About those loans

The average monthly car payment was $568 for a new vehicle and $397 for used vehicles in the U.S. during the second quarter of 2020, according to Experian data. The average lease payment was $467 a month in the same period.

The average student loan borrower pays $393 per month, according to the Federal Reserve.

Yes, these are averages, some pay less, some pay more and just as with a new car, recent college graduates pay more.

With both buying a car and attending college individuals have many choices. They can buy the most popular vehicle, a pickup truck, for more money than necessary for transportation or they can buy a vehicle just for that purpose.

They can select their college, their courses, their major and how long it takes to graduate and what job to take after graduating … all of which affect their expense and ability to repay their debt.

In theory at least a college education is an investment, a long term investment.

A vehicle is a bad investment especially when that vehicle is more for pleasure, luxury and show.

From 2006 through 2021, average federal student loan interest rates were:

These rates are lower than a car loan even for those with excellent credit.

So, what’s the answer? It may not be unreasonable to set interest rates on student loans at no higher than that paid to the Social Security Trust. The numeric average of the 12 monthly interest rates for 2019 was 2.219 percent. The annual effective interest rate (the average rate of return on all investments over a one-year period) for the OASI and DI Trust Funds, combined, was 2.812 percent in 2019.

IMO there is no justification for blanket forgiveness of all or part of student loan debt.

5 comments

  1. Whoa, with regard to student loans.

    Yes, the average may be $393. However, that likely substantially overstates the burdens students/former students face. The median is dramatically less. That result occurs because most of the accumulated debt is among the segment of the American population that will, if not now, someday, have the highest incomes – doctors, dentists, professionals, those with graduate degrees. The median is much more likely to be closer to $200 a month, that’s $2,400 a year.

    In fact, the individuals who likely needs the most help are those who started college, borrowed, quit or flunked out. Let’s see if the D’s target the relief to those who need it most, or if they instead use debt forgiveness as they have in the past, to benefit those who don’t need it, those whose future incomes likely leave them well-positioned to pay back every cent, with interest.

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    1. To follow-up, here are some excerpts from a January 17, 2012 memo Dean William Treanor, Georgetown University Law Center sent to “Fellow Law School Deans” with the subject: RE: President Obama’s New “Pay As You Earn” Student Loan Repayment Plan.

      I will send a copy to Dick – so if you want a copy, just ask him:

      “… As the attached memorandum from Professor Philip Schrag of my faculty describes in much greater detail, President Obama recently announced a new initiative through which high-debt, lower-income higher education graduates may obtain a significant amount of federal relief from their student loan repayments. The general idea is that, in the future, graduates will be able to elect a new repayment plan under which, in any given year, their repayment obligations on certain student loans (those that were extended by the federal government, and quite possibly those that were guaranteed by the federal government) will not exceed about 6 2/3 percent of their incomes, regardless of the level of their eligible debts, the amount of their incomes, or whether they are employed in the public sector, work in the private sector, or are unemployed. Further, any balance remaining after 20 years of these repayments will be forgiven for borrowers who have not worked for 10 years in the public sector, and after 10 years for those who have worked full time for that period in the public sector. …”

      The letter provides a couple of examples on the effect of this forgiveness program:

      Table 1 reflects the impact of the program on an individual with $150,000 of law school debt, with a $60,000 a year starting salary. It shows that under the new program, year 1 monthly loan payments are $365, in year 20, $639, where the lawyer pays $117,571 and the taxpayers forgive $256,229!

      Table 2 is an individual with $150,000 of law school debt with a $75,000 a year starting salary. Year 1 monthly loan payments are $490, $859 in year 20. The student pays $157,877, and the taxpayers forgive $215,923.

      Note that these are examples where the individual doesn’t go into public service. Where they get a government job (with rich pensions and above-average salaries), the repayment amounts are similar, however, the residual debt is forgiven after ten years, significantly increasing the percentage of the total paid by taxpayers.

      Pigs at the trough!

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  2. All my life I was told never lease a new car. Well I can do math and I leased a 2020 Ford Edge SEL, in March 2020. Purchase price after all discounts was $36,800. – down payment of $4,295.= $32505 – 36 payments @ 351 ($12,636) = $19,869. At lease end I can purchase the car for $19,880. So I saved hundreds of dollars in interest for the term of the lease. I plan on buying the car at lease end with cash. But, even if I wanted to do a loan, I would only be paying the interest on $19,880, not $32,505. I was told by the salesperson that I would receive the same discounts for purchase or lease, at the time of the lease, so why would anyone purchase and pay all that interest. I checked the NADA book value for a 3 year old Ford Edge SEL with my cars features and it is $25,000. If values hold my Edge will still be worth $20,000 at the five year point, two years after I pay it off. If I would of purchased the Edge my payment would of been $584 for 60 months at 3% and cost $2,539 in interest. This may be the last new car that I purchase, as I have not had a car payment since 1986.

    The major problem that I see today is, almost no one knows the difference between a need and a want, or will save up the cash for any of their wants. They think their children all need a cell phone, the latest video game or the $150 pair of Nikes, as long as they can afford the monthly payment, life is grand. I for one always said NO, to my kids when something was not in the budget. Today, I have four grown children who only use credit to purchase cars or homes, and they pay their credit cards off each month, getting hundreds of cash back dollars, each year.

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    1. I have not done the math lately but I have been considering leasing too in retirement. Although, current 0% interest rates is like free money too. In my days of employment, leasing was a bad deal for me because of the number of miles I drove and some other factors. In retirement, I might only have to buy or lease one more vehicle and it “should” last me until I die.

      Either way, I would never think of asking the bank or the government to forgive my car loan. It was my choice to enter into the loan agreement. The same goes for student loans. If you don’t understand financial agreements, them then you should not sign them.

      Back in 1987, I made a choice to get a 10% mortgage and I paid it off. Current rates by the way are less than 3%.

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      1. The Ford dealership where I leased my Edge said, I qualified for the zero interest for 72 months, but that is with zero discounts, full MSRP. I received $5,000 off MSRP, so it is not free money. I have been using Cruise Control since the 1980, my Edge has Radar Cruise Control, that reduces your speed as traffic slows down, all the way to a stop. Lane Keep Assist, Blind Spot Monitoring , Rear Cross Traffic Alert, Rear Camera, and Automatic Emergency Braking, that saved me from an accident on interstate 20 outside Atlanta, when traffic in the left lane, went from 60 mph to zero in a construction zone, right lane closed ahead SNAFU. The car behind me ending going in the grass to avoid hitting me. We had over 3 miles to merge left, but some dufus, couldn’t buy a clue. All the safety features make long trips easy, and I am way less tired after a 10 to 12 hour day on the road.

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