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I co-signed a loan for a friend who worked in as a Chemical Engineer for GE. Long story short, he had his Visa revoked, so I ended up on the hook for $16k of hi

I co-signed a loan for a friend who worked in as a Chemical Engineer for GE. Long story short, he had his Visa revoked, so I ended up on the hook for $16k of his student loans. I took a look at some of the financing terms and they are completely ridiculous. He paid $130 a month and at the end of the year he had only paid down $70 in principal. These terms should be criminal.

harryh 8y ago
(130 * 12 - 70) / 16,000 = 9.375% That's a bit high but doesn't seem totally out of line for an unsecured loan.
- user5994461 8y ago
  Student loans are secure. They cannot be discharged through bankruptcy.
  - gnicholas 8y ago
    That’s not what “secured” refers to. It means that if a loan is in default, the lender can seize an asset, like a house or some receivables. The fact that student loans can’t be discharged in bankruptcy makes them less risky, but not nearly as safe as a secured loan where there is an asset backing it up.
    - user5994461 8y ago
      Incorrect. Bankruptcy is more secure. When the student can't pay, the abusive interest rate accrues fast enough that it becomes a perpetual loan. It's a guaranteed lifetime earning for the bank. It's also a misnomer to call that defaulting. The principal can be covered many times over by the interest. It's very profitable.
      - deleted 8y ago
        [deleted]
- mmt 8y ago
  Moreover, that payment would translate to a 35-year loan term, and lengthier terms tend to mean higher interest rates, as well (even on secured loans like mortgages or car loans).
- gamechangr 8y ago
  I can see your math, but actually it was nothing like that (but I didn't realize the extra info would be interesting to anyone - my fault). I should have given more information, now it sounds a bit misleading, but it's incredibly frustrating that corporations get away with this. It was a 2.5% loan that balloons up to 6% loan after two missed payments, but that's not the confusing part. Interesting loophole, when he was sent back to Mexico - his payment lapsed for 6 months before I was made aware that payments were being missed. They claim they are not allowed to disclose when payments are missed (but I'm allowed to be held responsible as the co-signer of course). Student loan laws have a maximum amount of interest that can be charged and are not allowed to change the payment. They are allowed to redirect all payments to interest until all penalties are paid. Long story short - 12 & $130 = $1560 in payments made little to no difference...$70 to be exact. Even more annoying, all of the payments post showing principal being paid (and then it's "retracted" to pay for interest the following month). Each month it would show the principal being repaid at $33 and then the following month would be the same exact balance as the month before. I had to call the help line to figure out why $33 principal reduction never lead to a lower balance....and that's with me paying attention to the details. I paid it off for my friend and wish nothing but the best for him, but no one should have to deal with the joke of an industry like Student loans.
  - harryh 8y ago
    Accruing penalties when you fail to make payments is typical for almost any kind of loan. It is also totally normal for penalties to be paid before principal. I'm really not sure what your complaint is.
    - gamechangr 8y ago
      I did not expect for the interest rate to double with two missed payments. (yes there were low at 2.5% ). I did not expect to be financially responsible for the entirety of the loan - but not be allowed to know if it is current or behind. I did not expect that when an interest rate is capped for student loans, that there is an unlimited and compounding penalties that you are again - responsible for - but not allowed to know if you are in good standing. Every other loan that you owe - they have to tell you what you owe and what the terms are. Not co-signing though

harryh 8y ago

(130 * 12 - 70) / 16,000 = 9.375% That's a bit high but doesn't seem totally out of line for an unsecured loan.

user5994461 8y ago
Student loans are secure. They cannot be discharged through bankruptcy.
- gnicholas 8y ago
  That’s not what “secured” refers to. It means that if a loan is in default, the lender can seize an asset, like a house or some receivables. The fact that student loans can’t be discharged in bankruptcy makes them less risky, but not nearly as safe as a secured loan where there is an asset backing it up.
  - user5994461 8y ago
    Incorrect. Bankruptcy is more secure. When the student can't pay, the abusive interest rate accrues fast enough that it becomes a perpetual loan. It's a guaranteed lifetime earning for the bank. It's also a misnomer to call that defaulting. The principal can be covered many times over by the interest. It's very profitable.
    - deleted 8y ago
      [deleted]
mmt 8y ago
Moreover, that payment would translate to a 35-year loan term, and lengthier terms tend to mean higher interest rates, as well (even on secured loans like mortgages or car loans).
gamechangr 8y ago
I can see your math, but actually it was nothing like that (but I didn't realize the extra info would be interesting to anyone - my fault). I should have given more information, now it sounds a bit misleading, but it's incredibly frustrating that corporations get away with this. It was a 2.5% loan that balloons up to 6% loan after two missed payments, but that's not the confusing part. Interesting loophole, when he was sent back to Mexico - his payment lapsed for 6 months before I was made aware that payments were being missed. They claim they are not allowed to disclose when payments are missed (but I'm allowed to be held responsible as the co-signer of course). Student loan laws have a maximum amount of interest that can be charged and are not allowed to change the payment. They are allowed to redirect all payments to interest until all penalties are paid. Long story short - 12 & $130 = $1560 in payments made little to no difference...$70 to be exact. Even more annoying, all of the payments post showing principal being paid (and then it's "retracted" to pay for interest the following month). Each month it would show the principal being repaid at $33 and then the following month would be the same exact balance as the month before. I had to call the help line to figure out why $33 principal reduction never lead to a lower balance....and that's with me paying attention to the details. I paid it off for my friend and wish nothing but the best for him, but no one should have to deal with the joke of an industry like Student loans.
- harryh 8y ago
  Accruing penalties when you fail to make payments is typical for almost any kind of loan. It is also totally normal for penalties to be paid before principal. I'm really not sure what your complaint is.
  - gamechangr 8y ago
    I did not expect for the interest rate to double with two missed payments. (yes there were low at 2.5% ). I did not expect to be financially responsible for the entirety of the loan - but not be allowed to know if it is current or behind. I did not expect that when an interest rate is capped for student loans, that there is an unlimited and compounding penalties that you are again - responsible for - but not allowed to know if you are in good standing. Every other loan that you owe - they have to tell you what you owe and what the terms are. Not co-signing though