This month many families are evaluating colleges for their High School seniors. A major part of the decision will be what type of financial aid they receive from each school. Just a couple years ago, I was in the same situation as many of you when my daughter was a Senior.
I must say that I'd cringe when I saw the financial “aid” summary including the loan that my daughter was able to take. For many schools this was followed by the amount of tuition that the family was responsible for. This often did not include the loan amount. Really?? I am pretty sure we will be responsible for the loan.
As your student evaluates their offers, it is important to understand some basics on loans and how they will work for your student. This is general financial literacy but not one that is taught very often. If the loan is subsidized, the student will not have the interest started on the loan until they graduate, the government will cover the interest while they are in school. If the loan is not subsidized, the interest starts to accumulate immediately.
The following shows how this might work.
The unsubsidized loan ends up being $4,160 higher than the unsubsidized loan. Unfortunately, the schools do not do a good job helping families and students understand these numbers. These seemingly small increases add up over time.
As you look over your student's Financial Aid packages, keep this in mind. This quick example would be great to show your children the impact of loans and interest.
The example above represents a hypothetical scenario and is for informational purposes only. There are no assurances that the techniques and strategies discussed herein are suitable for all investors or that the predicted results will occur. Past performance is no guarantee of future results.