Mav Money Talk

Welcome to episode 3 of Mav Money Talk. Hope everybody's doing super fantastic.
• 00:40 I've got the three team members here, Austin, Charlie Aiden.
• 00:46 And as we talked about in our last podcast, this episode is going to be more along the lines of for a lack of a better term the nuts and bolts of student loans, and maybe going to me of these. But even if you do, it’s consider this to be, maybe a good refresher, and then we'll see how far we get today, and we'll have perhaps a third episode, finishing up on things or our plan is to jump into scholarships, which is a super exciting topic.
• 01:21 how you guys do today, Austin?
01:25Doing good, Dan,
Austin Deike
Last week we got caught on a little bit of a tangent talking about ideologies of student loans and me things that we can use rules of thumbs and scholarships and all that. Today we're going to get into more of what is a student loan. How does it work? And we're going to give you a case example for you listeners, so you can learn why student loans can be dangerous if you don't take them into consideration.
• To explain how a student loan works is super simple. I'm going to pass over the torch over to Aiden, and he's going to explain you the rundown of the steps within student loans and what we call
• People get Federal student loans by filling out the FAFSA which is the Free Application for Federal Student Aid.
• 02:28 Students, whatever age they may be, and their parents share this financial or share their financial personal financial information on this form. This is sent to the student’s school choice. In our case it'd be MSU.
• 02:43 The financial Aid office at each campus or university figures out the numbers and figures out how much aid if any the student qualifies for, and then sends them what we call an award letter.
• 02:57 This form consists of the student loan scholarships and grants and student will be offered, and it details everything about their financial aid. You must then sign what is known as a promissory note, which is a legal document where the student agrees to repay the loan plus interest. We'll talk a little bit more about interest payments- whether it's an unsubsidized versus subsidized loan later. The terms and conditions reflect that. I remember my first year of college. Going to going to how high school does they don't really prepare you for this side of things when it comes to education, what is faster? What is a student loan, grant, or award? I remember getting an email from my financial aid office, going to, and they said your financial aids ready and
• hearing the word financial aid. I thought this is what's going to be covered from my school, thinking there would be scholarships or whatnot.
• It does get a little twisted with because it can consist of student loans, scholarships, and grants. You’ve got to be very careful on how you look at it, because it is important to fill out financial aid because you can get those grants within it, but they all offer a lot of loans.
• A quick question for you guys: What do you think the benefit of that would be if students got it in high school versus now? How do you think that would affect student loan rates. Do you think people would maybe need to take out less because they know more?
• I think that financial literacy is lacking in high schools. Particularly I did a speech on this last year and amazed me. How going to eighty. I can't remember the exact statistics. No quote around eighty percent of schools districts don’t have a program, don't require, or even offer a financial literacy course to graduate. You can slowly see a lot of these districts. There's been a big push in a couple of States across the United States where they're requiring a financial literacy course to graduate high school. I think that that is beneficial, because a lot of times when you're going to you're in high school is a big age right? You're fifteen, fourteen when you go in. You might be seventeen, eighteen when you're leaving
• 05:30. And now you're going into the real world. You must make real financial decisions that will affect your entire future such as the student loans. I think it would help with help, not just with student loans and understanding it, but really giving people of that age a sense of value when it comes to money and hopefully setting them up for success in the future
• In my high school, it was offered as a senior. I think that's probably the most beneficial time we can do it. Most people have jobs through a high school, but people are at least when they're a or a junior. But as a senior, you you're able to take that step from childhood then adolescents, then into adulthood. You're living on your own at a university. You're making your own decisions. You're doing stuff on your own time. You’re in a bubble when you're in high school at your hometown. You've got me sense of security, but once you're on the real world, you got to make these decisions. It’s beneficial to have a real-world information and financial literacy skills passed on. I think absolutely think it should be a graduation requirement for all seniors. I wish they even offer it for freshman. I remember going into my senior looking at my bank account. Googling up my university costs, and all that, and realizing what the heck- I have no money, and college cost this X amount? How the heck am I going to do it?
• And not really understanding that my quote unquote financial aid isn't all grants me of its loans, and I didn't that necessarily wasn't an option I wanted to take. if I if I could reflect, and if someone could have really invested into me my freshman year, because what were we fifteen, sixteen when we've got our first jobs, I would but a little bit more frugal and more intentional with my with my finances. I could have had a better head start going into university. I think another good idea would be. I don't know if this is a thing right now. But maybe if schools put on a maybe course, or a night class for parents and students both to sit down they can give the same education to both, because it's a joint effort. I think that'd be a really great idea, too, because it can involve everybody.
