Understand Your Student Loans

by Kevin on August 11, 2009

Amidst all the rah-rah cheering around my successful completion of my MBA program last week I decided to check the status of my student loans. I had been keeping up with the loan amount by increasing our liabilities in our net worth statement every time I got my reimbursement check from work. This way my loan increase and reimbursement negated each other out and the affect on our net worth was nothing.

Unsubsidized Student Loan Interest

I was stunned last week when I checked the status of my loans. I had chalked up a good $500 or so in interest charges while in school.

How is this possible? I was still in school. All of my loans should be in deferral for at least six months after graduation.

I dug deeper into the Sallie Mae website and discovered that two of my loans were unsubsidized while two were subsidized.

One might expect a personal finance blogger to know the difference, to have dug through the piles of paperwork that come with a student loan, to have eliminated every possible cost.

Fully Understand Your Student Loans

Here’s the kicker: I thought I did understand my loans. Granted I wasn’t given a great description full of examples from my school’s financial aid representative.

But I thought I knew what I was getting into. I knew that subsidized loans were subsidized by the federal government while I was in school. This means the government will pay for my interest charges until the loans are my responsibility.

I knew that unsubsidized loans did cost you money. The government didn’t pay your interest for you.

The misunderstanding on my part was I thought the interest kicked in after you graduate. I was planning to wrap up my degree and wipe out the loans without any interest costs.

Unfortunately this misunderstanding has cost me $500 in interest. As soon as I discovered the interest charges I signed up for electronic payment and whisked off two payments to knock out the two unsubsidized loans. Those payments have gone through and I’m back to having no interest to pay.

Last week when I discovered this I wasn’t exactly thrilled myself. This is a perfect example of how losing track of one little thing can cost you a lot of money. I hope everyone that reads this can learn from my mistake.

Imagine if I had waited until the six month post-graduation deferral was up!

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Canadian Personal Finance Blog » Blog Archive » Random Thoughts: TGIF
August 14, 2009 at 1:04 am
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August 14, 2009 at 10:27 am

{ 8 comments }

Ashley August 11, 2009 at 9:03 am

Understanding all the details of a loan is more important than people realize. On my first car out of high school I got caught in a prepayment penalty trap and could not have been more mad at myself. But I guess we all live and learn. Congrats of being done with your MBA!

Kevin August 11, 2009 at 9:44 am

It’s one of those things… I was busy with a full-time job and taking classes. I had to find time to go down to the school during business hours to get the financial aid stuff taken care of. Just slipped through the cracks on me. You’ve got to stay diligent!

MoneyEnergy August 11, 2009 at 9:51 am

Nice pointing this out! All my student loans are currently the “subsidized” version from the Canadian government, but I still have to keep up every 6 months making sure they have me in the right status, etc. so that interest doesn’t start accruing. I slipped up once at the beginning of my Master’s program, and had to pay $150 or so, I think. Since then I’ve been good staying on top of it, have even tried paying off some while I’m still registered. You’re right, it’s really important to stay on top of, because these programs make changes all the time.

MoneyEnergy August 11, 2009 at 9:53 am

Oh yes, super congrats finishing your MBA!

[email protected] August 11, 2009 at 10:08 am

If you had waited, you’d be like I’ll end up and have the interest on the unsubsidized loans rolled into the principle of the loan itself… Sadly, I really don’t have an alternate choice. It’s down to work on paying off loans while in school or still having some semblance of a normal life.

I have to say, having a life is still pretty nice. At least I can expect it later on, but it’s why I’ve always reduced unsubsidized loans to the bare minimum. I won’t get a nasty surprise after graduation like some. 🙂

Congrats on the MBA! I think getting my bachelor’s will feel like a huge accomplishment at this point…

TheDebtHawk.com August 12, 2009 at 6:40 am

I think that a lot of students are confused by subsidized versus unsubsidized student loans. These loans are not easy to understand especially for young students.

Golfing Girl August 12, 2009 at 8:18 am

Wow–I had no idea I was helping subsize student loans via my taxes. It just never occurred to me since I didn’t use them (student loans). I feel a little taken advantage of knowing how many people went back to school when the economy turned so they could “defer” the interest to me. (I’m not saying that’s what you’ve done.) I’m also thinking of all the kids who should have gone to community college for a couple of years first but went the 100% financing route via these loans.

LAL August 20, 2009 at 1:53 pm

Congrats on the MBA!

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