Fed Financial
$61,000 dollar finance charges on a $20,00 student loan?
My friend is currently in her second quarter in college and she had to get some student loans (like most people of course) So she got a $20,000 dollar student loan from Astrive to help foot the bill. A couple days ago she received a letter saying the total amount she would have to payback would be $80,000 dollars after she graduated. How can their be $61,000 dollars in defered interest on 20,000 dollar loan over three years at a 13% interest rate? How does a 20,000 dollar loan turn into an $80,000 loan? Her entire education is only supposed to cost her about $50,000 grand. And she said her payments would be almost $350 dollars every month.
Public Comments
- Her minimum monthly payments once she graduates is probably quite small and maybe the term of the loan in 20-30 years. If she only pays the minimum, interest adds up pretty quickly.
- OMG!! Your friend needs to be real careful. It looks like she received a private loan. I've read that they can charge like if the loan was a credit card with high interest rates. Unlike Perkins and subsidized Stafford loans -- which have the lowest interest rates around and the added benefit of government-paid interest while you're in school. She needs to read the fine print and research more on student loans. Hope this helps. . .
- Private student loans are evil and substandard. Not only to they have very high interest rates, crappy terms, they also have high destination "fees" as well. She just thinks shes getting a $20,000 check sent to her school!! They will take out extra "charges" to cover "costs". Don't take out private loans!!!! Federal loans like Perkins loans have interest rates of like 5%. Federal Stafford loans have very low interest rates as well and some people qualfiy for the government to pay the interest while she is in school. Most people do NOT take out private student loans! Don't buy into this "attitude". Shop around for schools and scholarships, work while going to college, start at a community college, and NEVER NEVER NEVER borrow more than what you would expect to earn your first year after graduation. Good luck.
- Astrive is a for-profit company, but I don't think it's a scam company. So, if she actually pays off her entire loan after 3 years, it will NOT cost $80,000. But what are the chances that she'll be able to pay $20,000+interest immediately after graduation? Not high. Most people take many years to pay back their loans. So, the $80,000 number probably assumes that she will take 10-20 years to repay the loan. If you look at the details in the letter, it should say how long the repayment period is, and how much the interest is. And so, the $61,000 is actually interest over 13-23 years (3 in school plus 10-20 years after school). If she pays off the loan at graduation, or within 3-4 years of graduation, it won't be that high. Compound interest really adds up though. And I think the letter is actually something that Astrive was legally required to send your friend, to make it clear just how much it will cost if she takes the 10-20 years to repay the loan, so that she can make an informed decision, and pay it back faster if she wants to. If she calls up Astrive and talks to them, they should also be able to help her calculate how much it would cost to repay the loan in 5 years after graduation, or in 7 years, etc. Oh, and also there's inflation to account for of course. In 10-20 years, money will be worth somewhat less than it is now. (Think what you could buy with $20 today, and compare that to what you could buy with $20 in 1988!) So that's one of the things that interest accounts for.