• 08:11, I totally agree. If my parents had a better understanding, too, because they didn't really understand you there, I had to do it all my own, and figure it out on my by myself. If we could get that partnership and get that being on the same page, it would have been a lot more helpful,
• Dan, Do you have any thoughts?

Daniel Hiebert
08:31: You guys are bringing up great thoughts. I think totally having that partnership aspect is crucial. And you guys tell me, but I don't think as students that really happens, and it really should,
• 08:43: I think Aiden brought up a good point about. Education and things sink in deeper when it's applied. If you were to get this education in high school as a freshman or sophomore, you have to wait a couple of years for it to actually be applied. It's good to be a just in time, learner. That's what they're finding out financial literacy. There’s studies and research that has shown that it's not been affected, and that was the big knock was, I learn about a Roth IRA, but I can't really use it until I am a senior, or until I graduate.
Austin Deike
09:36, I wanted to touch on the promissory note. I found this interesting to think that you are signing onto a loan that could be X amount of dollars. I don't know what the average university cost is, but say, fifteen thousand dollars a semester an eighteen-year-old needs to understand that note is signing a legal document to repay alone, plus the interest, maybe not even knowing what the interest adds to at the age of eighteen, before they came in rent a car before they can drink alcohol. I think it’s. I think it's interesting that we are able to acknowledge that students aren't mature enough to say, make decisions, as in purchasing drinking alcohol, but they're able to sign on to a a note where they are agreeing to get head over heels into this alone amount of debt that they don't necessarily understand.
• 10:36: That's a great point. I know the stats are whatever between boys and girls, but our brains fully mature at an age. What in our late twenties, and we are then expected, at the age of eighteen, to decide on our career as well as signed loans.
Daniel Hiebert
11:07: I totally agree. What's the difference, Austin, between a subsidizing an unsubsidized loan?
Austin Deike
11:16: There’s a couple of different kinds of loans, and it's important to understand the differences between them.
• 11:23: When you accept, you’ll agree to your loans. You accept your grants, you accept your scholarships, and you accept your difference in the loans if you need that there's a direct subsidized loan, and there's an unsubsidized long.
• 11:37 The direct subsidized loan is made available for undergraduates, undergraduate students. That's what you usually are going into college for your first year.
• 11:46: These are for students to show that they have a need. They look at that form, and they see if your parent’s income your income already file, see if you need the financial help to cover college which most of us do, because we don't have going fifteen twenty thousand dollars lying around.
• 12:03: And then what happens from there? What makes it different than unsubsidized loans. The Government pays the interest until it comes time to pay back the loan. This is what they call it a six-month grace period. That's the only difference is while you are in college the interest does not start. But it's important to understand that the Government is paying that interest. It doesn’t disappear. It doesn't take a pause. It’s money that's really needed to get paid back.
• 12:28: You get six months after college until that interest starts a lot of people get it mixed up. They think that there's no interest. They hear that no interest part. While they're in college. They decide not to think about it, but it is important to understand. Six months after you graduate that interest will start.
• 12:46: I'll pass the torch over to Charlie for the unsubsidized for graduate students. You don't need financial need for this type of loan, and the interest starts to build right after you take them out. There's no grace period
• 13:25: You can pay that interest off while you're going through school. Good tip is to reduce the total loan balance as you go through college. There’s a belief with students with the mindset that I’m going to take out these loans. My education is important, which it absolutely is, but then they're not going to worry about it and put it on the back burner until it's something that needs to be figured out. And it's a problem to figure out
• 13:55: When they graduate, when they get their job, when they get their dream job, they are going to have to pay that money back. As Aiden said, you can get these loans paid off if you work at it. If you have the money sitting around, you can pay these off. You can pay on the principal, and you can, if you pay, on the principle it's going to end up being less interest.
•
• 14:20: For a subsidized loan. You'll need to demonstrate financial need. And I would say, you guys, Charlie probably has this number,
• 14:29: But I think the vast majority- I shouldn't say the vast majority, but I think there's probably more common to have an unsubsidized, loan. You agree, then, a subsidized, or how do you guys feel about that?
Unknown Speaker
14:43: It really depends on the situation you get.
