I’m my previous post I talked about how I paid for nursing school and to really understand how things happen for me they way they did you need to understand federal loans, specifically subsidized and unsubsidized loans. I’ve decided to just make a separate blog post about so my previous blog post wouldn’t get to lengthy. So let’s get into it!
Federal Subsidized Loans
This a type of loan given out by the government to students pursuing higher education at a competitively low-interest rate. The loan normally lasts about 4 years (it does vary) and repayment begins 6 months after your after graduation date. The beauty about this loan is that you as the loanee pays no interest! The federal government pays the interest for you until you graduate.These are the BEST type of student loans offered.
Subsidized Loan Scenario: Let’s say I borrowed $100 from the government and the interest rate was 10%. $100 x 0.10 renders $1. So every month, assuming you aren’t paying anything pack yet, $1 worth of interest would be added to my original bill of $100. At the end of one year I would owe the government $12 ($1 for every month) in interest in addition to the original loan amount of $100 for a grand total of $112. With a subsidized loan, after one year I would only owe the government $100 because the interest of $12 was paid by the government for me.
Federal Unsubsidized Loans
This a type of loan is again given out by the government to students pursuing higher education at a competitively low-interest rate. The loan normally lasts about 4 years (it does vary) and repayment begins 6 months after your after graduation date. What differentiates subsidized from unsubsidized loans is that the government does not pay the interest for you. Unsubsidized loans begin accruing interest the moment the loan is processed and that interest will keep accruing. This how someone can take a $10,000 loan out at end up paying well over $20,000 back in the long run. Interest can sneak up on you so be careful!
Unsubsidized Loan Scenario: So I borrowed the same $100 from the government and the interest rate was 10% but this time it’s an unsubsidized loan. $100 x 0.10 renders $1. So every month $1 worth of interest would be added to my original bill of $100. At the end of one year I would owe the government $12 ($1 for every month) in interest in addition to the original loan amount of $100 for a grand total of $112. With an unsubsidized loan, after one year I would owe the government $112 because the isn’t paying the interest for me.
These are really watered down examples of how this works. $12 may not seem like a whole lot to pay back. But what if I had a $5,000 unsubsidized loan at a 4% interest rate? That means every month $200 in interest would be added to my total bill and in one year I would go from owing $5000 to $7,400! That’s a huge difference! And if you read my ADN vs BSN blog post you know that a deciding factor when I was choosing a nursing program was cost.
Now that you know all this information, you might ask well why doesn’t everyone just take out subsidized loans for whatever amount is needed? The simple answer is that your lender AKA the government wouldn’t make any money and this is all a business at the end of the day. The government puts a cap on the amount a student can request for subsidized loans per semester depending on what year the student is in.
Here’s another example….
Let’s say, hypothetically, I am attending a 2 year nursing program and the tuition is $5000 a year and of course I need federal loans to pay for school. The first year I take out a $10,000 loan. The government will only give me $3500 in subsidized loans for the first year and if I can’t come up with the additional $6500 from another source, that’s $6500 in unsubsidized loans. The second year I take out another $10,000. But as a second year the government will let $4500 out of the $10,000 be in subsidized loans. But again, that’s still $5,500 in unsubsidized loans.
The $6500 starts accruing interest the moment it is processed. So for 2 years while I am in school that $6500 bill is slowly growing. If the interest rate is 4% that’s an extra $260 being added to the bill every month for 2 years or 24 months. At the end of the two years, I’ve graduated from nursing school but my original $6500 bill nearly doubled into a final bill of $12,480 in addition to the $3500. In total, I went from owing $10,000 for the first year of the program to owing $15,980 for the first year.
For the second year that $5500 at the same interest rate of 4% will cost me $220 every month for 12 month. At the end of that final year of school my loan went from $5500 to $8140 and I still owe $4500 in subsidized loans. So my total second year of nursing school went from $10,000 to $12,640. So I might have thought my nursing school program was only going to cost me $20,000 when in reality I will end of owing at least $28,620!!! That’s almost an additional $10,000 in interest alone. This is how people end of spending the rest of their lives paying off student loans.
Below is a chart explaining in-depth how subsidized and unsubsidized loans are capped for every school year.
Now student loans are a necessary evil. I do believe that the system is flawed but I also believe in investing in yourself and your education. And if I had to take out loans to go to school I would do it but if I can avoid it I will try my hardest. I hoped this article helped someone out there thinking about pursing higher education. Until next time, see ya!
The Black Nurse 