William Underwood (“Forgive student loan debt,” Our Readers’ Views, April 24) describes the current plight of students facing heavy student loan burdens as resulting from “predatory lending” since in part their student loan balances resulted from compound interest, in which “interest is charged on interest.” While I sympathize greatly with the plight of many people who have crushing student loan obligations, this doesn’t result from compound interest.
Yes, with compound interest, “interest is charged on interest.” That’s how debt works. It’s how your home mortgage, your car loan, essentially every loan works.
When you don’t make periodic payments on a loan you accrue interest. When the interest isn’t paid, it increases the amount of debt outstanding, which (correctly) incurs more interest. Taking out loans and letting the interest continue to accrue for years without making any payments at all (which is how student loans work) guarantees huge accrued interest.
Millions of people struggle with crushing student loan debt. There are myriad reasons for this, including the increasing cost of college educations and the failure of many students to understand the nature of their loan agreements before they agree to them. But compounding the interest on these loans can’t fairly be considered a factor.
