My son is graduating. He’s found his school, has some awesome scholarships, and is very excited. Along with those awesome scholarships though is a nice amount of student loans and a few thousand extra for us parents. This is the first of 12 years of college for our kids so we will help as much as possible, but the bulk of it will be their responsibility via scholarships and loans. He qualifies for a work study and is also playing a sport in the fall. He is getting a job this summer. So … my thought is that if he works all summer and saves a bunch, he could put some towards his tuition to knock off student loans. Or would it be better for him to save it in case of an emergency (major car repairs, etc). If he saves it until later (interest on student loans is deferred) then would it affect his fafsa next year?
Major car repairs? If he needs money for college…I would suggest he NOT have a car at college…at all. My opinion.
If these are the federally funded loans, your son canntake them out IF he needs them. He doesn’t have to take them out now.
He has a car that is paid for (nothing fancy at all). I’m just using that as an example. I’ve always wanted to have $$ set aside for emergency - whatever it might be and would like to teach him to do that. BUT - if he works all summer would it be better for him to take a big chunk of that and put it up front towards his tuition so he can not take out that part of the loan or is it better to use the loan and then if he gets to the end of the school year put it towards it? I guess what I’m wondering is with FAFSa filed in October, would it be better for him to put towards he loans up front so not saved, or keep in case he needs it and then apply to account in Spring if available. FYI - he is very frugal with his money.
I would probably take the loans. Since interest is deferred he can pay them down at any time. So if he has money at end of year he can pay off loans or use it for next years tuition if he didn’t need it along the way.
One thing to remember is fedetal loans are only 5500 first year, 6500 second year and 7500 the last two years. If you don’t take the 5500 first year (you can take it anytime during the first year) it is gone. You can’t add it in for a later year. You can still take loans later years. Just the amount for that year.
Meaning if you didn’t take loan freshman year but wanted to take it sophomore year you would get the 6500 --can’t add the first 5500 to second year to take 12000.
Hope that makes sense.
That makes sense. I guess that’s kind of what I was thinking. Borrow no more than he needs (for tuition) on student loans, but if they are deferred go ahead and borrow so he has some savings. Then put chunks towards the student loans each year if he has it. Same goes for work study- send it all towards tuition or part/part … This is all a new experience for us.
One doesn’t have to take out loans at the beginning of year. They can be taken out mid year or even as late as May of the ongoing school year.
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but the bulk of it will be their responsibility via scholarships and loans. H <<<
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How much in loans per year??
D1 took nothing in 1st semester. She then, rather accidentally, got both the federal 5500 and a private loan. She has the money to pay back the private loan from her job and is paying it back $1000 at a time every few months. The idea is to get her some credit history to lower the rate on future loans. (co-signed loans usually blend credit, so even parents with great credit do not get the kids the ‘best’ rates) If her job continues as-is, she will only have about 10-12K in debt when she graduates. Not ideal, but given the high rate of employment for nurses in the area and the relatively high income, she should be able to pay that off rather quickly.
I feel you on an emergency fund (small part of why she is not paying the whole private loan back immediately). Essentially, we are the emergency fund. Kids have access to a parent credit card for real emergencies. They have proven to be responsible (your mileage may vary).
My daughter took nothing her first year. Her second and third years, she took only the subsidized Stafford loans. Those cost her the origination fee 1%, so only about $25-30 per semester. She has used some of the money for rent, but has some left for the summer (she has to pay rent all summer). She’ll do the same for next year. She plays a sport and cannot work in the spring, and doesn’t want to work in the fall.
This way, she’ll have some money for starting out her career - to move, buy a car, or live should she not find a job right away. I think she’ll owe about $13k total, all subsidized. If she gets a job right away and has all her start up expenses paid, she can use whatever she has left in her account to repay the student loans right away.
If the loans are subsidized, I’d have him take them as a reserve account. If they aren’t subsidized, think about it but it is still a pretty cheap loan.
@bfahopeful the interest is only deferred IF the loans are subsidized. I didn’t read anywhere here that this student had subsidized loans.
