Want to help make an upcoming episode of How to Adult?
Hey, guys! So we’ve been doing this for a while now and we are proud of the content we create, but even better than what we have to share is what YOU have to share. Every week in the comments we see other new and experienced adults helping other adults. And this week we want to try something new: having all of YOU contribute to the actual content of the video! Not everyone reads the comments, and therefore may be missing a bit of the story. So here’s your chance to help us and your fellow awesome viewers out. Below you’ll find the script for an upcoming video, “How Student Loans Work,” written by myself and Alan Lastufka. There are always jokes and stuff improvised, but it’s more or less what we currently envision the final script will be.
We’d both love to hear your thoughts, and more importantly, the things you wish others knew about student loans before taking them on. Anything that isn’t clear? Anything we can expand on or change? Let us know and we’ll put your name in the video description as Official Adult Consultants! Thanks so much, y’all!
“HOW STUDENT LOANS WORK”
We’ve all heard how student debt is piling up and there’s no end in sight and everything’s gonna explode probably. Many careers still require some higher education, and while we’ve made a video all about ways to make that education cheaper, for many people, unless Uncle Money-Butt passes away, student loans are gonna be a necessity. So how do student loans work, and how can you make them work better for you?
Part One: The FAFSA
AKA Free Application for Federal Student Aid. Before you start looking at loans, you need to fill one of these babies out, either online or on paper, which apparently is still a thing.
In addition to being used for federal financial aid like loans and grants, the FAFSA is also used by state and school funded programs, including some scholarships. If you’re in high school, you’ll want to do this ASAP after January 1st of your senior year. If you’re not in high school, you should still do it ASAP after the New Year.
Why? Well, many factors determine your eligibility for financial aid. But most financial aid is given out on a first come, first served basis, so the earlier you submit your FAFSA, the better your chances of receiving the maximum amount available to you. Alas, it isn’t a one-time thing, either: You need to submit a new form every year you are applying for aid, as your finances or your family’s finances, may change.
To actually fill it out your FAFSA, you’ll need some documents. There are a lot of them, so right now they’re hovering around my face. Also, don’t leave any space blank, if a certain section does not apply to you, write N/A or zero.
Part Two: Types of Loans
After submitting your FAFSA, a number of different loan options will be available. These include:
1. Stafford Loans – These are offered directly to you, the student, from the US Department of Education. They an be used to pay for higher education at a degree-granting institution, trade, career, technical school, or for community college.
Stafford loans will either be subsidized or unsubsidized, based on your financial need. Subsidized loans mean you don’t have to pay any interest on the loan while you’re in school at least half-time. If your loan is unsubsidized, you begin accruing interest on the first day you receive your funding.
2. PLUS Loans – AKA “Parent Loans for Undergraduate Students.” These loans are offered to the parents of students by the US Department of Education to help fund their child’s education. PLUS loans are limited to the actual educational expenses minus any other financial aid received by the student.
3. Perkins Loans – Perkins loans are available for undergraduate or graduate students. These loans are financed by your school, but are guaranteed by the federal government. Perkins loans are based on financial need and have caps of $27,500 for undergraduate students, and $60,000 for graduate students.
Part Three: Repayment
Hey, check out that fancy piece o’ paper in your hands! Huzzah! Now let’s pay the loans back! Here are your options!
- Original terms - You can repay based on your loan’s original terms. This is typically a 10 year repayment plan. This is the most common method.
- Income-based repayment - You can enroll in an income-based repayment plan. This is the second most common repayment plan. The terms of your original loan are then restructured to fit into your budget based on your current level of income.
- Deferment - If you cannot afford your student loan payment, in some cases you can defer making your student loan payments. Deferment doesn’t get rid of your student loan debt, it simply puts off when your repayment plan begins. It’s usually only granted to current students, citizens in the military, or if you’re unemployed or are earning less than the minimum wage. Unsubsidized loans will continue to accrue interest during deferment, however, so it’s a good idea to make any payments that you’re able to.
- Consolidation Loans – If you’re now out of school and find your current repayment plan difficult to manage, you can always consolidate your loans. Consolidating will take multiple loans and simplify them into a single new loan. This can make repayment simpler and can extend your repayment terms up to 30 years, which will lower your monthly payments, but will greatly increase the amount of interest you pay over the years.
Part Four: A Note for Parents
According to Forbes, more than half of all student loans are now delinquent or in deferral. These loans can be for staggering amounts. If you choose to help your child with college, saving early is. The IRS wants to help you save for your child’s education, so they established 529 Savings Plans, which is kind of like a Roth IRA for this saving for your bebes’ future. Not all of you will have parents who can afford to help with school, but I want everyone to know this option exists to help.
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