Reply to Canceling $10k of student loan debt is stupid.

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I do not think they should cancel the loans.

Our loans were 6.5% interest and they also front load the interest and structure it so that you don't pay anything towards the principal in the beginning and the principal starts ballooning.

I would suggest that we offer lower interest loans for certain majors and careers. Nursing, teaching, engineering, etc. Generic liberal arts majors- no. (And I was a liberal arts major). I also think they should be structured differently with the interest throughout the loan instead of front loaded. Front loading the interest on a mortgage is different because they assume you'll sell within 7 years. But with student loans, you can't discharge. We also weren't able to consolidate and lower the interest rate.[/quote]

This is why they need to teach personal finance 101 as a required course in college across all institutions in order for students to graduate.  It's called amortization.

The reason you get an amortized loan for everything from a mortgage, to an auto loan, to a student loan is because it allows the borrower to have a fixed payment over the course of the entire loan.  An unamortized loan requires balloon payments that could really mess people up.

Truly shocking people can leave university with their $250k degrees and not even know about the basic concept of an amortized loan. What the hell do they teach these days at university?  Apparently a bunch of useless stuff.[/quote]

Are you saying they can't do an amortized loan that has fixed payments of interest and principal throughout the loan life?? Loans start with the interest so high, the principal payment so low that it makes it incredibly difficult to start touch touching the principal. [/quote]

Basics of amortized vs. unamortized:

https://pocketsense.com/amortized-vs-unamortized-debt-8438.htm

People like the whole idea of having a fixed monthly payment for the entire life of the loan.  Unamortized loans can blow people up with balloon payments after they're done paying interest.  It's a terrible idea for mortgages, student loans, etc.

What you describe is different.  It doesn't exist.  Even if it did, it changes the math a little bit.  Banks will need to get paid.  You know what they'll do?  They'll just increase the interest rates for borrowing, so in the end, even if you paid equal amounts of principal and interest, the bank will still get the money it wants. Law of unintended consequences.

Look at it from the perspective of a lender.  If I lend you $100 today, is it still worth $100 to me 10 years from now if it takes you 10 years to pay it off?  Of course not.  That's why I need interest.  I am not going to lose money (due to time value and inflation) to lend you money for something you need now.  If you make it take longer for me to collect an appropriate amount of interest to make some profit that makes this whole transaction worth my time, I will just have to charge you higher interest.  If you let me collect my interest on the loan upfront to make sure I get paid, I can give you a lower interest rate and make sure you have equal payments over the term of the loan.  [/quote]

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