There are a number of things that Bill Boegeman overlooked in saying that student loans issued by financial institutions are exploitative and unethical in the amount of interest they charge (“Interest rates keep borrowers in the hole,” Oct. 26). Interestingly, the things he has overlooked illustrate the mind-set of many Americans who find themselves in too much debt. I can’t speak to absolutely everyone’s situation, but in many cases, it’s a lack of responsibility that digs financial graves.
The first thing Boegeman overlooked, or failed to understand, is the interest rate on his student loan. In fact, he didn’t even mention his interest rate. Using the numbers he did provide, I was able to calculate the interest rate on his student loan — 6.4 percent.
Financial institutions aren’t out to “rip people off” on their student loans. If they were out to rip people off, student loans would not be where it happens. Credit card interest rates, which are also unsecured loans, charge an average interest rate of 14.5 percent — over double what Boegeman is paying. Financial institutions aren’t at war with college students. Boegeman is like many other Americans who find themselves in immense debt and have failed to understand the terms of the loans and take responsibility for them. He has decided that because he has made poor choices in letting the interest accrue for over three years while not making a dent, as well as only making the minimum payments, it is someone else’s fault. So he is asking the government to step in and help refill the financial hole he dug himself.
Boegeman stated that “other repayment plans sucked anyway” and that he would have to completely sacrifice his quality of life just to pay off his loans by the time he was 48 instead of 52. I don’t know Boegeman’s age, but unless he is 19 years old (which would mean he graduated from college when he was 14), he has miscalculated the horizon for his loan to be paid off.
Using his current loan balance, interest rate and his intention of making only the minimum payments, he has about 33 years’ worth of payments left. Had Boegeman not let his loans sit untouched accruing interest for three years, his current loan balance would have been $67,349.87 and his loan horizon would have only been 20 years away.
My advice is as follows. Instead of blaming financial institutions for his mistakes, Boegeman should take ownership for his actions. The best way to pay less interest is to decrease the loan balance, and the best way to do that is to make larger payments. I know he said he didn’t want to have to give up all of the luxuries in his life, like HBO and summer vacations, but it is time he takes responsibility and pays back what he has agreed to.
Many people in such debt go to the extremes and think they need to move into a cardboard box and eat ramen noodles for every meal in order to get out of debt. They think such things to bolster their case that “white-collar crooks” are out to get them and are doing unethical things to “keep them from having it a little better.” But that is simply not the truth.
Boegeman can gradually increase what he is paying per month. My recommendation would be to increase the monthly payment by $50 each year. If this were done, the loan would be completely paid off in fewer than 11 years — a far cry from 33 years.
It is a travesty that so many Americans who find themselves in deep debt are still blaming financial institutions.
Charlie Glasser is studying accounting at the University of St. Thomas.