Unsubsidized Student Loans Are They Worth It? - YouTube

was your student approved for federal student  loans through their financial aid package  

if so it's critical that you understand  what the different types are and  

how they work in fact we've even found one  family where their student borrowed 13 000  

that they thought was debt-free money but now he  has to pay back so we want to make sure that if  

your family is utilizing this debt-based money to  pay for college that you know everything you need  

to know including what the difference is between  subsidized and unsubsidized loans and so much more  

now don't forget to click the subscribe button  because every single week i'm releasing a new  

strategy to help your family avoid even needing  these student loans in the first place or maybe  

to replace them if you already had to borrow some  hello my name is jocelyn pearson and i'm founder  

of the scholarship system where we redefine paying  for college to help families avoid student loans  

now that said of course we still have to make  sure that if your family is utilizing those  

i want you to know that you understand fully what  your student is signing up for so let's go ahead  

and begin so what kind of loans are out there  well first is federal federal student loans so  

these can also be called stafford loans that might  be what you're seeing on a financial aid package  

and there are two different kinds primarily that  are used one is subsidize student loans the other  

are unsubsidized student loans you can also find  parent plus loans which is where a parent would be  

co-signing actually you are taking out this debt  money i'm going to explain the difference between  

all of these in just a little bit then of course  there are private student loans so this is by  

outside companies that i can link to our blog  where it can help you decipher between those  

as well but those are the main different types  unsubsidized subsidized parent plus loans and  

then private loans now like i mentioned earlier a  lot of times these student loans are worded as an  

aid award so it makes it seem as if that award  would not be debt so if we don't know that  

stafford means a loan that stafford means debt  then a student can easily just accept their entire  

package and next thing they know they're borrowing  thousands and thousands of dollars that maybe they  

didn't even need so this can be a little tricky  depending on how your school how your students  

university words what they are giving to your  student so comment below did your students  

department go over your students financial aid  package with you or was it very clearly notated  

on the offer that this was alone versus not let  me know in the comments because that's really  

important for us to know so that if not we have  to make sure that we are correcting that so i  

want to focus in this video on unsubsidized versus  subsidized so what is the difference between the  

two first i want to say that there are lots of  similarities which is nice first off they have  

the same repayment periods they have the same  interest rates they have the same disbursement  

methods i'm going to explain that in a bit they  have the same payback plan options as well as  

application process how to receive them and also  the origination fee which is about one percent  

is the same for both of those so a lot of aspects  are the same now the big difference between the  

two is first subsidized is only available  to undergraduate students where unsubsidized  

can be for graduate students as well but the  biggest difference is interest so when it comes  

to interest how it's calculated is the biggest  differentiator between subsidized and unsubsidized  

student loans so with subsidized loans the  government basically covers your students interest  

until the payback period begins so then that means  that that interest is not building while they're  

in college as long as they're attending as soon  as they they stop attending once they graduate  

then that's when that interest is going to start  being their own responsibility now that might  

not sound like a huge difference but i'm going to  show you i'm going to explain in a little bit why  

that makes a big difference so subsidized student  loans are the best because again they're saving  

years of interest there unsubsidized however the  interest begins the minute that money is borrowed  

so as soon as your student borrows that money  whether it's freshman year sophomore year  

junior the clock starts ticking and they start  accumulating interest now the other part of  

this is at the end when they graduate or when they  finish their schooling or when they stop attending  

that interest is capitalized into the balance  so what that means is say they've accumulated  

500 of interest it'll be added into the balance  of what they borrowed once they graduate and then  

that will be the new loan amount and so interest  will be calculated on top of it so it kind of has  

this negative snowball effect against your student  now that said still these are the best options  

typically versus parent plus loans and private  loans so subsidized is definitely the highest the  

the best opportunity for a student unsubsidized  is the second best and then after that we would  

have to look into some other options so how does  a student access this money well the biggest thing  

and you might not be surprised to hear this  be if you've watched any of my other videos  

is that they have to submit fafsa so you and your  student have to submit fafsa starting the fall  

semester of their senior year in high school and  every year thereafter this is where even families  

that make six figures need to submit fafsa because  even if you don't get access to debt free money  

it could give your family access to student loans  that a parent you don't have to co-sign on your  

student can borrow the money without you having  to co-sign so it's fully their responsibility  

also just the terms are better so overall compared  to the other loans i have many videos on fafsa in  

our our library that you can check out but that is  how you get access to subsidized and unsubsidized  

student loans now again they are technically need  based but even families that make six figures can  

get access to this it might be the only thing that  you receive by submitting fafsa if your family has  

a higher income level but still again there are  perks now something else i mentioned is that this  

these don't need a cosigner so students are able  to borrow this money without a co-signer which is  

a huge advantage because if you know about student  loans they cannot be claimed in bankruptcy so if  

you co-sign on them then and your student for some  reason cannot pay on them and you co-signed they  

will become your responsibility so we really  caution parents when it comes to co-signing  

on student loans so that is a huge advantage  of subsidized versus unsubsidized versus other  

loans is that your student can take them and they  are their responsibilities solely the other big  

difference when it comes to these types of loans  is that your student must be attending at least  

half time so if your student falls below half  time maybe they're only taking one class or  

maybe they just took a semester off then they are  no longer eligible to receive this money so they  

must be attending at least half time in order  to be eligible for these federal loans so let's  

talk about financial limits how much can your  student borrow now these federal loans they're  

not just limitless your student cannot borrow a  hundred thousand dollars in subsidized loans in  

