BellaOnline Forums Education Distance Learning Subsidized vs Unsubsidized Loans

I've been going through all the financial paperwork for online schools for a while now, so I wanted to offer to talk to people about it!

If you are offered a SUBSIDIZED loan, that is great!! It means you owe NOTHING until you graduate, plus another six months! The government pays all interest charges. You literally owe nothing at all until that six month point after you graduate. So you could pay it off at that point - the basic loan cost - and be done. This falls into the category of "free money" to me. Even if you have the money, you might as well take it. Your money can be earning interest for the 4 years you are going to school.

Nothing's free, the interest payments on the loan are just getting taken out of other people's paychecks to pay the lender. I urge you to take only what you need!

I'm not sure what you mean by "other people's paychecks"? I've been a working person in the United States for over 20 years now and have paid a TON of taxes into the system. This doesn't even come close to me getting back out a share of what I've put in!

I mean that, agree with it or not, we work and pay those taxes so that those who need it to get an education can access it. I've made use of it myself over the years. Your initial comment refers to subsidized student loans as "free money," and you encourage borrowers to take more than they need in order to earn interest in a bank account for four years. The money is not free, the bank doesn't forgive that interest, rather tax dollars just pay the interest while you're in school. Regardless of how you choose to justify it (e.g., getting out what you've put in), it is an abuse of the system, as evidenced by the loan entry process wherein you sign a statement that clearly says you should not take more than you need. I'm not much for micromanagement, and to be perfectly honest, it doesn't really bother me that individuals abuse the system--I'm sure I've abused various systems myself over the years--but promoting that abuse in a public forum, without an airing of the facts, does bother me, and thus my comment. I'm fine with whatever people do, generally. But I will always do my best, if and when I can, to make sure they know what it is that they are doing.

It's intriguing because I consider myself a highly ethical person. I agonize over my taxes and make sure I document every single thing I do in there. I don't sneak alcohol onto cruise ships. I point out errors on bills and make sure I pay the proper amount.

However, if my Northeastern class set for the spring is $3,000 - and they offer me a $2,500 subsidized loan to cover it - I am going to TAKE IT. The money in my savings account is an emergency fund to cover disasters that BellaOnline could suffer. I am not going to risk the livelihood of 400 BellaOnline editors and empty out my savings account. I don't think that's morally or ethically right.

The government has that loan to cover my costs - and it doesn't even cover my full costs!! - I am going to use it towards those costs. The fact that I know I can pay it back immediately already puts me ahead of the many students I know who take out loans and plan on either defaulting or delaying their repayments. If anything I am the ideal recipient for their loan, because they WILL get their money back in the fastest way possible once it is used for its stated purpose.

So I have to respectfully disagree on this issue.

Lisa, I also took the subsidized loan. My loan accrued interest while I was in school that I paid on, although I didn't pay it all. When my payments start that interest will be included in my payback amount.

Granny - I'm a bit confused. I thought an unsubsidized loan was the kind you're talking about, where it does accrue interest and that interest is rolled into your payments. I thought a subsidized loan was where the government paid your interest for you during your school years, so when you graduate all you pay is the actual loan, and no interest during the schooling period.

I'll double check with my financial advisor, I could have my facts messed up, but some of my loan was paid for by the government and a good share I pay for myself but it's at a low interest rate.

Lisa, You are correct about subsidized v. unsubsidized loans, no interest accumulates on subsidized loans while you are in school, it is paid for by the government. Now let me be clear, because the story seems to have changed a bit. Having an emergency fund in the bank and taking a loan to cover education costs is in NO WAY what I was criticizing. In fact, I think that is a common sense approach to take. I don't think it unethical to make sure you are financially covered. The issue I took on was the suggestion to anyone that you should take any more money than you need (to meet your life and educational and emergency expenses) and sock it away in a bank account simply because it is an opportunity to make money off the interest, since the government (all of us) would be paying the bank's interest charges. If you are not even covering your tuition costs with the loan, then you are not doing what you suggested in your first post, where you said, "Even if you have the money, you might as well take it. Your money can be earning interest for the 4 years you are going to school." That is an inappropriate endorsement and an abuse of the system. What you have done is not. I hope that clarifies my position.

