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I learnt how compound interest worked long before high school. I don't mean to sound unsympathetic, but the notion that people who have applied to and been acce

I learnt how compound interest worked long before high school. I don't mean to sound unsympathetic, but the notion that people who have applied to and been accepted to a university wouldn't be capable of making simple cost/benefit decisions or understand the consequences of a loan should be laughable. The fact that so many people are apparently approaching graduating without yet having thought about the consequences is a sign that our education system sucks long before student loans become an issue. edit: I recently discussed this with a friend who just received an MBA with an emphasis on finance. He was complaining that the interest rates on his loans had gone up every year, even before he started graduate school. It's disgusting that he could be accepted to a graduate school to study finance and didn't see that one coming.

jacquesm 13y ago
> I learnt how compound interest worked long before high school. Good for you. I don't mean to be unsympathetic either but not everybody has an intuition for numbers. I know people that have serious problems relating even simple numbers, doing multiplication of anything over two digits (even with the help of pen and paper), you can just forget about compound interest. That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences. I know that to some people the fact that others can't quite handle numbers is a shocking concept but I've seen this on more than one occasion in people that were otherwise functioning just fine and I definitely don't envy their inability to deal with figures.
- chime 13y ago
  > That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences. See my reply to the same OP: https://news.ycombinator.com/item?id=6225690 https://news.ycombinator.com/item?id=6225690 I think even explaining the math in Explain-Like-I'm-Five words would not be sufficient for most people because they might not be in a situation to fully grok it. What does $833/mo for 10 years mean to a student training to be a Radiologist? They hear salaries like $120k/yr and think $833/mo isn't a big deal. Then you end up with too many unemployed, qualified Radiologists, salaries plummet to $52k/yr, and suddenly $833/mo is significant. My point is that when people signed up for these loans, they were told it was a risk-free investment in their own life. Every investment comes with risk. That is the entire point of investments. Nobody ever treats student loans as a risk on the student-side of things. That's what needs to be conveyed more clearly.
chime 13y ago
It's not the math that people have a difficulty with. It is the impact. I was a double major in CS + Econ with Math minor. I took out student loans and I knew the interest rates. I knew exactly how much my monthly payments would be. The problem is that the number meant nothing to me as a student. I had no idea if $100/mo for 10 years is a lot or very little to pay for student loans because I had no job, no car payments, no mortgage, no healthcare costs, no hobbies, and no personal obligations. But I did have some side income and I could easily make $1000/mo making websites if I needed to. So I signed up. Would I have signed up if it was $2000/mo? No. But had my payments been $600/mo instead of $100/mo, I would have gone bankrupt because my starting salary after college was pretty low. Just like a small percentage of people who abuse welfare, Medicare, and other social programs, a small number of students abuse the student loans by spending them on luxury goods. But most of the students take out loans because they have no alternative and regardless of the interest rate, social/family/economic pressure discourages them from choosing any other path. And in this particular instance, the economy was pretty good 2000-2008. So the students who took out $80k loans for an Art degree from the Ringling School of Arts in 2006 did not think they would be stocking shelves in 2010. Ringling Graduates from the past two decades had done pretty well for themselves, finding work in Disney, ILM, and many other creative agencies around the country. Now nobody thinks twice before telling them "Well you should've thought twice before signing up for a useless art degree instead of something useful like STEM"
WalterBright 13y ago
The guy who taught me accounting used to be a car salesman. He told me that car lots don't make much selling cars, they make their bread by selling financing. And they do it to people who simply cannot understand the numbers. It gets worse. He'd patiently explain the numbers to the customer, and they'd still sign up for the most expensive option. (They were motivated by the monthly payment amount - the term or the interest rate simply meant nothing to them.) Being math challenged has severely negative consequences for ones' financial prospects.

jacquesm 13y ago

> I learnt how compound interest worked long before high school. Good for you. I don't mean to be unsympathetic either but not everybody has an intuition for numbers. I know people that have serious problems relating even simple numbers, doing multiplication of anything over two digits (even with the help of pen and paper), you can just forget about compound interest. That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences. I know that to some people the fact that others can't quite handle numbers is a shocking concept but I've seen this on more than one occasion in people that were otherwise functioning just fine and I definitely don't envy their inability to deal with figures.

chime 13y ago
> That doesn't mean that such people should not be able to apply for loans, it means that the consequences would have to be explained to them in terms that they can understand, not the mathematical equivalent shorthand for those consequences. See my reply to the same OP: https://news.ycombinator.com/item?id=6225690 https://news.ycombinator.com/item?id=6225690 I think even explaining the math in Explain-Like-I'm-Five words would not be sufficient for most people because they might not be in a situation to fully grok it. What does $833/mo for 10 years mean to a student training to be a Radiologist? They hear salaries like $120k/yr and think $833/mo isn't a big deal. Then you end up with too many unemployed, qualified Radiologists, salaries plummet to $52k/yr, and suddenly $833/mo is significant. My point is that when people signed up for these loans, they were told it was a risk-free investment in their own life. Every investment comes with risk. That is the entire point of investments. Nobody ever treats student loans as a risk on the student-side of things. That's what needs to be conveyed more clearly.

chime 13y ago

It's not the math that people have a difficulty with. It is the impact. I was a double major in CS + Econ with Math minor. I took out student loans and I knew the interest rates. I knew exactly how much my monthly payments would be. The problem is that the number meant nothing to me as a student. I had no idea if $100/mo for 10 years is a lot or very little to pay for student loans because I had no job, no car payments, no mortgage, no healthcare costs, no hobbies, and no personal obligations. But I did have some side income and I could easily make $1000/mo making websites if I needed to. So I signed up. Would I have signed up if it was $2000/mo? No. But had my payments been $600/mo instead of $100/mo, I would have gone bankrupt because my starting salary after college was pretty low. Just like a small percentage of people who abuse welfare, Medicare, and other social programs, a small number of students abuse the student loans by spending them on luxury goods. But most of the students take out loans because they have no alternative and regardless of the interest rate, social/family/economic pressure discourages them from choosing any other path. And in this particular instance, the economy was pretty good 2000-2008. So the students who took out $80k loans for an Art degree from the Ringling School of Arts in 2006 did not think they would be stocking shelves in 2010. Ringling Graduates from the past two decades had done pretty well for themselves, finding work in Disney, ILM, and many other creative agencies around the country. Now nobody thinks twice before telling them "Well you should've thought twice before signing up for a useless art degree instead of something useful like STEM"

WalterBright 13y ago

The guy who taught me accounting used to be a car salesman. He told me that car lots don't make much selling cars, they make their bread by selling financing. And they do it to people who simply cannot understand the numbers. It gets worse. He'd patiently explain the numbers to the customer, and they'd still sign up for the most expensive option. (They were motivated by the monthly payment amount - the term or the interest rate simply meant nothing to them.) Being math challenged has severely negative consequences for ones' financial prospects.