding one day instead of payong someone else's coumpound.
It's more complicated than that, though: If you have a really low mortgage rate, you can actually come out ahead by making minimum payments to keep the loan alive for as long as possible and investing any excess instead.
@@NStripleseven S&P 500 has historically had an average return of 10.5%; if you're paying that much on your mortgage then ouch, I feel for you. That said, you do need to factor in your risk tolerance as the investment returns are not guaranteed.
@@Nicoya Also, you need to figure the effect of capital gains tax on your investment income. That could be offset by deducting your home mortgage interest, but you have to itemize deductions to do that. It's complicated.
Recalling from economics (which is just an application of geometric series). Assuming that this is a uniform annuity. F = P(i+1)^n - A[ (i+1)^n - 1 ]/i It is at this point I immediately give up... cause the algebra looks too annoying. So just used a graphing calculator to get an effective monthly interest rate of ~0.697% To convert from effective monthly to nominal annual you just multiply by 12... so the interest rate would have been reported as ~8.364% The algebra for the amount of time isnt too bad. Which gives: n= - ln(1- Pi/A)/ln(1+i) Which gives a total of ~44.6 years
This is like a guy buying a 70k car on an indefinate term loan, learning that the minimum payment to service the debt was gonna be less than what he was prepared to pay, and after 23 years, demands that someone pay off the remaining balance. Sorry, no.
I think many people don't understand that going into college is often a "decision" that you make when you're 16 or younger. And, at least in my experience, sometimes it's not really a choice so much as it is an expectation from your family, from your friends, from your teachers. So you turn 17 and now you're not deciding whether you should go to college but which one can you get into and how. Typically, you don't turn 18 and decide, hey, I need a college education, better get on that. So you're making this huge decision that affects your entire life, particularly financially, when you're 16 or 17. I don't know about you but I didn't buy a car on credit when I was 16 or 17. I'm fairly sure that's illegal. But I was allowed to file a FAFSA and sign a whole lot of student loan documents. So, I think your analogy is inappropriate.
@@oh.hey.matthew They could have gone to the bank and renegotiated. (In general, a lack of basic financial literacy is astonishing; they teach you about history and arts, but not anything actually useful like finance and critical thinking)
To be fair even if there was 0% interest, it’d still take them 11.6 years to pay off the loan at the rate they’re paying. Probably shouldn’t have borrowed that much if they only earn an extra $500 a month
This is gnarly. I just paid mine off after 10 years, just under $600/month: it was gnarly. The schedule you posted was cool, but it would have been additionally interesting to include how much money was being made off the couple if they were paying $500/month, $600/month, etc. I imagine the difference would be staggering. Thanks again for a good video.
$900 pm - you pay back a total of $101,700 ($31,700 interest) $800 pm - you pay back a total of $108,800 ($38,800 interest) $700 pm - you pay back a total of $120,400 ($50,400 interest) $600 pm - you pay back a total of $145,200 ($75,200 interest) $500pm - you pay back a total of $268,000 ($198,000 interest)
So, as a hiring manager of highly paid field, with historical and current high demand, and given we equate an undergrad degree at most worth 2 years of field experience at the bottom level of hiring, was the 4 years and then 10 years of payments worth it?
@@SoftwareSimian_maybe. Even though the degree is worth 2 years, if they start out with no experience and no degree, it’s possible they can’t even get started in the field. Probably should make sure they earn much more than $500 a month extra though.
When I graduated, I went brutal on my student loans. I overpaid by $2,000 per month until it was all killed off in 2.5 years, living like a pauper the whole time.
I had a student loan for a few years, paying the minimum each month. I didn’t think much of it. It wasn’t a life breaking sun so I kept paying it that way. One day I sat down and did the math and found ~60% of what I was paying was just going to interest. It was robbing me ~$500 a year just in interest. Finally paid that off this year and feels good to know I’ll be pocketing that much more every year.
An interest rate of over 8% is huge. A big difference between car/home loans and student loans seems to be that for the former you're put on a schedule with a precise monthly payment and they show you how much you'll pay total over time, but for the student loans, it's just "Good luck kid, hope you know what you're doing."
Well I mean if you're signing a contract for a student loan you better know damn well what you're doing. If not, you shouldn't be anywhere near a contract.
@@Anthony-df2ez Sure, but people are pressured into signing contracts they think they understand but don't. Our educational system doesn't necessarily fully instruct people on how finance and interest rates really work, so it's conceivable for someone to think they understand but not actually fully understand the long term implications. That's why the loan industry can be predatory - people get sold on false promises under false premises.
@@elustran What is different about a student loan? The ones I had (and the ones my daughter had more recently) disclosed everything up front - the interest rate, payment amount, how long it would take to repay, total interest to be paid over the life of the loan assuming only the minimum payment, etc. Just like a mortgage or auto loan.
@@j29maniac There are also distinctions between private and federal loans, as well as lots of different payment plans, different ways interest gets calculated during forbearance periods. So, it can get more complicated. Some income-based repayment plans can do what happened in the example of this video - the lender can put you on a plan that will just leave you gathering interest. It's easy to imagine an 18 year old without much parental help or adequate counseling jumping on a loan that's a poor choice.
@@Anthony-df2ez if you "knew what you were doing" at 17 and understood the long term impacts of debt, then...well done. But I'd say you are in the minority there.
I think if Americans can fund a g*noc*de, we can at least pay for some people's decision to study and learn. Like I'm cool with us diverting our taxes to fund that.
I’ll take option D for: Don’t go to college and rack up heaps of debt. Instead, go to a trade school or even better, obtain an apprenticeship for a trade.
Student loans need to function like mortgages... all the interest is calculated up front, it won't change, and you have X years to pay it back. Treating them like giant credit card balances is basically a scam.
That does'nt work because they can't just take you're education from you if you fail to pay like they could with a house. The lenderss would be left with no way to recoup their losses.
@@fred6907 You misunderstood what he meant. He meant that student loan should have fixed rate and time with calculated payment plan. For example 70000 for 10 years at 8%... Like mortgage (or common consumer credit). Not some unlimited bullshit of a credit
This is just an example of how lacking of math knowledge could destroy someone's life. Also, 70000$ in 2001 would inflate to 124250 in 2024, which is very close to much they actually paid to date. The bank that gave the loan actually earned close to no additional value from it, after 23 years, other than a promise to pay the rest of the loan, which will take them another 20 years to collect. It's not even a good investment for the banks!
If the bank is making 9% on the loan, it is a good investment unless 1) the borrower defaults, or 2) there’s another borrower they could’ve lent that money to at a higher interest rate.
The conclusion that this is not even a good deal for the bank is wrong for two reasons: 1. A significant portion of those payments was made back when those dollars were still more valuable. In today's dollars, they paid more like $188k (assuming a 2.5% average inflation rate). 2. They still owe $60k to the bank. That couple is complaining, not defaulting on that debt. Therefore, the bank converted debt of $124k into $248k of debt plus interest payments (all in today's dollars). That's a 5.6% annual return on investment (or 3% inflation adjusted). Given the low risk, that looks like a good deal for the bank to me.
I'm wondering why 2 people with college degrees didn't know how long it would take to pay off their loans and figure out that they need to pay more than just the interest each month. Instead of having their loans cancelled, they might want to get a refund on their degrees 🤣
This makes me glad that student loans in Thailand don't work like that. Every payment made will be first used to cut down the capital. After all the capital is paid, we then pay the interest that accumulates throughout the years. It's really fair to the students.
@assetaden6662 Yep, and it's only 1 percent a year. The only other requirement is that you need to help out the university when they ask for volunteer work.
You hit on the key that most people do not understand. These are the same kind of principles people should be using for house payments. And credit card payments and really, any long term loan. People fail to realize that they **need** to pay these off as soon as possible and even a small over payment (of what is normally mostly interest) goes a long way into paying off the principle. I feel bad for people with these loans, not because it's predatory, but because most people do not possess the knowledge in how to deal with them.
I'm curious. Why do people refer to student loans "predatory"? Didn't the lenders include a truth in lending statement and/or an amortization table when the loan was originated?
@@j29maniac mostly because they don't read the terms. It's similar to house payments except they are paying such a small amount it takes forever. They are not predatory at all, very low interest rates, but low payments mean long payment schedules.
@@mountbara yes, and your statement about how "most people do not possess the knowledge in how to deal with them" is true for consumers of almost any type of loan. Student loans are really no different than a car or home loan, other the fact that the lender can't very easily repossess your college degree.
Debt is insanity. The only kind of debt that is to your advantage is when you have collateral that keeps going up in value, and you're living off the debt frugally. And you're able to avoid taxation by not having to sell your assets in the higher tax bracket levels
Stop paying minimums. If you are married with hopefully good jobs with your degrees you should be able to afford more than double the minimum. They probably got a couple of $500-700 a month car payments instead of paying things off. People don’t understand how bad having loans is.
Anyone paying more than the scheduled payment (usually these are 20 year loans amd payment is set accordingly) needs to keep a close watch on their account when the payments are being processed. Lenders really dont like ealry repayment and do shifty stuff to avoid it. One famously crappy thing used to be (still is???) claiming that any surplus was intended as a deposit against future interest or payments. Like if you owed $500 but paid $600, theyd say that the extra $100 was for next month's payment and not put it against your principal but instead hold it with zero interest in your favor.
Wow, I didn't know that was a thing, that's evil. Thank you for telling me about that. I'm going to keep an eye out from now on any loans that I take in the future.
