<p>S just got his FA Award Letter yesterday and in addition to the three merit scholarships he received, it had something called a Federal Direct Nonsubsidized Loan. We didn’t ask for a loan. Is this something that is standard for everyone? To accept the loan, we have to go to the school’s website and sign up, else that will be removed from the aid.</p>
<p>I looked up the loan and found out that it is non-need-based and is available for a (current) interest rate of 2.77%. They recommend starting repayment right away or the “interest becomes capitalized” (Huh??). Does anyone know how this works? Questions:</p>
<li>Is it a student loan or a parent loan?</li>
<li>Is everything handled through the school or is it handled outside the payment process?</li>
<li>Is it a good idea to take that even if you don’t really need it? The interest rate is such that it seems it would be better to take the cash that would have gone to tuition and use it to pay off a higher interest rate debt.</li>
</ol>
<p>I would appreciate any insight that people have.</p>
<ol>
<li>student's name
2.handled thru school. You don't have it get through the school. Lender may be of your chose.</li>
<li>that's similiar to what we did. We saved the investment and used the loan.
4) Interest is not subsidized in unsubsidized stafford and thus accummulates as student is in school. If taken, suggest you immediately get to paying at least the interest.</li>
</ol>
<p>Just remember that these loans are variable rate, set annually. I expect quite a jump in interest rate this summer when they reset it. Of course, the cap (8% or so?) is not bad.</p>
<p>BTW, the effective rate is a tad higher as there is a percentage (1%? don't remember) held back as a funding fee. Kinda like points on a mortgage.</p>
<p>I think these kinds of loans are generally a pretty good deal, and can free up a bit of cash to pay off higher interest debt. Of course the U is doing you no favor by offering it, as anyone can get one.</p>
<p>I disagree with the others regarding paying the interest while in school. You will find the capitalized interest each year to be a pretty small number. If the whole reason you are taking the loan is to free up money to pay off higher interest debt, why not take a bit more low cost loan when offered, in the form of interest capitalization?</p>
<p>If you are organized enough to do (3), that's fine. Too many people, take the loan, nibble at it, and then it is just one more loan. Sometimes the old KISS (Keep It Simple, Stupid) concept is the best. Not calling you stupid, Dig, just pointing out a big pitfall. But then I'm the one who refuses to collect the pool of money for a group lunch out cuz I can't hold onto it . If you can organize and segregate your finances the right way, you could benefit. Do remember that if you have the money sitting in an account at the end of the year, it is assessed at 35% if in the student's name, 5.6% if it is in your name, the income earned on it is included in income--all on the FAFSA and in addition, you owe taxes on any income earned. Maybe you can deduct the interest depending on tax situation. It does complicate the situation. The best use of the money is if you have a high interest loan somewhere else that you can use this to pay down.</p>
<p>5a) Keep your job. thankyou. Having a job only leads to a firing.
6) Last 4 years the mathematics in going for a PLUS-Stafford loan has been a pretty easy call. The economics is now a more complicated one going foward. Applicants for any loans must really look at ALL options and what they feel right and comfortable. The problem is does not have a static solution but a very dynamic solution. Again I recommend Roger Dooley's essay on paying for college.
