This viral post claims to help people understand student loans better, but gives bad/misleading info regarding the nature of student loans vs mortgages and how interest is calculated.
▪️The meme makes a big deal about student loan interest being compounded daily, but this is insignificant. Most of us should have calculated interest rates compounding annually/monthly/daily/hourly/continually back in middle school algebra.
▪️The differences are underwhelming. If you had $100K in savings with an APR of 5%, after 10 yrs you’d have $164,700.95 with monthly compounding, vs $164,866.48 with daily. Over 10 yrs the difference is less than $200 (0.2% of the initial balance). Which is why many banks offer daily compounding savings accounts.
▪️You can absolutely pay down your student loan principal with extra payments, although you might need to let the lender know in writing. Very strange that a post claiming to give people info about SLs would fail to inform people about this!
https://www.studentloanborrowerassistance.org/how-do-i-pay-extra-to-reduce-principal/
▪️Ironically, the difference between SLs and many other loans is that Federal law prohibits prepayment penalties on SLs (public and private). On other loans, there can sometimes be added fees for paying off a loan too early.
https://www.forbes.com/advisor/mortgages/prepayment-penalty-what-it-is-and-how-to-avoid-one/
▪️The reason SLs seem to catch borrowers off guard compared to mortgages is not because interest is calculated differently, it’s because the borrower doesn’t begin payments for 4+ years. If you didn’t start paying your mortgage until 4 years after closing you’d have the same issue.
▪️This post claims to want SLs treated like mortgages, but ignores the many ways SLs get preferential treatment. Like tax deductions and income-based repayment plans. Now, borrowers can cap their payments at 5% of discretionary income, no matter how much they owe!
▪️And after 20 years (sometimes 10 years) the remaining loan balance is forgiven (absorbed by the US Treasury). That is a repayment deal that no mortgage can touch, and one that incentivizes students to borrow recklessly.
https://budgetmodel.wharton.upenn.edu/issues/2022/8/26/biden-student-loan-forgiveness
▪️The central problem is that college has gotten vastly more expensive, which government subsidizing and guaranteeing SLs has only exacerbated. At best, changing how SLs are structured would just shift the financial burden more to the taxpayer.
It’s bizarre to see them seesaw back and forth that Trump is totally clueless and aloof, just golfing all day, then all of a sudden he’s a dangerous king/dictator who’s diligently plotting to seize absolute power.
▪️This one is frustrating because, while it’s nice to see the vigor and speed that DOGE is acting with, they’re also sloppy with some of their findings. This is not some bombshell, millions of dead people’s SS numbers aren’t being paid out to fraudsters.
▪️This problem has been known for some time, you can read an inspector general’s report from 2015 about millions of names on the SS “numident” not being correctly annotated for deaths, even though they were older than 112 (the oldest known American at the time).
https://oig-files.ssa.gov/audits/full/A-06-14-34030_0.pdf
▪️There are innocent explanations for some of these. Expatriates that died outside the country, for example. Or immigrants given temporary work permit who returned to their country, people issued new numbers for various reasons, etc. However, most are simply due to the govt not diligently keeping track of deaths.
▪️It’s embarrassing that the govt has millions of numbers on the numident that are ...