It is illegal to hold it if you specify it is for principal payment. All lenders legally have to have the option for principal payment. You, of course, have to opt in, but they can't deny you.
@@WeAreIttThey can, they just don't understand how this works. Both of them are teachers, so both are working, and while it's not a fantastic income, it's plenty to make more than the minimums.
@@WeAreItt average teacher salary in the US was 71k last school year. Even if we assume they only make 60k each, that's 120k per year. If you make 120k per year and can't come up with an extra $100 per month, your spending is way out of control.
People should realize that getting a $70000 degree that doesn’t land you a better job is equivalent to buying a $70000 luxury car and lounging at home unemployed for 4 years. If it doesn’t earn itself back, you’ve just spent $70k on fun times and fulfilment while being unemployed for 4 years. Sure maybe you feel more intellectual now, but financially that’s about as useful as other forms of enjoying yourself. Play video games for 4 years and save $70k (which turns into $264000 with this interest rate.)
@@InkyCricketBut now that can tweet about African dance theory and the liberal arts knowing they're qualified to talk about it. If thats not worth 70 gs then what is.
Dude, THANK YOU!! You used intelligence and math to prove the point. Loan forgiveness is not about the loan or the “problem” with the loan it’s how they’re handled. These people are college graduates and cannot do math. I immediately, before your equations, simply said: well if they had paid for they’d be done. Some of us just instinctively understand the universe it appears. I skipped college and built a business because the math made no sense to me. I am now retired at 48. Why? Saving and compound interest. If I were this couple I would be nauseated that I bought a car and had kids and went on vacations instead of paying an extra couple hundred to be done. When I got my first mortgage I projected the numbers and payments as if I were paying three payments at once. Could I afford that? If so I bought the house and made three payments a month. Worked great and the house is paid for. Student debt should NOT be forgiven…the borrowers should be ashamed they were stupid enough to fall for it.
This is exactly why i decided to pay much larger payments to avoid being in student debt. I had accumulated about a little over 10k in 1.5 years of university, and due to an unfortunate family incident, i had to drop out because i missed final exams and practically bombed all my classes. What's more is that the university concluded that my plane tickets and my grandmother's death certificate weren't enough to have my semester dropped. And in about under 2 years of one part-time job, i paid the whole debt off. Living off of the most cheapest food and not spending on literally anything else. Man, not having debt feels great.
That's what happens when you only pay off the interest. This person obviously doesn't know how to deal with debt, and they have suffered the consquences.
Don't be a prick. I've been paying mine for 10 years and my balance has gone down about 5k. And I've been paying about 500/month. It's nice when people have lots of money and they either don't need loans or they can pay them down quickly. What isn't nice is when those people turn around and scold others for not being as fortunate.
@johnm5928 Fundamental misunderstanding of how interest works. Graduate students very consistently graduate with more than $70k in debt with interest rates of about 8% If you got a $70k loan with a 8% annual interest rate, then paid $500 a month for 10 years, you would still be $64k in debt. If you paid $750 a month instead, you'd be $21k in debt. If you paid $1k a month, the debt would be gone in 8 years. It's not my fault if someone is unable to grasp compound interest and do the math for it, but they still get a loan, especially if they got a variable interest rate loan like an idiot. I'm not a prick if I can do math, and I willingly choose to pay more than what's asked of me per month to avoid being in debt. If your desired major won't land you a job that gives you $9k-12k a year to pay off your debt, then don't go to college. Edit: And I'm not well-off, nor did I come from a well-off family. I'm just smart with money.
@@saysikerightnow3914 translation: if you aren't successful, you should have known better. If you are successful, it's because you knew better than everyone else. See, the problem with people like you is you can't see past the end of your own nose. You're the ripped guy in the gym who makes fun of the out of shape guy for being there. Youre the guy who gets to the top and turns around to throw stones at the others climbing up. I'm not begrudging your success. I'm saying make sure you understand that some people don't find it. Some people join the military and get out injured, with limited ability for work and a fixed income. Some people have to choose between paying off student loans and paying medical bills. Oh and food maybe too. Get over yourself.
Insane. So much of their initial payments were going to interest. If they paid an extra $12 a month the first year, they could’ve saved a whole year’s worth of payments ($144 instead of $6000). That’s a *41.6x* return on investment over 1 year 💀 I’d literally starve myself for a day to save $12 if I was getting FOURTY ONE times the return
Imagine if they starved themselves once a week to get the extra $12 for the monthly payment. They would've saved almost more than $100k during those 20 years. And probably even be healthier.
"My wife and I left graduate school 23 years ago, and still didn't understand how interest rates and debt works. We borrowed money to bet on ourselves and it didn't really work out, so now we want everyone else to pay for our mistakes." There you go, I fixed their statement for them.
To be fair student loans shouldn't be set up like a typical loan through the bank. You should at the most have to pay the money that you borrowed adjusted for inflation.
@@sambo669 A loan is a loan. What benefit would there be for a bank to lend money to somebody and stand to gain nothing in return? That's not a business model. The fact is, a student loan is an investment in yourself, and sometimes that investment doesn't pay off.
It is still atrocious that universities make people go this much into debt for grad school. But I get the impression that they didn’t really know how debt works and did t care to find out… Really speaks to the value of grad school in so many ways
To put it into perspective, the monthly interest rate of 0.00697 on a balance of $70,000 means interest of about $488. Paying $500 a month means they’re really only paying off $12 a month (500-488), initially. That’s why a payment of $600 would make such a huge difference. Instead of decreasing the balance by $12, it’s decreased by $112. The effect becomes less noticeable as the balance decreases, but it makes a huge difference initially.
As an atheist I can confirm that the fact that a loan company can allow you to make a payment difference of 100$ and cause you to owe them money virtually in perpetuity is literally the biblical definition of usury
It isn't like the borrower is forced to pay that lower amount. Obviously it would be egregious if you weren't allowed to pay these loans off early. Also I believe usuary refers to the interest rate, so slight difference but in this case it's effectively the same.
This interest rate math reminds me of my actuarial exams, well done! 8.69% is a very reasonable rate for a loan like this. Most student loans issued 23 years ago are variable rate, so it would be interesting to calculate what the effective spread over LIBOR/SOFR has been. Also, given that this couple prefers minimum monthly payments, they probably paid nothing during the 3.5 years of COVID forbearance: considering that in your calculation would bring down the effective rate/ spread quite considerably. The point is when you borrow money, you have to pay it back with interest. Nobody is getting cheated here: if they feel like it’s unfair, they have nobody to blame but themselves.
It's pretty simple by splitting what you pay into two parts: interest and debt. If you only pay off the interest every year, the actual debt will never shrink and you need to pay off forever (for infinite years).
This is why before you go to university, try to think about what everything is going to cost. Consider tuition, rent, car payments/transport, food, etc. If you have to take out loans, then consider how much it is going to cost and how much you will make when you're done. If you make less per year than you took out in loans, find a cheaper university. It doesn't matter if you're going to Harvard, your life will be ruined regardless. Also try to apply to as many scholarships and grants as possible to reduce the amount. I personally go to my state school which is actually a top ten school in my major and I made enough in scholarships to pay off tuition and rent. All that's left is food and miscellaneous stuff.
I dont know whether to be impressed or disappointed they could graduate without understanding how interest works. If you actually dig into these numbers they are _very_ dubious.
Make smart school choices. As much as I wanted to go to a nice private school, I didn’t get enough scholarship money from them. Instead, I went to my state school for completely free, and graduated in 2 years with two bachelor’s degrees, a minor, and a certificate.
Unironically, learn to code or pick up a trade. College is a scam. I get calls/emails from recruiters weekly who find my resume on Linkedin (I write VBA for excel users).
Remember Sophomore algebra class when the teacher explained if you just paid your mortgage without added principal it would result in you buying your house twice+. Also seeing a lot of comments of people not alive in the 70's when the mortgage rates were in the high 8%'s commenting about how insane that rate is. To put that into context, the mortgage rate didn't fall below 8% until 1993 and it was the Fed fueled money pump of the 20'teens that was the outlier.
Mine did. He made a point to show how one "extra" payment per year (against the principal) pays off a mortgage far earlier, and how much less you end up giving the bank.
My teachers/professors didn't teach this, but my non-degree-having parents did. When I bought my house, I bought under what I could afford, and made double and triple payments when I could. Tax refund? Toward principle. Bonuses? Towards principle. Vacations? Ha. Eating out? Ha. Not till the house is paid. Had it paid off in less than 7 years. Now all that extra money goes to investments, and allows my wife and I to pay cash for just about anything we want.
