I agree that he isn’t the best example as to why loans or tuition are ridiculous, but since he’s actually paying more in the long run than others, the term “taker” seems highly inappropriate unless he intentionally plans on dying or leaving the country without paying off his loans.
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If you want me to start throwing out ideas, I can do that. Here’s a few to start:
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Require a document at the outset which explains clearly how much the
grand total will be over the life of the loan, rather than just the
amount of the payments -
Calculate by simple, rather than compound interest, again, so the borrower has a clear idea of the total cost.
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Apply payments equally to principal and interest, calculated over the life of the loan.
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Cap the total percentage of interest that can be collected over the life of the loan. If that’s going too far, limit the amount of interest that can be charged on a government-guaranteed loan.
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My personal favorite: Make debts non-transferable. You loan money, you collect money. You don’t get to loan money and then sell the IOU. This would cause a radical restructuring of the entire economy- For the better, IMO.
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Change the tax law so that money made by actually working is taxed at a lower rate than money made by owning stuff- Exactly the opposite of what it is now. That puts more power in the consumer’s hands and less in the 1%.
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Initiate a program that helps private sales finance through rent-to-own agreements.
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Or maybe, just maybe, fix the economy so the middle class doesn’t need to rely so much on borrowing from the wealthy.
That’s off the top of my head. Some workable, some not. But you asked for ideas.
Edit: I feel like I need to explain one quick point- I have no problem with capitalism, with banking, or with charging interest. What I do have a problem with is that interest is supposed to be the reward for taking a risk- Except that between government guarantees, bailouts, and “too big to fail”, there is no risk. If it were capitalism working on it’s own, it would be one thing, but if taxpayers are shouldering all the risk, they get the right to dictate the terms of the profit.
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At the very least, they are quite patriarchal, and I’m sure the village elders (or however they formalize power in their communities) expect to get their way with a minimum of sassback. But that’s still a very different thing than authoritarian communism, n’est-ce pas?
For myself, I think quality of life is largely not determined by standard of living, and that a high standard of living mostly makes people too weak and lazy to deal with problems that were never considered serious problems in the history of humanity. People can get used to anything, and the most materially deprived societies often seem the happiest and most fulfilled. (I suspect there’s some research out there to back this up, but you can always start with suicide rates in the industrialized world vs. developing world.)
Also, there have been lots of discoveries in horticulture derived from both anthropological studies of traditional agriculturalist societies around the world and from the permaculture movement…subsistence farming may not actually be as hard as it used to be.
Also, there seems to me a fairly good chance that the industrial technosphere will go into an irreversible stair-step shaped decline within my lifetime, in which case learning to garden intensively enough to hypothetically meet my family’s needs is as much a risk mitigation strategy as a lifestyle choice.
And along those lines, one can consider the idea of trying to establish a way of life at the periphery of the “debt and corporate personhood” world, and possibly build some of the comforts back in. Micropower for low voltage applications (night lighting, ventilation, pumping water, powering small appliances) might be able to make up a lot of the shortfall in quality of life that are lost along with a reduction of standards of living.
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It depends. We have twice refi’d for lower rates though both times were quite a bit less interest and a shorter term than what was left. 30year to 20year, then to 12year. So we have basically kept the same payment but cut down the years and interest paid so it can be done sanely. Of course now for it to make sense someone would have to offer us 1% and like 8 years and I don’t see that happening.
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Humans, by nature, are inclined to make sacrifices to help those they are acquainted with, but are more likely to help strangers only up to that point and not further.
My general theory is that pure communism works great right up until the society is large enough that there can be someone you don’t know.
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A society large enough that there is someone you don’t know is a pretty nice definition for “civilization.” The corollary would be that communism and civilization are incompatible.
That seems pretty plausible, actually…
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I have to keep telling myself that, while I sock away what I can for my kids’ college. I’m hoping by now I have enough to cover the first week. When I started school (at UT Austin), the bill for my first semester (14 hours) was about $700 (and most of that went toward fees, not tuition). I think room & board was about $400/month. A couple of years later, my first apartment (a converted 1 car garage) was $235/month, which seemed pricey because I had friends in Arlington who paid less than $200 for an efficiency in a new complex. But all this was around the time the Regan presidency ended.
I have this weird perception of inflation, because the first thing I spent my own money on (a Hot Wheels) cost exactly the same in 1976 as it does now.
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Yes and no- I think that a civilization can exist as a series of interconnected smaller societies bound by trade and a common culture.
That, distilled to its very essence, is at the very heart of what it means to reside in The Colonies. From education to law enforcement to politics - every aspect of American life is steeped with one key driving motive: profit maximization.
They may as well be Ferengi
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So, I’m going to cut you a rate after I do my rating on the risk of default in the gorup. But you’ll get your lump sum… (& then I’ll turn around and sell them after I bundle them with some of my other bundles). And then of course I am going to hedge that they won’t default within a certain time frame. You are free to hedge the hedge.
the trick is refinancing to a lower rate and a shorter term. Then you can actually reduce your monthly payment and knock some years off your schedule. If you are already in your mortgage pretty deep you won’t be able to do that but you are right going from a fraction of a 30yr into another 30yr does not make much sense.
