Consumer Reports August 2016 had an article about the nightmare of student loans. Jackie Krowen, 32, Portland, Oregon is $152,000 in debt. Here’s the nightmare. She graduated in 2011 and the debt was $128,000 at that time. Her monthly payment is $1,200. But today her debt has grown by $24,000 in five years to $152,000. She’s not paying off her debt because the debt is growing. So $1,200 a month is not enough of a payment. Here’s what I know about borrowing. Whatever you borrow will have to be paid back. The lender wants to be paid interest on the loan. So the higher the interest rate then the more you will have to pay back. The longer you take to pay back the loan then the more you will have to pay back. I know that FV = PV (1 + i) to the nth power where FV is future value, PV is present value, i is the interest rate and n is the number of periods of interest. She graduated in 2011 and it’s now 2016 so that’s 5 years. She’s been paying 12 x $1,200/month = $14,400/year for 5 years = $72,000 and her debt has grown by $24,000 so the total is $96,000 in interest over 5 years. So let’s just reduce that to one year and divide by 5 to get $19,200. So the interest on $128,000 is $19,200 or 15%. This is just a ballpark percent because the lender is getting interest on the higher balance. So it’s really more than 15%. I just wanted to wrap my head around this nightmare a little.
We used to have usury laws in this country that said you couldn’t charge more than 10% interest. But the finance industry has persuaded congress to pass laws in their favor. We have payday loans, car title loans, and interest on credit card debt that can go into the upper 20’s. The finance industry has persuaded congress that student loans can’t be eliminated by declaring bankruptcy. They can even come after your social security. Why wasn’t there an interest limit put on student loans, say 5% max? I’m sure Jackie figured that paying back $14,400/year on $128,000 would pay off her loan in about 10 years. Loan sharking is something the mafia did but now regular banks are doing it with the blessing of congress. This is financial slavery.
The finance industry has been doing this with mortgages for a long time. Even just charging 5% on a 30 year loan is financial slavery. The exclusionary zoning laws have made it a crime to live in a small home on a small lot. So you either rent or get sucked into a big mortgage loan. If I had borrowed just $100,000 over 30 years at 5% then I would’ve had to pay back $193,255. Plus I would’ve had to pay property insurance and property taxes on that expensive home for 30 years. One bedroom apartments around here go for $500/mo or $6000/yr. So 30 years of that is $180,000. I rented from age 21 to age 41 except for 3.5 years of active duty when I had a bed and a locker in a barracks. I finally bought a singlewide mobile home but had to rent a lot in a mobile home park. The last year in the mobile home park the lot rent was $3,720/yr. I lived in the mobile home park for 18 years and the rent and fees increased 93% over those 18 years or more than 5% a year. I’ve been out of the park for 7 years so 1.35 times $3,720 = $5,022/yr. After losing my job and retiring I moved my singlewide out of the mobile home park to a residential lot about 55 miles NE of Cincinnati where my property taxes last year were $705. My living expenses have averaged about $12,000/yr. Anyway 35 years times $3000/yr = $105,000 is conservatively what exclusionary zoning has cost me. And what about the opportunity costs? It's so hard to move that many people just stay put and stay poor suffering from generational poverty. Financial injustice does not make America strong. Freedom leads to prosperity.
Jackie Krowen has a decent job as a nurse making $62,000/yr. Suppose it was legal for her to live in a small home on a small lot so she could live on even $20,000/yr. So maybe she could pay $35,000 a year toward her student loans. We already know that her balance has been increasing by about $19,200 a year. So $35,000 paid - $19,200 interest = $15,800 balance comes down. So ball park we can take $152,000/ $15,800 = almost 10 years to pay off her loan. What a screw job. Not counting the money she’s already paid, if she paid $35,000/year for the next 10 years or $350,000 she could pay off her original $128,000 loan. My guess is that she actually borrowed less than that but the interest rate was low (maybe 3.5%) while she was in college and then jumped to 15% once she graduated. What a screw job and we allow this in America? We allow exclusionary zoning in America? I conservatively lost over $105,000 paying apartment rent and lot rent vs just paying property taxes for a small home on a small lot. But Jackie Krowen has been put into life-long financial slavery. What we need to do is say her debt is discharged when she simply pays back the loan of $128,000 plus 10% for a total of $140,800, period. She’s already paid $72,000 so only $68,800 to go and she’s free. At $14,400/yr she’ll be done in less than 5 years. She’ll be 37 in five years. Has she ruined her life? Maybe she’s figuring she’ll just keep paying $1,200/month for the rest of her life. So these financial vampires can’t lose. We tell our young people to go to college. I’ll bet University of Rochester (isn’t that in New York?) is where she accumulated most of her debt. Portland State University, that was probably Portland, Oregon because that is where she is now. I’ve heard the average student loan debt is $26,000 so Jackie is way above average. But 15% is outrageous. The United States is literally eating her young. I think I recall something about Obama saying if you pay 10% of your income for 10 years then they’ll close out your loan. She's paying more than 10%. There was nothing about that in the article. Just Google ‘possible student loan solutions’. No wonder Sanders and Warren are so popular with young people. Neither one of them would support ending exclusionary zoning. No politician will touch it. What’s wrong with America?