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Capital Interest making Student Loans Unbearable
Tim LeClair   03 Aug 2012 / updated: 28/Jan/2019 05:15 PM

Capitalized interest is the interest added to the cost of a self-constructed, long-term loan. It involves the interest on debt used to finance the loan’s construction. Capitalized Interest is the bank’s means to allow a person to borrow the interest on a loan when the person does not have funds to pay the interest, adding it to the principal owed on the loan.

A true great nation would place extreme value on superior education. A nation could benefit greatly by providing this education for free or at cost to provide it. Instead our system has been destroyed by globalization and capitalization. The educational system seeks to pinch every penny from the student possible. They fail to educate the young in primary and secondary school about financial matters, making prospective students fall prey to ungodly loan tactics. One of these tactics is to turn the interest accrued into money borrowed called capitalized interest. This capitalized interest is now part of the outstanding balance, equal to the principal, and just like the original principal loaned amount, the outstanding amount it accumulates interest also. This is where being financial illiterate can destroy an individual due to accepting a loan with higher interest rates. A few percent more on the interest rate and whether the loan is fixed or adjustable can be the difference between thousands, if not tens of thousands of dollars. For some people that entered bigger universities, capitalized interest has added in excess of one hundred thousand dollars of principal over the life of the loan.

If you are getting ready to enter college and take on a loan or parent with children getting ready to enter college, please become educated on methods to get the best loan situation and research for possible grants to lower your loan amount required.

Comparison of with/without capitalized interest:
Initial Loan Balance: $25,000.00
Loan Interest Rate: 9.50%
Loan Term: 10 years
Minimum Payment: $50.00
Deferment (Months): 50

Without the interest capitalization
120 payments of $323.49
payment of $38,818.80
Prior to deferment interest $10,687.50
Total of $49506.30

With the interest capitalization
120 payments of $472.33
payment of $59,426.40
$148.84 more per payment, adding a total of $9920.10 to cost

It does not sound like an excessive amount more to pay but likely the first few months will be seeking a good enough job to pay the loan back. Any break in employment will cause the amount owed to increase again. Most banks want just a minimum payment of primarily interest due. This equals them collecting maximum interest over the term without the loan being paid off. When one gets the job, the first priority over acquiring a sports car, mansion, vacation of Europe, should be to pay as much on the loan principal as possible. This will break the chains of slavery caused be this debt.

 



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