Austin Deike
14:46: You get options when you fill out that the FAFSA form. How much you want, what you want to take out what you don't, and it's usually I think it's usually even, and I think most of the time it's a surplus amount of money
• 14:58: You can take out that subsidized that doesn't have interest until after graduating. Then you can take out additional where you don't have the financial need. You're able to take out additional unsubsidized loans. And you see this a lot with kids that don't necessarily have a job, or they're going through their education or stuff that to pay for stuff that isn't directly for school, which was a point we brought up in the lab last podcast.
• 15:27: I got a quick question. Are you able to take out both direct on subsidized loans and the subsidized loans at the same time? The financially smart decision to make is taking out the one that doesn't occur interest while you aren't paying on it.
• 15:51: We got case right here to bring it into perspective of why. Why does this matter? Because we're talking about how bad it is, or how good it is depending on how you look at it. We understand that it's a debt. We understand that you are making a promise to pay something back by the time you graduate. You're going to start a little bit behind the game. But let's throw me numbers out and make this a little bit more of a easier visual aid. The average loan. I took this from a study that was done a while ago, it might have increased or decreased- the average student loan is thirty-five thousand dollars. If you take the ten years fixed interest rate. usually, most people take ten years to pay this off at five percent and usually interest rates vary between three to five percent. It might have changed with how crazy the market is changing within our decade within our time right now.
• 16:52: But if you make the monthly payments of three hundred and seventy dollars, which would be, which would be required for this thirty-five-thousand-dollar loan within ten years.
• 17:06: if you pay this off within the ten years, this thirty-five thousand would have been turned into forty-four thousand dollars and five hundred and fifty. That's a lot. That's a nine thousand five hundred and fifty dollars- interest paid in surplus that going to nine thousand five hundred and fifty dollars. I don't even think you could say that doesn't it matters a lot, because that is, that's a lot of money right there that you’ll need to pay.
• 17:36: And looking at that, you agreed to pay thirty-five thousand you paid off in ten years, making them monthly payments, and you end up paying a surplus of nine thousand five hundred and fifty dollars an interest. That’s not an amount of money that I want to throw away
• 17:52: being at our age. That is our first car that we could buy, and that can take care of a lot of different things that you need.
So, there’s some financial tips that we we've told you guys, you could definitely use to be saving lots of money as seen right here. Almost ten thousand dollars.
• 18:18: What are your thoughts, Dan?
Daniel Hiebert
18:20: I agree Hundred percentage and really the way you guys have integrated compounding into the equation. I think, for a lot of our listeners that might be a foreign concept.
• 18:33: But if there's if you think that Albert Einstein was one of the smartest guys in the world. He said that the eighth wonder of the world was compound interest! I encourage you. If you want to get up to speed on something as powerful as compound interest. And how it works here. For listeners, please come by one of our financial planning club meetings or visit with you guys to help get a better grass on
• what that means.
• I think it's really a good case study that’s very powerful, and I think bringing home how the effects of student loans can have from a money standpoint.
Austin Deike
19:19: I mean thirty-five thousand dollars. That's not too out of pocket for what most universities do cost, and what average students decide to take out
• It's something you want to look at. Be mindful of while you are making these decisions compound interest can be your arch nemesis, or it can be your best friend. If you're on the opposite side, it can work in the reverse for sure. And that's why it’s important to be on top of this these things. Because if you get out of the hole, you can have compound interest. Start with it being your friend a little bit more and have it work the opposite way, and then against you. And that's why we're passionate about. This is because we want to help you guys out. We want you to be successful.
Daniel Hiebert
20:02: I totally agree. Being successful is really our goal! And one of the things finishing up for this episode and if you want to find out more information about student loans. There's a lot of stuff out there, but one of the places that I go is called
Saving for college.com
• They've got a lot of good tutorial information. What's financial aid? What's the student long. I think we've given you a pretty good start today on that topic of student loans
• The last episode was helpful as well. What are parting thoughts for you guys before we close up shop for today?

Austin Deike
21:02: Next episode will be going into me information about scholarships. This is a three-part series about financial aid. We talked about what is a loan in the first episode. Now this episode we talked about more than nitty gritty behind types of loans- what you need to qualify. And next episode we're going to get into scholarships. How you can get them, who qualifies all that good information. I can't wait to do that one.
• 21:42: It's been fun today. To close today, look at the decisions you want to make. Be intentional about every single decision, and know the importance of compound interest, and understand the importance of being intentional and making those decisions.