Yeah, the problem is people look at it like an abstract thing that they have to put a minimum amount of money into instead of what it is. The whole point of a loan is that you pay it back, and the reason there's interest is so you either pay it back quickly or you pay extra back
Great video! Just one thing to note is that the 8.69% calculated was the APY (annual percentage yield) rather than the APR (annual percentage rate) that one more typically works with in these scenarios. The APR is actually simply 0.00697124538*12= 0.0837 or 8.37%. The APR is in general slightly less than the APY
I'm glad you brought up what happens if they pay more. [Obligatory "not saying the student loan system is fair, okay, not corrupt, not predatory, etc. here]. If two adults go to grad school and can't pay $600 a month afterwords, I'm inclined to believe they shouldn't have gone at all. For reference, from what I've read before (feel free to fact check me), the average cost of raising a child is $1000/month. This means we would have a case of dual income/no kids who might need government assistance if they were to have children. Which tells me either A: they went into a field that makes less money than what can be readily earned in fields requiring no college education, and/or B: they weren't able to find a job at all in their field of education. Both of these are things that a person *should* be looking out for before signing up for college. But, to be fair, college is pushed heavily on children and you're expected/encouraged to start going to college 7 years before your brain is fully developed, particularly the part governing long-term decision making
@@levels23 or dont do $500 a month instead live broke and give almost all ur money right out of college into the loan and pay it off in a couple of years
Pull am all-nighter on beer and weed and mdma and score 147 on an IQ Test which you forgot that you’d booked in the middle of Physics Class at University
@@npop3289I know people who can’t even get hired for a job two years after they graduated with honours. I’m not saying they’re totally doing everything right but it’s not realistic to make enough money to pay off the debt. And most people don’t find out until after.
so sad. two college graduates which together could only pay $500 each month. It would be interesting to know what they studied. It’s important to study the market to know what would give you money in life.
Not just grads but Grad Students. At the bare minimum, they had their masters at the end, if not PHDs, with some solid research and connections to help them make the big bucks in the private or public sectors.
I'd also like to know what they *actually* spend their money on. Most people, let's be honest, drop a lot of money on little luxuries that add up over time. These lenders from the story *probably* could have scraped up an extra $100/month if they'd clued in to the nature of their loan.
@@hoi-polloi1863 They are probably make over 250k-500K (duel income) a year if there is even a little value in their degree. Probably didn't even notice these payments for a while.
I mean sure, people should recheck the conditions of their loans frequently, in order to stay ahead. But assuming that a degree makes you good at everything is wild. A degree crams basic and advanced information into your brain which is likely heavily field specific. You will not become Einstein because you know one pre-defined topic well if you are not also learning how to think for yourself or are smart from the start.
Total amounts of money paid 500/month - $268,000 600/month - $145,200 700/month - $120,400 800/month - $108,800 900/month - $101,700 It seems increasingly obvious why finance is not taught in schools. It would lose these loan companies so much money.
I know that $70k was a much different sum of money 23 years ago than it is today, but it still baffles me that between 2 people they couldn't muster enough to pay off $35k averaged between them for 23 years, and on top of that still apparently owe ~86% of the nominal face value of the debt. People finance cars for that much money now, and they pay it on a single income in 6 years or less most times. It just blows my mind that so many people apparently don't look into or care about having a defined payback structure for student loans. This guy broke it down without even having all of the variables on the outset in roughly 5 minutes, it is not esoteric wizardry to be able to know a payback schedule for a loan.
The issue is that at the beginning you're barely paying off anything, the interest you have to pay per month at 8.69% is $487.78, if you pay off $500 per month you pay a net of only $12.22. So if you paid $512.22 per month instead that would mean you'd literally halve the time you're paying it off and almost half the total amount of interest you pay back, if you pay off $600 per month you cut it to like 15% of the original amount of interest you had to pay
Yeah I am choosing community over a 4 yr college because I would have been in a pretty much identical situation otherwise… absolutely terrified of how I’m gonna be able to manage just the few years after I finish CC.
@@elquesohombre9931 awesome! Also try to find an area you like. I have a cs degree, but now work in a subset of that which is awesome for me, rather than general CompSci
I saved a ton off my 4 year degree just by doing a transfer from a community college and getting my gen ed done there. Nothing wrong with 2 year schools!
debt and money is the root of a lot of shame and fear for so many. which sometimes leads to nihilism/stress disorder etc. its really saddening and overwhelming at times, especially without a support group in your life. i love whoever is reading this. I wish you the best, and may you find your authentic self. I believe in you
Adjusting for inflation, that 70k in 2001 (assuming this is recent) would be worth around 125k today. So they “only” owe half of what they did 23 years ago. Still awful but better than having paid off only 1/7th of the loan. Would be interesting to see how long it takes to pay off if you start at 500/month and increase along with inflation
Yeah, you really have to make sure you are making a dent to the loan principal when you pay the interest. Imagine if they have been paying less than 487.9 per month lol.
This is a good explanation why you shouldn't just pay the minimum payment on a loan or credit card.
Yep, the principal, especially early on, is THE single mostimportant factor. A quick calculation leaves me with 80$ off the principal a month when you do 500$ payments at the start. Which really isn't a lot. 600$ more than doubles it to 180$. No wonder there is such a huge jump.
And because of compound interest, that makes even more of a difference
Edit, I made a calculation error. It seems the initial principal at 500 is 12ish bucks. So, an increase of 20% for the payment to 600 would result in a more than 9fold increase in the principal
I would like to ask "How is this legal", but then again, it's the USA. Meanwhile I have a 0% interest rate on my 7.000 student loan (no typos!).
This is a good explanation why usury used to be illegal.
@@bgrl6422 8% interest year over year doesn't strike me as excessive.
What does strik me as "ought to be illegal" is making student loans government backed and non-dischargeable. There is exactly 0 risk to the schools with those loans, so they can set the costs essentially as high as they want.
@@annekekramer3835 I found that pretty funny. I know other countries use a "." instead of a "," like america but still made me laugh. in america what you just wrote is that your student loans were 7 dollars and zero cents lmao.
It's crazy that by simply just putting 100-200 dollars on top of their 500 it would have saved them decades worth of payments.
Math is a life saver!
But its sad bc not everyone can afford that extra 100-200 dollars
@@expiredmilk5435they can , instead of going out and eating in fancy restaurant for 2-3 in a month they could just go once and save that money, or instead of drinking coffee in Starbucks or any other place they could make in home for much cheaper price, it's just an excuse after all
@@expiredmilk5435 Well then they have another 2 decades of paying $500 a month. Tighten your belt now.
@@expiredmilk5435Then not everyone should go to post-secondary school, I suppose.
@@user-mo4mu9eb8s Idk much about this but I'd assume they usually do it bc they're unaware of the debt or bc they need the extra money a job that requires a degree gets compared to another job
Moral of the story: If you make interest-only payments, you will be paying your loan FOREVER.
Or, don't allow predatory for-profit interest rates into your education system. My country actually invests in education. The interest rate for student loans as of last year was 1.23%
@@PallidumSweden? It has been as low as 0% interest! I've taken the loan and have made $10 000 on global index funds and I've paid $30 so far in interest. Truly great for people starting out in life.
@@Pallidum If you want to flex, in my country college is free. There are still things like student loans, but they are not for paying for the college but for accomodation, food and stuff like that if your parents or you dont have the money to stay alive.
@@ThePsycho211 College is free here too, of course. What kind of backwards country would charge for tuition? :)
@@ThePsycho211It's like that in certain parts of the US. In Florida, my tuition was 100% paid for by the state. I took out a small amount of money for my living expenses, but I paid it all off relatively easily. They fund education through the taxes on the state lottery of all things.
That little chart at the bottom of the screen is what the banks don’t want you to see. $100/month made a ginormous difference in this case.
I'm old and i thought it was a law that student loans were 0 interest... which is why you can't bankruptcy out of them... idk man... banks charging almost ten percent on students is crazy
@@mintythreetwentysix4629 lo, isn't that cute... That's the problem, out of touch people think others simply don't what to pay what they borrowed, no they're fucked by a predatory system.
@@mintythreetwentysix4629 I think the deal is that they don't accrue interest while you're in school, but even colleges will recommend in their orientation that you pay down the principle as you can while you're still taking classes, as does the FAFSA application.
@@mintythreetwentysix4629it's not the banks. ever since the department of education got involved in granting loans, most people are getting federal loans over private ones nowadays, and congress sets the annual interest rate every year. It's the government doing this shit
@@mintythreetwentysix4629 0% interest while in school
How do people who graduate college not understand this and fix their own problems? It's almost as if their education has no value or merit. Great explanation of the math.
They are entitled.
@@dcg590they are ignorant
Getting a degree does not equate to a good job
It is mostly the people that sell the loans and the faith these young naive people have that their loan will be paid off at that amount for a monthly payment. How the loan is typically sold is "you just have to make enough for this monthly payment" and that is it there is no saying " you can increase this to pay it off sooner" it is just typical loan scumy behavior
@@dylansmith6078 agreed. Hard to blame the young borrowers when the education system failed them and the institutions that they were forced to be indoctrinated into are lying to them. This is definitely a losing argument for conservatives as they fail to fully comprehend the gravity of the situation. So many things need to be fixed and unfortunately that means getting rid of a lot of debt probably in the form of interest rates.
70,000 at 8.69% interest is about $6,000 interest in year one, or about $500 a month. By paying just the $500, they're barely covering interest. Actually in the first month, the interest is $488, so only bringing down the capital by $12 after one month. Loved this video btw
The numbers are in the video: 0.697% interest per month is 487.90 $ in the first month, based on 70,000$ owed. So they were paying back 12.10$ with the next month asking for a similar amount of interest. They were basically only paying back interest. A simple 10$ more per month would already have helped.
I think that's why they figured $500 was a good amount, because they decrease the principal by $12 every month. But by doing some simple math ($70k/(12*12)) we can see it'll take 40 years to pay the whole thing off (which isn't far from the true number). Right then and there they should have figured this wasn't enough.
@@CST1992 I'm not sure you can do that simplifying calc. $70 / (12*12) = 486 but this would be the number of years as your denominator already multiplies the $12 by 12. Also, in the last momnth of paying off the loan, you are paying pretty much all capital.
