Loans (focus on college loans)

            Nothing confused me more than loans when I was preparing for graduation. On top of being left to google what the heck a bunch of new words meant, I also had the delightful terror of signing myself up for endless debt. Fun right?

            So If you are like me and fear graduating with student loan debt, I need you to take a deep breath. It might be inevitable, but there are a few things we can do to try and keep the amount lower.

            Obviously the easiest way to have less debt, take out less loans! (sarcastic scoff)

            Not everyone has much of a choice. We can do our best to pick inexpensive universities and apply for scholarships, but at the end of the day our options are limited. University in America is a privilege that is hard to afford, but without it you get a glass ceiling on how much money you can make. There will always be exceptions to this rule, like students who get all the scholarships or geniuses who become millionaires without university. If you are one of these exceptions then hats off to you. For those of us who aren’t, the debt of a university education can be a burden we feel obligated to take on.

            And it isn’t just university. Loans can be taken out for houses, cars, and businesses. A loan is like us placing a bet on ourselves. We always hope that cost in the moment will be worth the winnings later. When we take out loans for university, the intention is for our future salary to outweigh the debt.

            Like everything else so far, I am not going to tell you what to do. I am not a life coach or a financial advisor. In fact, I hate finances. But I am going to cover the basic terms you will need to understand as well as some of the loopholes or weird rules around loans.

            To start, we need to cover a lot of new terms. Stick with me.

Private loans: loans offered by a business, individual, or corporation. These can be subsidized or unsubsidized. They can have fixed or variable interest rates. A private loan can also be renegotiated later on. These loans have a higher chance of becoming more costly in the future due to the less fixed nature of them. You need to submit for a credit check to earn most of these loans.

Public/Federal loans: loans offered by the government. All federal loans will have a fixed interest rate depending on when you take them out. These can be direct unsubsidized loans, direct subsidized loans, or direct PLUS loans. These can only be earned/found after filling out the FAFSA, there will be no credit check.

Subsidized: this means that the government is paying any interest that occurs while you are in school or in a deferment period.

Unsubsidized: this means that the interest that occurs while you are in school and in deferment will be added to your loan amount, and your responsible for paying it.

PLUS loans: a loan taken out by your parents and paid by your parents. These loans may be taken out for you, but legally, they are your parent’s responsibility.

Fixed interest rate: an interest rate that remains the same for the length of your loan term.

Variable interest rate: an interest rate that fluctuate for the length of your loan term.

Loan term: the amount of time you have before you pay back the loan in full. This is also the amount of time your loan is accruing interest for. You can lengthen a loan term, but the longer the term, the more interest you owe.

            Do student loans make sense to you yet? Cause I am still confused. I found it helps me to break down the math. So let us take out 2 imaginary student loans right now. The initial amount is going to be $10,000 for each. The first loan will be a private unsubsidized student loan and the second a federal subsidized loan. Both loans will have a 10 year term and a 6.39% fixed interest rate. Both loans will have the standard 6 months after graduation deferment plan.

         Now you can also make payments while you are in school to help lower the interest before you are required to pay. But you can see how one loan ends up costing more long term. And if I lengthen the term periods for both loans, then both of them will cost more than those calculations up there. It is all very complicated and there are a lot of different factors at play.

            You will want to aim for Federal subsidized loans first. Second best as federal unsubsidized loans. And a private loan, even subsidized, should be your final option.

            When accepting loans, make sure to pay attention to the term they give you. If you are given a federal loan, the FAFSA website will demand you go through a learning course on the terms of that loan. That course is going to be much more information than I can provide you, but I hope you don’t feel totally confused and lost by loans.

            If you still do, I apologize. I recommend finding a math oriented person and befriending them for life. People who enjoy math are always useful.

            If you are awarded a loan or given money by someone, send a thank you email. The basic template for this email is below. This shows you value their money and time. Even if they don’t respond, what does it hurt to be thankful? In some circumstances this turns into other scholarship opportunities.

Dear [scholarship/loan donor],

I would like to take the time to thank you for your generosity in funding the [name of scholarship] that I was awarded this year. I feel very fortunate to have been chosen as the recipient of this scholarship.

I am currently a [class year] majoring in [subject]. I plan to graduate in [month/year] with a BA [degree title if different than major name]. While I attend [university name and if part time or full time], I am also working to a part-time job to help cover other costs for university. It is not always easy to juggle school and work, so your assistance is allowing me to dedicate more time to my studies./ When I graduate, I hope to use what I learned at [university] to make a difference in people’s lives, the same way you have made a difference in mine.

Thank you for your generous contribution to my education.

Sincerely,

[your name]