Even when making payments on time, and paying as much as you can, runaway interest is still a real issue for some student loan borrowers. I understand Americans committed to these contracts and agreed to pay back the money. However, if your interest accrual per month is over $1,000, it is nearly impossible to catch up. I would suggest that each loan has a cap on how much interest the loan can accrue. This is way, the banks still make their money for loaning, and the people don’t have to keep chasing an impossible dream of someday being debt free. Most people have several seperate loans with the same student loan servicer. If their interest accrual gets capped at a set amount per each loan, they eventually will be able to get back down to their principal balance rather than always scraping the surface of the interest that accrued the previous month.
This should be made law. It’s always the interest that hurts college students and families!
I do think that the college debt trap is deliberate and malicious, and that something ought to be done about it. Unfortunately for current students and recent grads, I don’t think any such change could be made retroactive.
In my opinion, college loans (and most types of loans) should be subject to the in duplum rule, that is, the accrued interest may never exceed the principle. This allows lenders to double their money on the transaction, but lets borrowers avoid being dragged into a bottomless financial pit.
There is an obvious consequence to this, however. Because lenders will have less profit potential per risked dollar, they will tend to raise interest rates and they’ll be less willing to give out loans in the first place. Good luck getting a loan for a lesbian dance theory degree under those circumstances.
All in all, I still think it’s a worthwhile tradeoff to avoid permanent debt-slavery.