That’s actually insane lol they could’ve doubled their first year principal payment with just an extra $12 a month 💀 they’d essentially save a year’s worth of payments by just paying an extra $150 that first year, an extra 9 days of payment. I don’t agree with the “your daily coffee is keeping you poor” videos but they could literally save a year of payment by cutting back on a Starbucks each once per month
Many payment slips in the US, I think for credit cards and for student loans, have to state what the financial consequence will be if you just pay the minimum. As in, "If you just make the minimum payment, you will spend $264,000 to pay off your $70k loan". These people are either really poor college grads or are just stupid. Or, more likely, have just been making the minimum payment banking on Bernie Sanders or some other socialist getting elected and wiping out their debt. I knew several attorneys making $100k+ a year that didn't pay their student debts down because they expected the government to release them from their obligations eventually. Meanwhile, I was making way less than them and had already paid mine off within a couple years of graduation. They called me a schmuck.
This should be taught extensively about debt. If you can not pay for the costs for debt you will get stuck (for ever!).
This WAS taught in my highschool; debt, compounding interest, and responsible investments all in one class, and it wasn't maths.
@@SoftwareSimian_ But it all is using maths. To all the people asking "when do I ever need maths again?" the simplest answer is: "Every day, you just don't notice it when you don't know maths".
@@SoftwareSimian_ it was taught in accounting. As a fun anecdote, my school's accounting class was cancelled because I was the only one that signed up
A seventh grader should be able to figure this out.
This IS being taught in MANDOTORY classes, atleast in Canada
"It will take 44 years to pay off this debt, how exciting"💀
he says it with a straight face as well, its so over
Sure if you insist on paying off the minimum every monthly. How much is the new car loan ?
The perfect ending to a video on student loan debt.
not if you pay the money fast by paying large sums monthly
@@ashwin372 With all that money you make straight out of college...
The depressing part is these college educated people weren’t educated enough to understand how all this works. They weren’t educated enough to figure out if the jobs at the end of the degree would pay enough to make the loan worth it in the first place
I had a class that explained this stuff in college, I recognized how important it was as soon as we started talking about calculations like this. It was also the second worst taught class I ever took, and the teacher was the worst one I ever had who actually showed up to teach, she barely understood half of the material and didn’t emphasize it’s importance or teach it very well. Despite my knowing of its importance, I wasn’t able to learn it very well with all the other classes and course work I had to do. This video is a good reminder and starting point to re-learn it properly this time.
I’m not surprised most students don’t recognize its importance or understand how to do this math if other schools teach it in any way similar to how it was taught at my school. If I wasn’t getting a business degree I probably wouldn’t have been required to take the class, so most students not studying business or finance probably wouldn’t even learn as much as I did about it.
It’s really sad, and not knowing this can really significantly harm or even destroy people’s lives.
@@garrettparks7439 It is so sad because of how many people haven’t learned it. I learned it in school, I learned it from my parents, I was taught enough critical thinking a basic math to figure it out. It only takes a couple of payments to see a balance not going to down to figure it out. It doesn’t take much education to figure out if no term for loan has been defined, it is open ended and will extend indefinitely unless action is taken to ensure it doesn’t
I had classes in high school that explained this easily, and in college. People who are too lazy or stupid to read what they sign can cry me a river. The reality is, most people do understand this, they just want someone else to pay for it
I took money management in high school and we talked about saving for college or university and safe too say it's not really worth the debt unless you truly want an office job, medical field positions etc. Even then you are still just passing by with each week's paycheck going towards bills, groceries, loan debt etc. People need too be more smart about their spending especially know with how high everything is.
It's funny how everyone is educated enough after watching this video to tell everyone who was/is in college that they weren't educated enough lol.
In student loans, people aren't supposed to understand that a minimum payment does not mean they'll reduce the principal. They'd have to go to college to learn something like that.
yeah they don't teach that.
If you take on 70k in debt for college without doing basic research, I can't gather much sympathy.
@@thac0twenty377They do. It's called math.
And when they get there, they choose to not take the classes that would make them aware...
@@thac0twenty377are you seriously making the claim that they don’t teach finance in college 🥴🥴🥴
Welcome to paying almost nothing against the principal.
They paid like 4/5 of debt., if you calc it for real, accounting 23 YEARS of inflation, which is what interest payments are for.
Financially illiterate people spreading misinformation on the internet again 🤦♂️
They set it up that was intentionally to milk as much interest as possible.
@@lq7777if you went to college and don't understand compounding interest, there's a more fundamental problem going on.
@@powbong7735more like putting a price tag on education is criminal
@powbong7735 If you don't understand price gouging, predatory practices, the need for education, the advantage that's taken of that need, and greed overall, there's a deeper seated issue here. If you don't think that the current system doesn't milk students, then why would this be such a big topic and why would the government recently forgive billions in loans?
The biggest problem to me is they BOTH have grad degrees but never figured out they were basically just paying interest and would take 40+ years to get $70k paid off. That totals over $250k in payments for a $70k debt.
Yeah, being basically babysat for six years doesn't mean you are intelligent.
@@bryanherman1035meh. learning something someone else doesn't, doesn't make you superior
could be that the economy died multiple times and many people especially today are living paycheck to paycheck or worse. Perspective is important we do not know the whole story.
@@coinlazergaming8516 If they are truly living paycheck to paycheck then it shows the fundamental problem with government school loans being given to anybody with no questions asked. Maybe the degrees they got were worthless. Maybe they never should have gotten them. Also, 70000 is their combined debt so that is 2 people who could be working and paying towards this. For 23 years they each put in $250 a month...
@@coinlazergaming8516 The real problem is sociologists like you don't realise you're a burden on society.
I really hope this goes viral.
People don't understand this enough.
Yeah, lets spread misinformation over internet, that compound interest over 23 years is predatory, but compounded inflation over 23 years is something you can ignore.
This won't go viral BECAUSE people don't understand it enough, sadly.
to put that into context if they had paid $487 per month ($13 less) they would have never been able to pay it off and at $488 it would have taken them little over 100 years.
Right. You have pay interest plus principal. They are barely paying off any principal.
I tried explaining this to my wife when we bought a house. We were young, had no kids, and each had a pretty nice nest egg. In 2007 we each threw in 15 grand, and took out a home loan for 100,000. We got locked in at 5.86%. Monthly payments of $590. I said, "okay, we make $700 payments every month." She said, "why, we'll be wasting the money." Me, " We'll have the house paid for in 20 years instead of 30." Her, with surprised Pikachu face, "That doesn't add up."
It's called interest and it's been that way since the concept of borrowing began. When it hits a certain point it's called usury.
It was usury LONG before now
Fun fact: usury isnt about high interest loans, its about koans with no collatoral. So a car or house loans with only the car or house as collatoral is fine. But a student loan with no collatoral is usury.
@@reilysmith5187 ah yes i love going on the internet and spreading lies.
Usury: lending with unreasonably high interest.
@@reilysmith5187 Where did you get that definition? The Oxford dictionary defines usury as "the illegal action or practice of lending money at unreasonably high rates of interest." In fact, every definition I could find defined usury be interest rate. Not a single mention of collateral. Usury is 100% about interest rates, not collateral. Student loans are not usury, as the interest rates are generally quite low for loans without collateral.
@@onehorsetoomany8006I agree, the interest rates are significantly low for something with no collateral, no credit worthiness or history, no income.
Monthly payments should be obligated to be paid at higher amounts and not at minimums. But to solve the student loans issue the federal government should not give loans, at all. Especially to private institutions.
Maybe only to state colleges of residency since they also have low tuition rates and are government regulated.
Private institutions will have to become more competitive and slash rates 60-70%, also include education for blue collar jobs, short 3, 6 month programs. Eliminate those first 2 years for bachelor degree requirements.
I can keep going but… sigh 😔
I guess they didn’t go to graduate school for math.
Or they can't afford $600 a month
Most likely social work or psychology. Those career fields don't pay worth a shit, everybody knows it, but they are obtainable by anyone that is just willing to put in the hours. Lots of people with graduate degrees in either, and few jobs that pay much better than waiting tables.
@@Sol1496over 23 years they never made adjustments to what they could afford?
schedule of payments should have been given or known at the beginning of the loan. at least they would have known if it was worth it or not before they burdened themselves
@@rpfour4 They've been telling this lie for at least 45 years at this point: ANY college degree means that you're going to make more money than you would if don't have one. The mere presence of a diploma, from ANY school, for ANY major = $$$. Therefore, it's ALWAYS "worth it" (as long as the school gets paid).
The people that burdened themselves with outrageous levels of government-funded school debt for degrees that lead to low-paying, low-opportunity careers should likely never have been accepted to attend college to begin with. When student loans were something you went to a bank to acquire they would have refused to give you the loan. You used to have to give the loan officer your high school transcripts, your SAT scores, a copy of your acceptance letter, and your intended major. Sometimes they would interview you to make sure you weren't a flake - after all, you aren't offering up any collateral that could be seized to pay off the loan if you flunked out.
Why would anyone sit on an almost 9% loan for the past two decades? Interest rates have been historically low during this period.
Likly for the same mental gymnastics that 70k was a good value for a degree in which 60% of the population does not use or is not required.
people who get student loans aren't good at math or finance in general
And if they didn't or couldn't consolidate the loan. Back in 2001, you could, at a 3% rate, but maybe they didn't know.
At some point, a sensible person would see how little progress they were making and speed things up.
The Federal student loan rate then, 20 years ago, was a based off the 10 year note plus a percent or two. Then they switched it to a fixed rate around 15 years ago.