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[quote=“MikeTheBard, post:83, topic:68158, full:true”]
If you want me to start throwing out ideas, I can do that. Here’s a few to start:
Require a document at the outset which explains clearly how much thegrand total will be over the life of the loan, rather than just theamount of the payments[/quote]
I don’t know about student loans, but that general concept already exists for home loans. I’m going through a home financing right now and among the reams of (mostly government-mandated disclosure) documents there is something specifically showing the total that I’ll have paid after five years and how much principal I’ll have paid off. I don’t see anything in this particular batch of documents that has the grand total for 30 years, but I’ll bet it’ll be somewhere in one of the hundreds of disclosure documents I get. And anyway, that 5 year measure is probably more meaningful since most borrowers don’t keep the same home loan much longer than that.
Most loans don’t have compound interest unless you miss payments. The typical home loan has you paying all of the interest currently, so there’s no interest left to compound at the end of each month.
Unless maybe you just mean that they should show the total interest paid over the life of the loan as a percentage of the total principal paid? So a 3.5%-per-annum loan would be phrased as a 62%-per-30-years loan? I don’t see how that’s particularly meaningful since it would be impossible to calculate for variable rate loans and the overall rate would go down if you make any principal prepayments along the way. It would also be very hard to compare loans across different product categories.
I don’t think that’s mathematically possible. In theory you could divide the principal into equal monthly payments (so a $108k 30 year loan would have you pay down $300 of principal each month). But that would result in a much bigger payment the first month ($300 + interest on the $108,000 outstanding balance) vs. the last month ($300 + interst on only $300 outstanding). But even if you’re willing to pay much more in early months than later months, you can’t apply every payment equally to interest and principal because there will always be way less interest at the end than the beginning.
There are only two possible outcomes of a regulatory rate cap: The likely outcome is that if market rates are higher than the cap, nobody will lend. If the government somehow makes it worth it for lenders to lend on those terms, however, whatever subsidies they throw at it are likely to go straight to increasing home prices.
This would help take some risk out of the economy generally (and might have helped avoid the 2008 financial crisis), but would do absolutely nothing to make homes more affordable. In fact, it would make things more expensive for consumers because lenders would have to charge more to offset their inability to use secondary market transactions to manage their portfolio risk.
Rent and interest are already taxed at ordinary income rates. I suppose you could get eliminate some of the tax advantage for REITs (real estate investment trusts), but that would likely increase the cost of housing for consumers (at least for renters) because REITs’ beneficial tax treatment likely helps bolster housing supply (keeping rents down).
How would that differ from a mortgage?
I’m not sure how you do that, but if you figure it out, I’m all for it!
“Effective January 1, 2017, government guarantees for student loans will be limited to $10,000 per full-time student year, or (appropriate pro rated amount) per credit hour for part-time students. Amounts loaned in excess are at the lender’s risk, and are dischargeable in bankruptcy.”
Watch college costs drop like a Chuck Jones anvil.
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No- I mean, figure out the full cost of the loan, with all interest, the way they do with a car payment where you get the slip booklet. Then divide both interest and principal over the number of payments.
So, the ratio of interest to principal stays constant all the way through.
[quote=“MikeTheBard, post:95, topic:68158”]No- I mean, figure out the full cost of the loan, with all interest, the way they do with a car payment where you get the slip booklet. Then divide both interest and principal over the number of payments.
So, the ratio of interest to principal stays constant all the way through.[/quote]
Take a closer look at the slip booklet for your car loan. To calculate the payment for a self-amortizing loan, you do indeed add up all the interest and principal payments over the life of the loan and divide the total by the number of payments. But the ratio of interest to principal does NOT stay constant with each payment, because at the beginning you are paying interest on a lot more principal than you are at the end, so to keep the payments the same size, more and more of the payment shifts from interest to principal each month.
As a simple example, take a one-year loan of $100 at 12% per annum interest. You add up all the interest and principal ($106.56 total) and divide it by 12 payments to get the monthly payment ($8.88). But the first $8.88 payment consists of a full dollar of interest (12%/12 * $100 principal outstanding) and only $7.88 of principal repayment, while the last payment has only $0.09 of interest (12%/12 * $8.80 of principal still outstanding).
In theory I guess you could SAY each month there was $8.33 going to principal and $0.55 going to interest and keep the ratio constant. But the only effect of that would be that you’d have to track both unpaid principal and accrued interest. You would still have exactly the same amount outstanding on the loan at any given point in time as you would with the normally-calculated amortization schedule, because for every extra penny of principal you are paying down early, you would be accruing an extra penny of unpaid interest (and compound interest would accrue on the accrued and unpaid interest the same way you would otherwise continue accruing interest on the unpaid principal).
Again with the example, after one payment with a traditional ammo schedule, you’ have paid $1 in interest and $7.88 in principal, and have $92.12 in principal remaining outstanding. After one payment with the constant $8.33/0.55 ratio, you’d have paid down more principal and less interest, but you would still have $92.12 outstanding (just some of it would be called accrued interest instead of principal).
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Don’t Muslims have to do something handwavey like this to get a house without usury? Where the ‘lender’ buys the house and sells it on at a higher price ‘interest free’, or they ‘rent’ the house for 25 years, then get given it?
Yes. Islamic finance is a big thing in the legal and financial worlds.
Orthodox Judaism also has some restrictions, too, although not as extreme. I’m Jewish and took my home loan from a company controlled by Orthodox Jews, so we signed a “heter iska” at the closing, which for Jewish law purposes converted the loan (a pretty standard 30 year fixed mortgage that was sold to Fannie Mae a few days after I borrowed it) into a partnership instead of a loan.
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Yeah. Or use your democratic rights to change things.
I love how us 'muricans have been brainwashed to believe that people on a tight budget should forego all fun, save every quarter, and be debt-free at 50 or a multi-millionaire if we’re lucky enough to live to 80. Fuck that noise.
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