fact through their financial aid offer they will  receive a specific amount that they're allowed to  

receive of that type and then they would have  to go to another type if they have a bigger gap  

so when it comes to subsidized loans the current  maximums are 3 500 for freshman year 4 500 for  

sophomore year 5500 for junior year and beyond  so each year it does go up i'm going to link in  

the description to the latest stats through the  government so that you can check those rates the  

interest rates as well as the the maximum amounts  that a student can get in that type of loan now  

with unsubsidized loans the amounts are a little  bit higher so they're 5500 for freshman year  

then 6 500 then 7 500 junior year and beyond  so they start off a little bit higher but  

again they still do have caps as well as far  as interest rates which is a huge difference  

if your student is paying four percent interest  versus 12 interest that's another benefit of the  

federal loans is a lot of times the interest rate  is lower than anywhere else they'll get money from  

and at the time of recording this it is shy of  four percent it's actually under four percent  

and again i'm going to include the link to  the latest rates that you can just make sure  

but the beauty of this is that once they lock in  that rate that should be the rate for the life of  

the loan it is not variable the other thing is  that this this interest rate is updated every  

single year so every summer you'll find out what  the next interest rate setting is and it's of  

course based on our overall interest rates as  well now if you're curious about how interest  

is calculated in paying back student loans that  is a whole separate video in and of itself so  

we will link to that once we get that recorded in  the description below because it is important to  

understand how specifically interest is calculated  so how does your student receive this money  

so federal student loans are actually disbursed by  the universities so the government gives the money  

to the school and then they are the ones that  gives the money to the student so what typically  

happens is they will see when they log in to  their bill portal wherever it is that they would  

pay their bill and see their financial aid package  they should see basically a credit balance option  

that is labeled with the student loan amounts  so then your student would have to accept them  

through their online account so they would say yes  i accept give the money to my account so that i  

can pay my bill with it does your student have to  borrow all of it the answer is no okay so please  

do not think that your student has to take the  entire balance of what they're approved for  

if they only need 500 to cover the bill and they  can get by with an odd job to cover any kind of  

outside expenses that is always the best option  please be aware that your student is not required  

to accept the total amount that they're approved  for and we really recommend only taking on what  

your student truly needs not any kind of excess  in order to cover luxury living stuff like that  

okay i know it's tempting since they're approved  for it but just remember that this is just like  

any kind of other debt and a student cannot claim  bankruptcy on student loans so they will be stuck  

with it now going off of this this is why we push  families to have their students apply for outside  

scholarships because even if your student needs  some of this money these loans for their freshman  

year they can change that for later semesters  and later school years we've seen one student who  

she had to borrow nine thousand dollars her  freshman year but then found us implemented  

a ton of strategies and then she actually got to  where not only did she get sophomore year covered  

for free but junior year she received an overage  check of debt-free money which is incredible  

so the good news is that you can change this path  as your student goes throughout college if you  

work with them and push them to do these outside  scholarships so if that is something that yours  

your family is interested in i'm going to link  to a free training below in the description  

there should also be a pop-up somewhere  here on the screen that can take you  

to where you can register for that and in that  free training i cover exactly where to find these  

outside scholarships that your student can use  at their university they can do this all four  

years or beyond in college however long they're  there in fact my final check i cashed was on my  

way home from college graduation so don't miss  out on that free training again the link is in  

the description below now some of you might be  thinking okay if we take out this money when  

does it have to be paid back are they responsible  for making payments while they're in school or  

does it wait until they graduate the good news  is it does not have to be paid back until six  

months after either graduating from college or  falling below that half enrolled threshold so if  

your student decides to take a year off it can  trigger them needing to pay on whatever loans  

they've borrowed if it's more than six months  now of course this is a little bit different  

at the time of recording this we are still in the  frozen payback period due to covid that will last  

until january 2022. after that then the payments  will begin again interest will begin again  

everything will be back to normal as far as we  know so the students have been quite lucky over  

the last year and a half or so in the sense that  they have not been accumulating interest nor did  

have they had to make any kind of payments but  again that will be ending january of 2022. now  

some of you might be thinking well that student  that received a an overcheck by her junior year  

could she have paid back the 9 000 with  that overage check and the good news is  

that federal student loans do not have any kind  of penalty when it comes to paying them back early  

so your student can start pay making payments  even throughout college if they wanted to in fact  

a lot of families when it comes to unsubsidized  student loans where the interest is building from  

the beginning they actually pay the interest as  they go that way when their student graduates  

from college they don't have an extra amount of  interest that's going to be added to their balance  

they just have what they borrowed that they have  to make payments on so this is something that is  

absolutely not only allowed but it's encouraged  and your student would have no kind of penalty  

for doing that for making either interest payments  or just early payments in general or maybe even  

completely paying it off if your student got to  the point where they got an overage check for  

school from debt free money that they didn't  need to pay back so paying it back early is  

uh there's no penalty for that so there you have  it we've discussed the different types of loans  

that are available we've discussed how interest  works what's the difference between subsidized  

and unsubsidized and so much more so if you found  this helpful make sure that you click the thumbs  

up button as well as the subscribe button because  again every single week you're going to get a new  

strategy on paying for college that your student  doesn't have to take these student loans out or  

maybe they can replace these student loans with  debt free money now don't forget about that free  

training in the link below remember that we will  cover exactly where your family needs to find  

these outside scholarships that your student can  start working towards that debt-free education and  

not have to take out this student loan debt  all right i will see you in the next video

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