@@SoftwareSimian_ my degree cost probably close to 40k.. I worked through college and paid in full....
Many years ago we financed a car and the monthly payment was $181. I wanted to pay $200 per month to pay it off sooner. My wife said no, the payment is $181. It took several charts, examples, arguments to never ever ever pay the minimum monthly payment. Ever.
But guess what. No car payments today. No student debt. No credit card interest.
I learned early the Interest will either work for me or against me.
It's like charting a course on the ocean. Imagine if you had to sail 800 miles but you were off by just 1 degree.
@@sawderf741 that makes so much sense
@@sawderf741 right idea but wrong example
its like sailing 800 miles but you can only sail 10 miles per day but the wind pushes you back 8 miles per day
1. Why are you arguing over finances with your wife
2. If you can't afford the car in cash you can't afford the car don't finance a depreciating asset just pay cash for an older second hand car still gets you from A to B.
@@impyrobotAmen brother. Never buy a new car, especially at these prices and the BAD quality control
Fun fact: Minimum balances on loans were created to make the lender rich and not the other way around
I thought it was because psychology graduates wanted to afford something.
There's nothing wrong with long payment times... unless you would rather save money (or they're forced to be long).
you'd think that for $70k of college they would have learned how loans work
Jackals have turned inwards- John Perkins
on what basis?
No collage teaches this in thier programs unless you are going right into finance or law. This should be shit you learn in your last year of highschool but banks have paid the government very large amounts of money to take this out of the highschool because the most money can be made by fooling the financially illiterate
and 23 years. That's a LOT of time to think of ways to pay it off quicker.
Just point and laugh at all the people who thought Biden would pay for their loans.
This brought me back to my financial and actuarial mathematics classes. It seems counterintuitive to pay significantly more due to a mere $100 difference in monthly payments, but ultimately, you have to account for the whopping 44 years of loaning the money, where you’re essentially only paying the usufruct for the first few years. Financial literacy courses at school should be fundamental in a country like yours, where such life-altering decisions are so widespread even from a young age.
Also the interest rate is outrageous
They are, but people don't pay attention in school. This is high school algebra, I learned this in junior year.
@@handlesarecringe957you don't learnt interest rate in high school though. Algebra don't teach you interest rate
@@benghaz7930 True, you learn this during your stats class or other math classes in 11th grade or 12th grade instead.
They do have financial literacy courses but they don't teach any of this
how depressing
💀💀
💀 💀
I thought he said it,how depressing.
@@user_cy1er with how the video was going i thought he might've said it, but he didnt so i said it
@@dotand0 lol cool one
Yeh, I absolutely *LOATHE* being in any kind of debt. When I went to get my car, I wasn't fully liquid and needed another 10kbux to pay it off. So I got the quickest cheapest 2yrs note and paid it off in 5mos. Would've been 4mos, but I paid the "you still owe this amount" and next month got a bill for about 3bux! Paid that after asking how much to *actually* pay it off, did, and got back a check from them for a penny!
Seriously, even if you gotta eat ramen 3 meals/day, do it, to pay off what you owe as quickly as possible. Even if interest is tax-deductible, you're still only getting a slight discount based on your tax rate.
And don't forget that according to them, *paying* 9% interest is "reasonable", while *getting* 0.6% interest is "generous".
Absolutely, and conversely the feeling of being debt free is awesome. I do make an exception for my mortgage. I could pay it off by now, but a few years ago I locked in my mortgage rate at 1.5% for 20 years. It makes zero financial sense to pay that off, when that money earns twice that in a bog standard savings account.
@@kaasmeester59031.5 holy crap I have to pay 6.5 as a penalty for being born at the wrong time
@@kaasmeester5903 It does stop you from relocating though. Just a thought.
@@ivancho5854 Arguing that investing in land/property is bad because it "limits your mobility" show you don't understand basic economic principles.
Which I guess it's a good thing you are here watching this video then.
Although, all the power to you, if you want to Exit with Zero and "live free".
@@tokeeistrup829 Quite the opposite my friend. I'm not against investing in land or property and certainly not in your own home! I was only pointing out, probably the only downside that I could think of of the original comment.
Home owners in the USA are INCREDIBLY lucky to have a system where you can lock in an interest rate. Here in the UK and all of Europe there are only variable rate mortgages, so called fixed rate mortgages are actually only fixed for a very few years and then become variable.
Are you may be reading a wee bit more into my comment than I actually wrote.
Have a great one mate. 👍
Imagine having a combined 12 years of higher education yet not a shred of financial aptitude. That's the saddest part.
No, the worst part is that they make such terrible decisions and then want to have their loan "forgiven", which really means the loan should be paid for by all the people who didn't make terrible decisions!
As a personal banker, it’s really fun to see some written out math compared to just plugging numbers in software to get loan pmts, dividend projections, etc. My everyday tasks are made so easy due to math like this
Part of the problem is they aren't paying enough towards their loans per month. The other part is that they took out private loans at 8.69%.
It’s an unsecured loan. 8.69 is pretty good for what’s pretty much a “trust me” loan.
My issue is, you are giving people who are 18 these loans. Sure you might see it as a risk, but you cannot clear this loan. So we are giving people who we say haven't fully developed their brains, we do not trust them to vote etc. These massive loans that you can pay twice the original amount on and still have most of it left.
@@christopherjones7191 blame the government for deciding that "everyone should go into debt for higher education" and then putting effectively unlimited money on the table for the collages.
@@ARockRaider Firstly, I agree with you. Secondly, I also appreciate a good collage.
@ARockRaider by 17-18 you should be smart enough to decide whether to take out a loan for a degree which will pay itself off, abstain from higher education or take out a huge loan for a degree which will never pay itself off.
Or does intelligence in the work differently from the rest of the world?
That was the best math problem solving exercise I’ve ever seen. Illustrative and practical. The cost of a fancy coffee beverage a day applied to the loan could save decades of loan repayments.
This is why you should never pay the minimum. Always put more into the balance!
This is why I moved off campus as soon as possible, only took loans for my first two years, worked in college, and aggressively paid off loans once I graduated. I’m 32 now and have actually been able to own a home. Debt is the enemy. It’s only smart to take on debt when you have the capital to leverage it.
Debt isn't the enemy. Living beyond your means and not leveraging your debt are the enemy. Most wealthy people carry quite sizable debts, but they are always using it to their advanatge.
Debt is the enemy don't listen to this person above. Cash is king.
Excel (and its FOSS counterparts) can do all of this for you very easily. Learning how to calculate payments and amortize a loan yourself is a very useful skill
Good comment
if they had paid 72.01 more a month they would have been clear today.
I was about to say, a general rule of thumb, on debt, try to pay down the original principal .1% a payment. (Or more) Especially in your first few years, to ease that compounding interest.
If I were that borrower and I just found out that info, I'd be sick lmfaoooo
I'd hope this story is a hypothetical to educate. Otherwise that 70K was wasted, as there was no education received.
@@notme9976 Sociology degrees are notoriously bad.
Really nice work! And it shows the power of compounding!!!
This takes me back to my actuarial exams. This sort of basic interest question is covered in exam 2
I'm considering becoming an actuary. I enjoy probability and financial math, but I've heard the exams are extremly difficult. Thing is, this particular question really doesnt seem that hard. How much harder than this would you say the questions in exam 2 get? Double? Quadruple?
@@holeefuk5214go look at exam 2 practice tests to see for yourself. There are many free materials online. But being an actuary is much much more than solving word problems. Good luck, I hope that if youre set on becoming an actuary then your dedication is rock solid, passing exams while working in the field (most common path) is no joke.
@@holeefuk5214 this is too simple for FM, but it’s essential to know how to do
@@VERY_TALL_MAN this is the correct advice
Wow good for you
That was the most interesting presentation of math I’ve ever listened to. I hate math but you made it interesting and easy to understand.
"Interest is paid by those who dont understand it, and earned by those who do."
I came out of high school back in 2005 with just _one_ bit of financial literacy. Never trust the minimum or recommended payment for a loan. They're calculated to have you pay far far more than you have to. The other bit to this is, say you're paying monthly $500, you might think it's the same if you paid a quarter of that weekly, but not so. If you paid $125 weekly instead of $500 monthly, you would pay it off faster, because you're bringing that principle down before interest is calculated. To go super crazy with this, if you paid 74 cents an hour constantly over the month, it would be even better, though I doubt even if you could set up an hourly 74c recurring transaction, that the bank would be impressed.
My parents always said not to make 12 monthly mortgage payments, but 26 bi-weekly half payments. They knocked a few years off the term just by doing that.
@@philsmith2444 This is true but not entirely because you are paying more frequently. This scenario of paying 26 half bi-weekly payments also includes making an extra monthly payment since you are making 26/2=13 full month payments which is what the majority of the quicker payoff is attributed too.
There are also savings like the original commenter said about not letting the interest accrue.
True but most people get a mortgage they can barely afford so they need their paycheck first to pay it, and otherwise would risk having no money to pay the payment on the 15th of the month.
@@reilysmith5187 Then don't get a mortgage you can barely afford?
@@btf_flotsam478 Or just pay it monthly instead of weekly when you get your money? Or just become a millionaire, that works too I guess.
this is why Im not getting into debt period and instead live relatively chesply while investing agressively so I can benefit from compounding one day instead of payong someone else's coumpound.
crazy how interest works. Just like house payments. save by doing double payments if you can afford
Unless you have an offset account
It's more complicated than that, though: If you have a really low mortgage rate, you can actually come out ahead by making minimum payments to keep the loan alive for as long as possible and investing any excess instead.
