GAMES LENDERS PLAY WITH YOUR STUDENT LOANS – Student Loan Misinformation that causes lifelong increasing debt.

The owner of this student loan has been told by the lender her monthly payment need only be $48, and that is what she has been paying for a number of years. She believes that the loan is a ten (10) year loan also.

Why isn’t basic loan mathematics a requirement to understand before anyone can legally lend someone money?

Below is an example of one of her NINE student loans. Her govt. Sallie Mae loans have a 9% interest rate.

The Keyensian Economic system, which is based on debt, is killing our country, destroying our youths financial potential, and is turning every citizen into a slave of the state. Each parent should take on the responsibility of teaching their children How Money Really Works. If you don’t know, then call me today, Jennifer Hansen 845-649-7487.

The amortization schedule below has a monthly payment of $89.88. That is $41.88 more than she has been paying. Even so, it will take her 20 years to pay it off with a 3.7% interest rate. However……..

PLEASE LOOK AT THE VOLUME OF INTEREST HIGHLIGHTED IN YELLOW – 41.673% is actual interest dollar percentage of loan amount originally borrowed she will be paying. $6,345.20 is 41.673% of $15,226.00.

Paying just the $48 would be considered a negative amortized loan (not even covering the interest payments each month so the unpaid interest is added to the loan and becomes principal extending the length of the loan and the amount owed) as can be seen in the example below JANUARY 2015 payment is divided into $42.93 of principal and $46.95 of interest. So the $48 is covering the principal portion and only $5.07 of the interest leaving $41.88 of unpaid interest which is added to the principal owed at some point. Depends on the lender.

3.7 yr 13.7  yrs 2 to 20

SET UP FOR FAILURE FROM DAY ONE:

1/ While kids are in college interest is accruing on many of their loans as most are not subsidized by the govt, who pays the interest for them on subsidized loans. Here is one example of $575.93 of interest that has accrued on an unsubsidized $4,000 loan while student has been in college for 2 1/2 years. Began with a loan of $4,000. It has grown to $4,575.93 so far….. This is just one of many loans though. Most students only bother looking at the original loan amount, not the increasing loan amount when determining whether to take out more loans along the way.

unsubsidized loan accrues interest while in college

2/ Upon leaving college, students are given a 6 month grace period to find a job, get settled before being required to begin monthly repayments, however during that 6 month period of time interest is accruing as well.

3/ Once repayment time begins, many students are given a choice as to their loan repayments. They can start off with smaller payments and then (supposedly as their income increases in the future) they will be more able to afford a higher repayment amount.

There are a number of problems with this:

a. Usually the loan is negative amortized in the beginning because the payment does not cover the principal and interest so any interest not paid is added back into the loan as principal increasing the balance owed. As seen on the above example.

b. It assumes the students income will increase above inflation rate but most often it increases less than the inflation rate and so there is not that extra number of dollars that can be thrown towards the debt. An increase in the number of dollars doesn’t mean there is an increase in the spending ability of those dollars. Quite often there is an increase in the cost of living that is actually greater than the raise of their income so they are actually behind the eight ball, not ahead of it. read more about inflation here:

c. It lulls students into thinking they can pay off their loans in ten years with low payments as the loan companies quite often do not remind students that a higher payment is now due and necessary so they continue to pay the lower neg am payments not realizing what is actually happening behind the scenes where their debt is increasing.

d. As students age, they are more likely to have more responsibilities, like getting married, having children, getting a mortgage for a home purchase etc. so presuming a higher payment will be easier in the future is ludicrous.

 

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January 4, 2015 · Jennifer · No Comments
Tags: , , , , , ,  · Posted in: COLLEGE SAVINGS PLANS, GAMES LENDERS PLAY WITH UNSUSPECTING STUDENTS, STUDENT LOAN MISINFORMATION

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