Paying for education: Student loans

0:00- [Instructor] So let's discuss student loans a little bit. This is something that I know well. In other videos I talk about getting a pretty good chunk of financial aid when I went to college many years ago. I got some grants and scholarships, but most of my financial aid came in the form of loans.

0:15I also had to do some work study. But most of it came in the form of loans. And loans are what most of you imagine. This is money that needs to be paid back. To be paid back. And since you're going to have to pay it back, and we're usually not talking about small amounts of money, this is something that you should take very seriously and really weigh whether you're going to be in a position to pay that back, what kind of future you might have.

0:40And also, you're gonna have to think about what you're majoring in and the career prospects and what kind of budget you're gonna have in order to make sure you're in a good position to pay back these loans. Now, broadly speaking, there's two types of loans. We could try to break that down even more.

0:56But at a very, very high level, you have federal loans. These come from the federal government. And then you have private student loans. Private loans. Now the big difference between the two, is when it's coming from the government, the interest rate is typically subsidized.

1:14Which means you have lower interest rate and the government tends to be more flexible about repayment. More flexible. In fact, they have certain situations in which if you do certain careers that serve other people, they might even have programs where they forgive certain aspects of it.

1:34But don't depend on that unless you know that that program is really, really in place. Now, if I were to break down federal loans even more, and most of them have direct in front of them, you have direct subsidized loans. And this is above and beyond just the typical subsidy on the lower interest rate that you typically get from federal loans.

1:58This is subsidized also in a situation where if a student has enough financial aid, so this isn't going to be for everyone, the government will pay the interest while the student is in school. So interest doesn't build while in school. Which could be a big deal if you're in school four or five years and the interest rate could be four, five, 6% per year on a reasonable amount of money.

2:28This could add up to a lot. So that's a nice subsidy that's provided. Now, you also have direct, I'll just put quotes here to rewrite direct. You have direct unsubsidized. Unsubsidized. I'll just write that. Unsubsidized loans. And these tend to be available to all students regardless of need, but it probably won't have this property that the interest doesn't build while in school.

2:49And then you also have direct plus loans. These are either for parents of a dependent to help them give you money for your education, or it's for graduate students. So it's supplemental, or it's a plus to what you could consider just the student paying for their college education.

3:07So this is parents or other folks who are supporting the student. Who are the actual caretakers of the student, I guess we could say. Parents. And it could also be for grad school. Now, private loans can be a big part of things, especially if you don't qualify for some of the federal loans.

3:27These are coming from banks, credit unions. It could be private entities. Sometimes it will require, in fact, many cases it will require cosign from someone who has an income, who has strong credit. Maybe parents, maybe someone else. Or if you're taking the loan out yourself, a credit check on yourself in most cases.

3:45And sometimes they're limited to majoring in certain fields or certain things like that. But I'll leave you there. Loans can be a very important way of paying for your education. And it can often be well worth it, but you just have to be careful 'cause you're taking on money that you need to pay back.