@@Nicoyaall depends whether you can invest at a higher rate of return than the interest. Often, that won’t be the case, but it’s nice when it is.
@@NStripleseven S&P 500 has historically had an average return of 10.5%; if you're paying that much on your mortgage then ouch, I feel for you. That said, you do need to factor in your risk tolerance as the investment returns are not guaranteed.
@@Nicoya Also, you need to figure the effect of capital gains tax on your investment income. That could be offset by deducting your home mortgage interest, but you have to itemize deductions to do that. It's complicated.
Recalling from economics (which is just an application of geometric series). Assuming that this is a uniform annuity.
F = P(i+1)^n - A[ (i+1)^n - 1 ]/i
It is at this point I immediately give up... cause the algebra looks too annoying.
So just used a graphing calculator to get an effective monthly interest rate of ~0.697%
To convert from effective monthly to nominal annual you just multiply by 12... so the interest rate would have been reported as ~8.364%
The algebra for the amount of time isnt too bad. Which gives:
n= - ln(1- Pi/A)/ln(1+i)
Which gives a total of ~44.6 years
This is like a guy buying a 70k car on an indefinate term loan, learning that the minimum payment to service the debt was gonna be less than what he was prepared to pay, and after 23 years, demands that someone pay off the remaining balance. Sorry, no.
I think many people don't understand that going into college is often a "decision" that you make when you're 16 or younger. And, at least in my experience, sometimes it's not really a choice so much as it is an expectation from your family, from your friends, from your teachers. So you turn 17 and now you're not deciding whether you should go to college but which one can you get into and how.
Typically, you don't turn 18 and decide, hey, I need a college education, better get on that.
So you're making this huge decision that affects your entire life, particularly financially, when you're 16 or 17.
I don't know about you but I didn't buy a car on credit when I was 16 or 17. I'm fairly sure that's illegal. But I was allowed to file a FAFSA and sign a whole lot of student loan documents.
So, I think your analogy is inappropriate.
@@oh.hey.matthew They could have gone to the bank and renegotiated. (In general, a lack of basic financial literacy is astonishing; they teach you about history and arts, but not anything actually useful like finance and critical thinking)
To be fair even if there was 0% interest, it’d still take them 11.6 years to pay off the loan at the rate they’re paying. Probably shouldn’t have borrowed that much if they only earn an extra $500 a month
It was the least exciting "how exciting" ever
**least*
@@mr.d8747 i was in doubt, but it didn't sound right to me, thx 😅
This is gnarly. I just paid mine off after 10 years, just under $600/month: it was gnarly. The schedule you posted was cool, but it would have been additionally interesting to include how much money was being made off the couple if they were paying $500/month, $600/month, etc. I imagine the difference would be staggering. Thanks again for a good video.
Just multiply out what they'd spend and subtract the loan amount.
500/month * 536 months - 70000 = 1000 * 268 - 70000 = 268000 - 70000 = 198000. 198000 in interest.
600 * 242 - 70000 = 75200
700 * 172 - 70000 = 50400
800 * 136 - 70000 = 38800
900 * 113 - 70000 = 31700
$900 pm - you pay back a total of $101,700 ($31,700 interest)
$800 pm - you pay back a total of $108,800 ($38,800 interest)
$700 pm - you pay back a total of $120,400 ($50,400 interest)
$600 pm - you pay back a total of $145,200 ($75,200 interest)
$500pm - you pay back a total of $268,000 ($198,000 interest)
So, as a hiring manager of highly paid field, with historical and current high demand, and given we equate an undergrad degree at most worth 2 years of field experience at the bottom level of hiring, was the 4 years and then 10 years of payments worth it?
@@SoftwareSimian_maybe. Even though the degree is worth 2 years, if they start out with no experience and no degree, it’s possible they can’t even get started in the field. Probably should make sure they earn much more than $500 a month extra though.
@@SoftwareSimian_It also depends if a degree is required for the field they want to work in
this is an eye opener that should be shared through all soc-med platforms just because of how valuable this information is
When I graduated, I went brutal on my student loans. I overpaid by $2,000 per month until it was all killed off in 2.5 years, living like a pauper the whole time.
I had a student loan for a few years, paying the minimum each month. I didn’t think much of it. It wasn’t a life breaking sun so I kept paying it that way. One day I sat down and did the math and found ~60% of what I was paying was just going to interest. It was robbing me ~$500 a year just in interest.
Finally paid that off this year and feels good to know I’ll be pocketing that much more every year.
An interest rate of over 8% is huge. A big difference between car/home loans and student loans seems to be that for the former you're put on a schedule with a precise monthly payment and they show you how much you'll pay total over time, but for the student loans, it's just "Good luck kid, hope you know what you're doing."
Well I mean if you're signing a contract for a student loan you better know damn well what you're doing. If not, you shouldn't be anywhere near a contract.
@@Anthony-df2ez Sure, but people are pressured into signing contracts they think they understand but don't. Our educational system doesn't necessarily fully instruct people on how finance and interest rates really work, so it's conceivable for someone to think they understand but not actually fully understand the long term implications. That's why the loan industry can be predatory - people get sold on false promises under false premises.
@@elustran What is different about a student loan? The ones I had (and the ones my daughter had more recently) disclosed everything up front - the interest rate, payment amount, how long it would take to repay, total interest to be paid over the life of the loan assuming only the minimum payment, etc. Just like a mortgage or auto loan.
@@j29maniac There are also distinctions between private and federal loans, as well as lots of different payment plans, different ways interest gets calculated during forbearance periods. So, it can get more complicated. Some income-based repayment plans can do what happened in the example of this video - the lender can put you on a plan that will just leave you gathering interest. It's easy to imagine an 18 year old without much parental help or adequate counseling jumping on a loan that's a poor choice.
@@Anthony-df2ez if you "knew what you were doing" at 17 and understood the long term impacts of debt, then...well done. But I'd say you are in the minority there.
If the couple were able to do that math, they wouldn’t have made such as foolish financial decision in the first place
Now imagine that YOU have to pay this debt for OTHERS (student loans forgiveness)
who's gonna tell him tax money already goes to student loans?
I think if Americans can fund a g*noc*de, we can at least pay for some people's decision to study and learn. Like I'm cool with us diverting our taxes to fund that.
I’ll take option D for:
Don’t go to college and rack up heaps of debt. Instead, go to a trade school or even better, obtain an apprenticeship for a trade.
So, that’s a total of 536 months and $268k paid on a $70k debt. Ludicrous.
If only math was taught or learned before they choose to take on a lifetime of debt, they might not have been in that situation
But how will they pay to learn that math??? 🤯
Don't take out loans if you won't get a good return aka high paying career
and people wonder why student debt relief is an issue.
@joe-skeen it's high school math (algebra) and an econ equation, you don't need student loans to get this info.
Student loans need to function like mortgages... all the interest is calculated up front, it won't change, and you have X years to pay it back.
Treating them like giant credit card balances is basically a scam.
That does'nt work because they can't just take you're education from you if you fail to pay like they could with a house. The lenderss would be left with no way to recoup their losses.
aka banning usury
@@Salamander002cool down with antisemitism
It IS calculated upfront. Calculating compounding interest is like kindergarten math, everyone should know this.
@@fred6907 You misunderstood what he meant.
He meant that student loan should have fixed rate and time with calculated payment plan.
For example 70000 for 10 years at 8%... Like mortgage (or common consumer credit). Not some unlimited bullshit of a credit
This is just an example of how lacking of math knowledge could destroy someone's life.
Also, 70000$ in 2001 would inflate to 124250 in 2024, which is very close to much they actually paid to date. The bank that gave the loan actually earned close to no additional value from it, after 23 years, other than a promise to pay the rest of the loan, which will take them another 20 years to collect. It's not even a good investment for the banks!
If the bank is making 9% on the loan, it is a good investment unless 1) the borrower defaults, or 2) there’s another borrower they could’ve lent that money to at a higher interest rate.
The conclusion that this is not even a good deal for the bank is wrong for two reasons:
1. A significant portion of those payments was made back when those dollars were still more valuable. In today's dollars, they paid more like $188k (assuming a 2.5% average inflation rate).
2. They still owe $60k to the bank. That couple is complaining, not defaulting on that debt.
Therefore, the bank converted debt of $124k into $248k of debt plus interest payments (all in today's dollars). That's a 5.6% annual return on investment (or 3% inflation adjusted). Given the low risk, that looks like a good deal for the bank to me.
I strongly agree with the first part of your message though. Math knowledge would have been very helpful to them.
@@herbybey7698 that's fair, I didn't consider the inflation for the other side. Thanks for the explanation.
I'm wondering why 2 people with college degrees didn't know how long it would take to pay off their loans and figure out that they need to pay more than just the interest each month. Instead of having their loans cancelled, they might want to get a refund on their degrees 🤣
Art or gender studies major
They could’ve got it refinanced at a lower interest rate and came out way ahead. Now their 70k loan turned into a 200k hole
Education doesn't make you any smarter.
so the whole problem is that they are paying just barely over interest costs, and not paying down the principal.
This makes me glad that student loans in Thailand don't work like that. Every payment made will be first used to cut down the capital. After all the capital is paid, we then pay the interest that accumulates throughout the years. It's really fair to the students.