And if he does have subsidized loans…only $3500 of,the $5500 can be subsidized. The rest are UNsubsidized…so,interest would start accruing upon disbursal.
There is also a loan origination fee.
If this student doesn’t NEED a loan…he can wait to take the loan when he needs it…if he does.
@thumper1 you are 100% correct. I was just going off what was posted originally that loan interest would be deferred (see last line of original post). Maybe the poster was only going to take that portion of loans. Or maybe they didn’t realize part would not be subsidized. Not sure.
Yes- good to clarify for others that the whole amount isn’t subsidized. Thank you.
Also agree you have the whole year to take the loan so one can certainly wait and take it late spring should it be needed. No reason to take it now if not needed at this time.
If the parents are planning on taking loans as well, then the best thing would be to have him use his student loans first because they have lower rates and fees.
If he works in the summer I would only save what he needs for books and some starting money. The rest can go towards paying for first semester and along with his direct loans, reduce what parents would borrow.
Otherwise if he has a lot in savings in October, 20% of that will be assessed towards FAFSA EFC.
Once he starts working his work study job, he can use that towards incidentals and maybe books for second semester.
But depending on his major and with being a student athlete, he might not be able to work that many hours.
I totally second @mommdc!
I didn’t articulate it well but was trying to point out that student loans are your best bet if you HAVE to take loans and it may be a good idea to take it all four years if you will need to borrow at least $27000 at some point in the four years.
We know some People who paid all they could year one without loans and then ended up with more expensive loans later as student couldn’t borrow more than $7500 that year.
Due to that we decided to take my daughter’s student loans all four years and supplement it with what we can pay in hopes of holding off on parent loans
If we spent her college fund first year we would have nothing left and would have to borrow. Instead we used her loans, some
College fund money and supplemented with our income/cash for the rest.
We plan to do this all four years if possible.
So, yes, the federal student loans are often the best deal on loans.
I know it is not what you asked, but I agree with the comment about the car. It may be paid for, but someone is paying for insurance, repairs, gas, etc. My kids did not have cars in college. That is at least a couple thousand dollars a year that could be put toward tuition/living expenses. It can help reduce the amount of loans he would need to take.
Thank you for all the feedback! I need to do a little more reading - this is all overwhelming. He has substantial scholarships, but still has a balance of around $12k (for the year). 3 loans available + work study. $3500 subsidizes shows no interest charged while in school. $2000 unsubsidized - so he would want to at least pay towards the interest of this one while in school - correct? And then $2000 perkins loan - it says that it does not accrue interest until graduation. Right now that leaves us around $4k with a few possible external scholarships. And then he is eligible for the $1750 in work study. My thought is the any funds earned - less what he needs for books he should just pull on the loans as needed (maybe per semester) and put what he earns directly towards the 4k “extra”.
Yes, if you use your example of $12,000 due for the year, $6,000 for the semester.
Let’s say he makes $3,000 in the summer. He could pay $2,000 towards the fall bill and borrow half of his loans for first semester, so $3,750. If the outside scholarship brings the amount due down, he could borrow less of the unsub loan.
So use summer earnings first, then sub and Perkins loan, then unsub loan.
Once he gets a work study job, he will get a paycheck based on hours worked probably every two weeks.
Depending on how much that is, he can pay for snacks, laundry, shampoo, pizza with friends, etc and maybe have enough left for his textbook rentals in second semester.
If you qualify for $2,500 AOTC education credit on your taxes, that could help pay back the sub loan every year (or you can save towards your contribution).
Then for second semester he can take his $3,750 in loans again, and you can pay the remaining $2,250 (or less depending on outside scholarships).
You will have all summer and fall to save up your contribution, and might not need to take parent loans.
Thank you @mommdc - I didn’t know about the tax credit. That info helps a lot!
Thanks! It looks like he would qualify. So is this one of those that comes right off the top of what is owed (like the child tax credit) or does it just reduce your taxable income (ie would we expect an increase of $2500 in refund amount that could be turned around and applied directly towards what we owe the next year).
It depends on your tax liability I think, and 40% or up to $1,000 is refundable.
But yes, it reduces the tax, not the income.