Student loan defaults no surprise

To the editor:

Not one word of your recent article on student loans in Iowa mentioned the practice of capitalizing interest. Student loans in Iowa are set up like revolving charge cards, not like mortgage loans. A student is told that the loan is deferred until graduation, but this means that the interest accrues while the loan is deferred.

What neither the student nor the parent grasps at first, is that as soon as interest is charged it becomes part of the principle, and the next time it is charged, it is interest on interest. In this way the loan can double quickly. Meanwhile, the student borrows more per year under the same system.

A student I know who graduated in 2009 with about $90,000 in debt from four years of school, now owes about $120,000 after faithfully paying for six years. Why? Because the interest keeps on becoming part of the principle and interest is charged on interest. This person is employed, but does not earn enough for expenses and the crippling loan payment. No wonder people default.

Julia A. Bickel

Cedar Rapids