Damn, that is indeed fair. I'd be even down to pay more interest on a debt like that.
@assetaden6662 Yep, and it's only 1 percent a year. The only other requirement is that you need to help out the university when they ask for volunteer work.
You hit on the key that most people do not understand. These are the same kind of principles people should be using for house payments. And credit card payments and really, any long term loan. People fail to realize that they **need** to pay these off as soon as possible and even a small over payment (of what is normally mostly interest) goes a long way into paying off the principle. I feel bad for people with these loans, not because it's predatory, but because most people do not possess the knowledge in how to deal with them.
I'm curious. Why do people refer to student loans "predatory"?
Didn't the lenders include a truth in lending statement and/or an amortization table when the loan was originated?
@@j29maniac mostly because they don't read the terms. It's similar to house payments except they are paying such a small amount it takes forever. They are not predatory at all, very low interest rates, but low payments mean long payment schedules.
@@j29maniac and it makes good political talk
ing points to call them "predatory" ;)
@@mountbara yes, and your statement about how "most people do not possess the knowledge in how to deal with them" is true for consumers of almost any type of loan. Student loans are really no different than a car or home loan, other the fact that the lender can't very easily repossess your college degree.
@@j29maniac sadly, you are correct.
I hope this video goes viral, to benefit both you and future borrowers, folks who blithely rack up debt and max out their credit, etc.
And expect everyone else to pay for it by "canceling student debt". The nerve on these people.
Debt is insanity. The only kind of debt that is to your advantage is when you have collateral that keeps going up in value, and you're living off the debt frugally. And you're able to avoid taxation by not having to sell your assets in the higher tax bracket levels
Stop paying minimums. If you are married with hopefully good jobs with your degrees you should be able to afford more than double the minimum. They probably got a couple of $500-700 a month car payments instead of paying things off. People don’t understand how bad having loans is.
Anyone paying more than the scheduled payment (usually these are 20 year loans amd payment is set accordingly) needs to keep a close watch on their account when the payments are being processed. Lenders really dont like ealry repayment and do shifty stuff to avoid it. One famously crappy thing used to be (still is???) claiming that any surplus was intended as a deposit against future interest or payments. Like if you owed $500 but paid $600, theyd say that the extra $100 was for next month's payment and not put it against your principal but instead hold it with zero interest in your favor.
I saw that as a possible option on one loan and felt sick on behalf of all the people who'd be tricked by it.
Wow, I didn't know that was a thing, that's evil. Thank you for telling me about that. I'm going to keep an eye out from now on any loans that I take in the future.
Always read and understand the fine print on any loan!
It is illegal to hold it if you specify it is for principal payment. All lenders legally have to have the option for principal payment. You, of course, have to opt in, but they can't deny you.
@@darketernal3Bingo. Payer has to tell the lender to put extra payments tlward the principal
Making payments that small is just silly. It’s less than 1% of the balance.
People can’t afford it
@@WeAreIttThey can, they just don't understand how this works. Both of them are teachers, so both are working, and while it's not a fantastic income, it's plenty to make more than the minimums.
@@Stevie320
Are you serious?
Teachers are on of the most underpaid professions in the US
@@WeAreItt average teacher salary in the US was 71k last school year. Even if we assume they only make 60k each, that's 120k per year. If you make 120k per year and can't come up with an extra $100 per month, your spending is way out of control.
@@Greg-in-Orange
BS
And 71k in California and New York don’t mean jack 💩
People should realize that getting a $70000 degree that doesn’t land you a better job is equivalent to buying a $70000 luxury car and lounging at home unemployed for 4 years. If it doesn’t earn itself back, you’ve just spent $70k on fun times and fulfilment while being unemployed for 4 years. Sure maybe you feel more intellectual now, but financially that’s about as useful as other forms of enjoying yourself. Play video games for 4 years and save $70k (which turns into $264000 with this interest rate.)
the 70000 were for 2 degrees not one
Two pieces of paper instead of one? How impressive! What a deal!
@@InkyCricketBut now that can tweet about African dance theory and the liberal arts knowing they're qualified to talk about it. If thats not worth 70 gs then what is.
Are you saying that a degree on philosophy is not a completely necessary invest?
You will end up in a dead way either way tbh. Risking college and is still the best for the vast majority of people.
Dude, THANK YOU!! You used intelligence and math to prove the point. Loan forgiveness is not about the loan or the “problem” with the loan it’s how they’re handled. These people are college graduates and cannot do math. I immediately, before your equations, simply said: well if they had paid for they’d be done. Some of us just instinctively understand the universe it appears. I skipped college and built a business because the math made no sense to me. I am now retired at 48. Why? Saving and compound interest. If I were this couple I would be nauseated that I bought a car and had kids and went on vacations instead of paying an extra couple hundred to be done. When I got my first mortgage I projected the numbers and payments as if I were paying three payments at once. Could I afford that? If so I bought the house and made three payments a month. Worked great and the house is paid for. Student debt should NOT be forgiven…the borrowers should be ashamed they were stupid enough to fall for it.
This is exactly why i decided to pay much larger payments to avoid being in student debt. I had accumulated about a little over 10k in 1.5 years of university, and due to an unfortunate family incident, i had to drop out because i missed final exams and practically bombed all my classes. What's more is that the university concluded that my plane tickets and my grandmother's death certificate weren't enough to have my semester dropped. And in about under 2 years of one part-time job, i paid the whole debt off. Living off of the most cheapest food and not spending on literally anything else. Man, not having debt feels great.
That's what happens when you only pay off the interest. This person obviously doesn't know how to deal with debt, and they have suffered the consquences.
Don't be a prick. I've been paying mine for 10 years and my balance has gone down about 5k. And I've been paying about 500/month.
It's nice when people have lots of money and they either don't need loans or they can pay them down quickly. What isn't nice is when those people turn around and scold others for not being as fortunate.
John, dude, start paying 600 a month at least
@@beachboysandrew would if I could buddy. Again, people with more criticizing people with less simply for having less. Nice, keep it up.
@johnm5928 Fundamental misunderstanding of how interest works.
Graduate students very consistently graduate with more than $70k in debt with interest rates of about 8% If you got a $70k loan with a 8% annual interest rate, then paid $500 a month for 10 years, you would still be $64k in debt. If you paid $750 a month instead, you'd be $21k in debt. If you paid $1k a month, the debt would be gone in 8 years.
It's not my fault if someone is unable to grasp compound interest and do the math for it, but they still get a loan, especially if they got a variable interest rate loan like an idiot.
I'm not a prick if I can do math, and I willingly choose to pay more than what's asked of me per month to avoid being in debt. If your desired major won't land you a job that gives you $9k-12k a year to pay off your debt, then don't go to college.
Edit: And I'm not well-off, nor did I come from a well-off family. I'm just smart with money.
@@saysikerightnow3914 translation: if you aren't successful, you should have known better. If you are successful, it's because you knew better than everyone else.
See, the problem with people like you is you can't see past the end of your own nose. You're the ripped guy in the gym who makes fun of the out of shape guy for being there. Youre the guy who gets to the top and turns around to throw stones at the others climbing up.
I'm not begrudging your success. I'm saying make sure you understand that some people don't find it. Some people join the military and get out injured, with limited ability for work and a fixed income. Some people have to choose between paying off student loans and paying medical bills. Oh and food maybe too.
Get over yourself.
Bro could have saved $100K by refinancing 🤣
Insane. So much of their initial payments were going to interest. If they paid an extra $12 a month the first year, they could’ve saved a whole year’s worth of payments ($144 instead of $6000). That’s a *41.6x* return on investment over 1 year 💀 I’d literally starve myself for a day to save $12 if I was getting FOURTY ONE times the return
Imagine if they starved themselves once a week to get the extra $12 for the monthly payment. They would've saved almost more than $100k during those 20 years.
And probably even be healthier.
Moral: make sure you understand how compound interest works before committing yourself.
"My wife and I left graduate school 23 years ago, and still didn't understand how interest rates and debt works. We borrowed money to bet on ourselves and it didn't really work out, so now we want everyone else to pay for our mistakes." There you go, I fixed their statement for them.
To be fair student loans shouldn't be set up like a typical loan through the bank. You should at the most have to pay the money that you borrowed adjusted for inflation.
@@sambo669 A loan is a loan. What benefit would there be for a bank to lend money to somebody and stand to gain nothing in return? That's not a business model. The fact is, a student loan is an investment in yourself, and sometimes that investment doesn't pay off.
"I'm tired of making ineffective, minimum payments that barely cover the interest on my loan. I demand that my neighbors pay off the balance for me."
take your meds for the voices
It is still atrocious that universities make people go this much into debt for grad school. But I get the impression that they didn’t really know how debt works and did t care to find out…
Really speaks to the value of grad school in so many ways
To put it into perspective, the monthly interest rate of 0.00697 on a balance of $70,000 means interest of about $488.
Paying $500 a month means they’re really only paying off $12 a month (500-488), initially. That’s why a payment of $600 would make such a huge difference. Instead of decreasing the balance by $12, it’s decreased by $112. The effect becomes less noticeable as the balance decreases, but it makes a huge difference initially.
As an atheist I can confirm that the fact that a loan company can allow you to make a payment difference of 100$ and cause you to owe them money virtually in perpetuity is literally the biblical definition of usury
It isn't like the borrower is forced to pay that lower amount. Obviously it would be egregious if you weren't allowed to pay these loans off early. Also I believe usuary refers to the interest rate, so slight difference but in this case it's effectively the same.