I don't think there's any chance that any person's college costs could be completely covered by the loans the government offers. The loans barely pay for a few courses. So I don't think there's any fear of a person going full time to school and somehow having "lots of extra money" through that loan.

My point was that many students destroy their personal finances to get through college because they feel the degree is critical to their adult career path. They think, if that money is in their savings account, that they should turn down the loan because "loans are bad". I don't think they should do that. If they have a savings account, they should treasure that, nurture it, and take the subsidized loan for its purpose.

excuse me...but no one is getting rich off interest these days

Average annual tuition&fees for public 4yr universities in the US-$7020 Annual available federal Stafford loans-if dependent on parents, $3500 subsidized, $2000 unsubsidized. subsidized increases to $4500 second and third year, and to $5500 your final year. If independent, the unsub allowance is higher. Add in Pell grants, up to $5550 per year for up to three years, EFC, and other federal, state and local or private financing options, and many, if not most can get their undergrad for free. The situation I imagined when I read your original post is not an atypical one: a student manages to get their education paid for through a combination of grants, scholarships, parental contributions (if applicable), etc. and then has the option of taking out loans. If they have other bills to pay, or had to empty their savings, or whatever else may apply, then they should absolutely consider the loans. That is what they are there for. But if that is not the case, and they are covered and have their emergency fund intact, then I am sorry, but as unlikely as you may declare it to be (and I disagree on that), it is an abuse of the system. And taking that money and investing it is not contributing to that individuals education, but rather helping them to cultivate a nest egg. That may be nice, and perhaps we should start a push for it! I'd love to see people graduate with an eager mind and a chunk of cash to jumpstart a new business or a home purchase or whatever, but that's not what this money we're talking about is for. I doubt you would encourage anyone in that situation to pull out a personal loan from a bank and sock it away for four years, and the only difference is that we the taxpayers are paying the interest on the Stafford loan.

Live2Learn - I believe that is basic tuition and doesn't even count room and board.

I highly contest the idea that "many, if not most can get their undergrad for free." The volumes of email I get from people seems to make this seem highly unlikely.

From Wikipedia:

"the median cumulative debt among graduating 4-year undergraduate students was $19,999"

I will acknowledge that I misused the word 'free'; I noticed right after I posted. Perhaps that wasn't your issue, because I would defend the notion that for most of the individuals for whom public aid in obtaining education is intended, they absolutely have the ability, with some effort, to obtain a solid education at a public institution for little to no out of pocket costs for tuition and fees (as above)through loans, grants and scholarships. I cannot include room and board in an educational expense, especially when we are comparing to and talking about distance learning. Those are expenses regardless of whether or not one chooses to get educated, and are certainly not included in any of the pricing for online schools that we might compare to. Further, the reason for such an inclusion in the old model of educational expenses is that there was an assumption of full-time study and full-time residence.I don't think that does, nor does it need to, apply to the education of many people today. You are getting your education while (at least) running this website and managing various aspects of that business. This is a very different situation than was even possible when we established these financial aid offerings, and certainly affect the way you regard 'room and board' as necessarily an educational expense. As to your median debt stat, it says two things: first, that students are not so 'scared of debt' as you suggested earlier (if you are rather arguing that education is too expensive, well then you're on my side in this thing and should be joining forces with my mission in this and other threads ;) ), and second, that the cost of private education is remarkably high in comparison to public education. (The comparable avg/annually for private is over 23k! compared to the 7k for public) This simply needs to be a factor in determining where you choose to go. If money is no object, then by all means go wherever you like, spend whatever you want.... but don't ask for tax dollars to fund it beyond your true needs. So that brings the conversation back to its subject: the appropriateness of borrowing money beyond one's needs, and I think my position is both clear and intractable. Certainly other issues have emerged from the conversation here, and deserve their own threads perhaps. (?) What should education cost? What should the public pay for? What expectations should be attached to those provisions? Should we be more thoroughly discouraging debt? Especially in those who often don't yet understand it or its implications on their lives? etc.