4 ms·

As others have mentioned, this seems like a test case issue of bad financial planning. There are lots of ways to get into such a situation, not all of them stud

As others have mentioned, this seems like a test case issue of bad financial planning. There are lots of ways to get into such a situation, not all of them student loan related. Frankly if you look at only the numbers, then 170,000$ total on a 95,000$ is what you'll get for a 20 year loan with 6.5% interest (give or take). From what I can tell from the article she will be paying it for roughly 20 years. If you take a fixed-rate payment (I.E. paying the same amount monthly for the entire loan, rather then paying the same percentage of the remaining loan every month), this is exactly the situation you'll get - I.E. the first few years your payments go almost entirely to interest and only later years you pay for the principal. These are very common financial instruments that you can get from a bank or credit company. Especially if your parents are cosigned. I think the main takeaways are rather these: 1. How in the world is a variable interest loan based on LIBOR (which the article alludes to) gets to 11% interest? that's prime + 8%, at least. That's practically loan-shark territory. How is a government led (and financed) aid program have such an insane interest rate? 2. When you take a loan for investing (such as education, or starting a new company), I.E. leveraging, you should always consider whether the future value of the investments is higher then what you borrowed. I'm assuming she studied for jobs that don't pay well. 3. American education is insanely expensive. It's probably cheaper to just study abroad for a few years and come back (like she did for her master's degree).

pandaman 8y ago
>How is a government led (and financed) aid program have such an insane interest rate? I don't think Sallie Mae is providing financial aid. According to Wikipedia[1] it's providing private student loans. 1. https://en.wikipedia.org/wiki/Sallie_Mae https://en.wikipedia.org/wiki/Sallie_Mae
- Illniyar 8y ago
  Sallie mae provided "guaranteed" student loans, where if the borrower is bankrupt, the government takes over the loan. The government also sets the interest rates for these, as I understand it. I thought she took one of these, though maybe she took just a regular private loan? but those aren't usually referred to as student loans (and will banks actually give those when there are guaranteed ones available?)?
  - Shikadi 8y ago
    Private loans can still be classified as student loans. Source: My enormous debt
  - dragonwriter 8y ago
    > I thought she took one of these, though maybe she took just a regular private loan? but those aren't usually referred to as student loans (and will banks actually give those when there are guaranteed ones available?)? Federally guaranteed loans have limited interest rates and criteria for what schools they can be used at (etc.); private student loans aren't bound by either of those and have been offered largely for that reason.
  - pandaman 8y ago
    >Sallie mae provided "guaranteed" student loans, where if the borrower is bankrupt, the government takes over the loan. Where did you get that? From what I read in Wikipedia, the only difference with a regular private loan is that they are not easily discharged through bankruptcy thus the interest rates are quite low compared to a regular unsecured loan for a person with no credit history and no income. https://en.wikipedia.org/wiki/Private_student_loan_(United_States) https://en.wikipedia.org/wiki/Private_student_loan_(United_S...
saalweachter 8y ago
Not defending student loans or the entire predatory infrastructure that supports them, but rates on all unsecured loans are nasty. Home loans can be cheap because they are secured by the value of the house: if you default, the bank thinks it can sell your house and still make a profit. Unsecured loans yield nothing when they go bad, so they have absurd interest rates whether the loan is for education, business, or whatever. That’s why many people choose to eg take out a second mortgage when starting a business: better interest rates, because it is secured, but you lose your house if your business fails.
- asmithmd1 8y ago
  Educational loans are guaranteed by the US government. When she defaults, Sallie Mae will sell her loan to the government and will be compensated 100% for all principal and interest. The US government now owns a non-performing loan which they then sell for 10%-15% of what they bought it for to - you guessed it - Sallie Mae loan recovery. Since this loan can't be discharged by bankruptcy, part of every paycheck she ever earns will be garnished, every tax refund will be seized until Sallie Mae gets their money.
  - saalweachter 8y ago
    My understanding is that only federal student loans are insured & guaranteed by the government, and that private student loans, while they benefit from the whole “can’t be defaulted on” thing, can still go bad.

pandaman 8y ago

>How is a government led (and financed) aid program have such an insane interest rate? I don't think Sallie Mae is providing financial aid. According to Wikipedia[1] it's providing private student loans. 1. https://en.wikipedia.org/wiki/Sallie_Mae https://en.wikipedia.org/wiki/Sallie_Mae

Illniyar 8y ago
Sallie mae provided "guaranteed" student loans, where if the borrower is bankrupt, the government takes over the loan. The government also sets the interest rates for these, as I understand it. I thought she took one of these, though maybe she took just a regular private loan? but those aren't usually referred to as student loans (and will banks actually give those when there are guaranteed ones available?)?
- Shikadi 8y ago
  Private loans can still be classified as student loans. Source: My enormous debt
- dragonwriter 8y ago
  > I thought she took one of these, though maybe she took just a regular private loan? but those aren't usually referred to as student loans (and will banks actually give those when there are guaranteed ones available?)? Federally guaranteed loans have limited interest rates and criteria for what schools they can be used at (etc.); private student loans aren't bound by either of those and have been offered largely for that reason.
- pandaman 8y ago
  >Sallie mae provided "guaranteed" student loans, where if the borrower is bankrupt, the government takes over the loan. Where did you get that? From what I read in Wikipedia, the only difference with a regular private loan is that they are not easily discharged through bankruptcy thus the interest rates are quite low compared to a regular unsecured loan for a person with no credit history and no income. https://en.wikipedia.org/wiki/Private_student_loan_(United_States) https://en.wikipedia.org/wiki/Private_student_loan_(United_S...

saalweachter 8y ago

Not defending student loans or the entire predatory infrastructure that supports them, but rates on all unsecured loans are nasty. Home loans can be cheap because they are secured by the value of the house: if you default, the bank thinks it can sell your house and still make a profit. Unsecured loans yield nothing when they go bad, so they have absurd interest rates whether the loan is for education, business, or whatever. That’s why many people choose to eg take out a second mortgage when starting a business: better interest rates, because it is secured, but you lose your house if your business fails.

asmithmd1 8y ago
Educational loans are guaranteed by the US government. When she defaults, Sallie Mae will sell her loan to the government and will be compensated 100% for all principal and interest. The US government now owns a non-performing loan which they then sell for 10%-15% of what they bought it for to - you guessed it - Sallie Mae loan recovery. Since this loan can't be discharged by bankruptcy, part of every paycheck she ever earns will be garnished, every tax refund will be seized until Sallie Mae gets their money.
- saalweachter 8y ago
  My understanding is that only federal student loans are insured & guaranteed by the government, and that private student loans, while they benefit from the whole “can’t be defaulted on” thing, can still go bad.