It's a clearly made up scenario. Why is everyone falling for a scenario that doesn't factually track with how student loans work (even private ones)
This interest rate math reminds me of my actuarial exams, well done! 8.69% is a very reasonable rate for a loan like this. Most student loans issued 23 years ago are variable rate, so it would be interesting to calculate what the effective spread over LIBOR/SOFR has been. Also, given that this couple prefers minimum monthly payments, they probably paid nothing during the 3.5 years of COVID forbearance: considering that in your calculation would bring down the effective rate/ spread quite considerably.
The point is when you borrow money, you have to pay it back with interest. Nobody is getting cheated here: if they feel like it’s unfair, they have nobody to blame but themselves.
this stuff is always my kryptonite. i can never wrap my head around these interest and compounding formulas!
"ChatGPT: Explain compounding interest like they are a gamer"; now I'm interested in how the LLM interprets the mental maturity of a gamer.
It's pretty simple by splitting what you pay into two parts: interest and debt. If you only pay off the interest every year, the actual debt will never shrink and you need to pay off forever (for infinite years).
This is why before you go to university, try to think about what everything is going to cost. Consider tuition, rent, car payments/transport, food, etc. If you have to take out loans, then consider how much it is going to cost and how much you will make when you're done. If you make less per year than you took out in loans, find a cheaper university. It doesn't matter if you're going to Harvard, your life will be ruined regardless. Also try to apply to as many scholarships and grants as possible to reduce the amount. I personally go to my state school which is actually a top ten school in my major and I made enough in scholarships to pay off tuition and rent. All that's left is food and miscellaneous stuff.
Its a trap for the broke and poor plain and simple and a route of socialites
this is why charging interest on loans was considered a sin
Amen.
I dont know whether to be impressed or disappointed they could graduate without understanding how interest works.
If you actually dig into these numbers they are _very_ dubious.
Like, kinda literally: Remove the interest.
But, they wouldn't do that, since its for profit. Which is the issue.
As a high school senior who plans to go to college this is scary
Scholarships are your friend.
Make smart school choices. As much as I wanted to go to a nice private school, I didn’t get enough scholarship money from them. Instead, I went to my state school for completely free, and graduated in 2 years with two bachelor’s degrees, a minor, and a certificate.
Unironically, learn to code or pick up a trade. College is a scam. I get calls/emails from recruiters weekly who find my resume on Linkedin (I write VBA for excel users).
fill out your FAFSA!! I went to CC for completely free
Study hard in math classes so you don't end up paying for 44 years and being surprised halfway through.
Remember Sophomore algebra class when the teacher explained if you just paid your mortgage without added principal it would result in you buying your house twice+. Also seeing a lot of comments of people not alive in the 70's when the mortgage rates were in the high 8%'s commenting about how insane that rate is. To put that into context, the mortgage rate didn't fall below 8% until 1993 and it was the Fed fueled money pump of the 20'teens that was the outlier.
Mine did. He made a point to show how one "extra" payment per year (against the principal) pays off a mortgage far earlier, and how much less you end up giving the bank.
My teachers/professors didn't teach this, but my non-degree-having parents did. When I bought my house, I bought under what I could afford, and made double and triple payments when I could. Tax refund? Toward principle. Bonuses? Towards principle. Vacations? Ha. Eating out? Ha. Not till the house is paid. Had it paid off in less than 7 years. Now all that extra money goes to investments, and allows my wife and I to pay cash for just about anything we want.
Oct. 1981 the average rate for 30-year fixed was 18.6%
Why shouldn't it be cancelled? Because you went through college and still can't use a simple high school equation. Its a stupid tax.
Yeah, the problem is people look at it like an abstract thing that they have to put a minimum amount of money into instead of what it is. The whole point of a loan is that you pay it back, and the reason there's interest is so you either pay it back quickly or you pay extra back
Great video! Just one thing to note is that the 8.69% calculated was the APY (annual percentage yield) rather than the APR (annual percentage rate) that one more typically works with in these scenarios. The APR is actually simply 0.00697124538*12= 0.0837 or 8.37%. The APR is in general slightly less than the APY
I'm glad you brought up what happens if they pay more. [Obligatory "not saying the student loan system is fair, okay, not corrupt, not predatory, etc. here]. If two adults go to grad school and can't pay $600 a month afterwords, I'm inclined to believe they shouldn't have gone at all. For reference, from what I've read before (feel free to fact check me), the average cost of raising a child is $1000/month. This means we would have a case of dual income/no kids who might need government assistance if they were to have children. Which tells me either A: they went into a field that makes less money than what can be readily earned in fields requiring no college education, and/or B: they weren't able to find a job at all in their field of education. Both of these are things that a person *should* be looking out for before signing up for college. But, to be fair, college is pushed heavily on children and you're expected/encouraged to start going to college 7 years before your brain is fully developed, particularly the part governing long-term decision making
What I do instead of just paying my student loans:
have your parents start saving for college from a young age, otherwise you're screwed
@@levels23 or dont do $500 a month instead live broke and give almost all ur money right out of college into the loan and pay it off in a couple of years
Pull am all-nighter on beer and weed and mdma and score 147 on an IQ Test which you forgot that you’d booked in the middle of Physics Class at University
@@npop3289I know people who can’t even get hired for a job two years after they graduated with honours.
I’m not saying they’re totally doing everything right but it’s not realistic to make enough money to pay off the debt. And most people don’t find out until after.
@@levels23live somewhere where higher education is state funded
so sad. two college graduates which together could only pay $500 each month.
It would be interesting to know what they studied. It’s important to study the market to know what would give you money in life.
I think they were just miserly and understimated the interests
Not just grads but Grad Students. At the bare minimum, they had their masters at the end, if not PHDs, with some solid research and connections to help them make the big bucks in the private or public sectors.
I'd also like to know what they *actually* spend their money on. Most people, let's be honest, drop a lot of money on little luxuries that add up over time. These lenders from the story *probably* could have scraped up an extra $100/month if they'd clued in to the nature of their loan.
@@hoi-polloi1863 They are probably make over 250k-500K (duel income) a year if there is even a little value in their degree. Probably didn't even notice these payments for a while.
If you don't understand how that happens, then you should have to pay back your loans as penance for wasting a college education
I mean sure, people should recheck the conditions of their loans frequently, in order to stay ahead.
But assuming that a degree makes you good at everything is wild.
A degree crams basic and advanced information into your brain which is likely heavily field specific. You will not become Einstein because you know one pre-defined topic well if you are not also learning how to think for yourself or are smart from the start.
Total amounts of money paid
500/month - $268,000
600/month - $145,200
700/month - $120,400
800/month - $108,800
900/month - $101,700
It seems increasingly obvious why finance is not taught in schools. It would lose these loan companies so much money.
I know that $70k was a much different sum of money 23 years ago than it is today, but it still baffles me that between 2 people they couldn't muster enough to pay off $35k averaged between them for 23 years, and on top of that still apparently owe ~86% of the nominal face value of the debt. People finance cars for that much money now, and they pay it on a single income in 6 years or less most times.
It just blows my mind that so many people apparently don't look into or care about having a defined payback structure for student loans. This guy broke it down without even having all of the variables on the outset in roughly 5 minutes, it is not esoteric wizardry to be able to know a payback schedule for a loan.
The issue is that at the beginning you're barely paying off anything, the interest you have to pay per month at 8.69% is $487.78, if you pay off $500 per month you pay a net of only $12.22. So if you paid $512.22 per month instead that would mean you'd literally halve the time you're paying it off and almost half the total amount of interest you pay back, if you pay off $600 per month you cut it to like 15% of the original amount of interest you had to pay
Yeah I am choosing community over a 4 yr college because I would have been in a pretty much identical situation otherwise… absolutely terrified of how I’m gonna be able to manage just the few years after I finish CC.
Make sure to choose a marketable degree, cheese man
@@thejohnbeck going for engineering, the variety im not quite sure of yet but y’know… tryna get that pay
@@elquesohombre9931 awesome! Also try to find an area you like. I have a cs degree, but now work in a subset of that which is awesome for me, rather than general CompSci
I saved a ton off my 4 year degree just by doing a transfer from a community college and getting my gen ed done there. Nothing wrong with 2 year schools!
“Explain to me why other people shouldn’t have to pay for my bad financial decisions”
Making the minimum payment on any debt ensure you are wasting your time and money. Pay the principal off and it goes away
They went to Graduate School, after college. A Masters or PhD degree? Yet, they can't figure this out after 23 years?
The moment you said “ nice” for the interest rate at the same time I did when I was watching, I hit subscribe.
debt and money is the root of a lot of shame and fear for so many. which sometimes leads to nihilism/stress disorder etc. its really saddening and overwhelming at times, especially without a support group in your life.
i love whoever is reading this. I wish you the best, and may you find your authentic self. I believe in you
Adjusting for inflation, that 70k in 2001 (assuming this is recent) would be worth around 125k today. So they “only” owe half of what they did 23 years ago. Still awful but better than having paid off only 1/7th of the loan. Would be interesting to see how long it takes to pay off if you start at 500/month and increase along with inflation
Dodge the amortization schedule by paying down the principal. Works with mortgages too.
Yeah, you really have to make sure you are making a dent to the loan principal when you pay the interest.
Imagine if they have been paying less than 487.9 per month lol.
Imagine if they were paying exactly $487.90/month!
This mathematical breakdown really makes any sympathy I had for them completely evaporate lol.