7) When interest is capitalize and you are not paying on the interest; That interest now becomes a compounding interest even though the calculation of the interest is "simple." Interest is a very complicated subject and I've been flamed more than once.</p>
<p>The loan in question here is a very common offer to most students and is paid directly to the school - not to the student or parent - tho is in the students name - and is divided per semester. It is usually offered thru the school - thru their preferred provider. The interest rates on these loans may change - but it would be very improbable that would change very much as they are federal loans. (we have had NO change in 2 years). Excess funds are returned directly to the student - when/if available.</p>
<p>Loans are offered as a result of an answer on the FAFSA when it was done - either by parent or by the student - so tho you did not directly ask for it - you really did - but better to have it offered and not need it than to need it and not have it offered.</p>
<p>Capitalized interest basically means that the interest is accum'd and added to the amount of the loan when repayment starts.</p>
<p>My son has a unsubsidized Stafford. It's in his name, but I'm paying the interest while he's in school. It will make him partly responsible for his education, plus it's money I do not have to lay out.</p>
<blockquote>
<p>I think these kinds of loans are generally a pretty good deal, and can free up a bit of cash to pay off higher interest debt. Of course the U is doing you no favor by offering it, as anyone can get one.<<</p>
</blockquote>
<br>
<p>Is it true that anyone can get one? The info sites indicate that awarding a loan is "need-based" and done through a FAFSA, as opposed to a PLUS loan for the parents. We are full fare payors, and expect to come out of daughter's college with some debt, hopefully less than 1 year's tuition, but we need some help with cashflow management. We have explored home equity credit lines (have an open, not used line now), tuition pre-payment, and just the tuition management schemes - 10 easy payments. Our problem is the bulk of my income comes quarterly, which doesn't quite coincide with tuition billings, and the regular monthly payment plan is too steep for my monthly salary.</p>
<p>Subsidized - you MUST show financial need to qualify - the government pays the interest while in school at least 1/2 time and during the 6 month grace period. It is limited in amount - according to the year the student qualifies for it - goes up each year </p>
<p>Unsubsidized - you do NOT have to show financial need to qualify - you are responsible for the interest while in school - but the loan amount can be deferred while in school. You have a limit with this loan as well - BUT - if a Parent Plus loan is denied - this amount can be raised.</p>
<p>Both types are taken in the students name - pay-back as above - interest rate 2.7% right now.
Parent Plus loan is taken by the parents - pay-back deferred for 6 months - interest rate 5% right now
Extra Education loans are taken by the student with a co-signer - pay-back can be deferred - but interest must be paid during the course of the loan - interest rate 5% right now.</p>
<p>Another thing to look into is the schools PREFERRED PROVIDER - just call fin aid office and ask - if they use one - it makes life a whole lot easier!!! - as most of it is done electronically - apps/funds, etc... If the school does NOT use one - you are on your own - so you will have to do the bank shopping on your own. </p>
<p>For NC - <a href="http://www.cfnc.org%5B/url%5D">www.cfnc.org</a> - is the preferred provider for most of the NC state/univ system - their web site has alot of good explanations on it. If used - one can do apps - get approvals - monitor accounts all on-line - also can make payments directly to them with monthly statement.
They definitely make the fin aid thing go alot smoother and easier than I would have thought - especially being from OOS - and they work together with the school's fin aid office directly - so alot of the running around is minimized.</p>
<p>PLUS loan repayment is not deferred for 6 months. Payment begins within 60 days of the final disbursement for that academic year which most likely would be February or so. Also effective July 1, 2006 the interest rates on PLUS loans will be fixed at 7.9%. More info under the Financial Aid thread.</p>
<p>itstoomuch: I asked this over on your thread on Financial Aid, but perhaps someone will answer here:</p>
<p>I got a bit lost in the subparagraphs.</p>
<p>Does that bill set the new interest rates for those loans after July 1, 2006, or does it set the ceilings for the interest rates of those loans after July 1, 2006?</p>
<p>:confused:</p>
<p>Oh, and dig, the PLUS loans are not the ones that are limited to 2500 and then rise each year. The PLUS loans are in the parents' names and they are limited by the students' total qualifying expenses. Our son attended a tech school that did not provide housing. We took a PLUS loan for the cost of his living expenses, as documented by the school: three times his monthly rent for 15 months. PLUS may be used for tuition, or for COA gaps, or for room/board, etc.</p>
<p>The Stafford Loans are the student loans that allow $2,625 as a frosh, I think 3,500 as a soph and 5,500 for years three and four and a fifth if necessary. For PLUS loans the parents can borrow up to the cost of attending the college that year minus any financial aid and other resources. I guess the only limit on PLUS is the parents creditworthiness and any income to debt ratios the lenders may apply. If the parents credit is poor then the student can borrow some additional $ via the Stafford route but I think it is only about an extra $5K a year, not the high limits of the PLUS loan. I think the 7.9% rate for 2006 is the actual fixed rate and not a ceiling or a floor.</p>