I learned about interest in sixth grade or so, like everyone else, and then more or less forgot about it. But I’m kind of obsessed with my student loan lender’s website right now — I’m waiting around for my April paycheck (end of the month) so I can pay off loan #1 entirely, as it’s down to an amount when I can do that. So I kind of like going over there and looking at the balance and thinking “soon! soon!”
Today I looked at the “level” vs. “graduated” numbers though, because they were there and I was bored. This refers to the two possible payment plans they offer. On the level plan, I would (if I weren’t going to pay the loan off entirely this month) pay $95 a month for the next 28 months (just over two years) and end up paying just under $200 more in interest. That actually doesn’t sound so bad; if the damn thing weren’t so annoying, I’d consider doing that, hardly noticing each payment, and bulking up my savings accounts instead. (It is annoying though, so I’m not going to.)
On the “graduated” plan, meant for people with lower incomes, I’d make payments of $25 a month now, rising to $34 over the course of 115 months (or not quite 10 years.) This would be even less noticeable from my monthly budget. But I’d end up paying $940 in interest, or over 1/3 of the current total value of the loan. (Let’s not even talk about what these numbers would look like if I hadn’t been aggressively paying the thing down for six months.)
The difference between these two might as well come with a big flashing sign saying “the lending industry punishes poor people.” The big difference — the ability to make either triple or quadruple the minimum payment — results in a payment time of around 75% less, and also an interest payment only 21% of the other. (I did actual math for that last number.)
And whose interest is that in?