Keep the loan or invest?

Paying for College
1

Hello all, I will be attending Northeastern University next year majoring in Physics!

Let me first explain my general ideas about my future. Right now, I am stuck between being an engineer/physicist and a medical doctor. While these two fields seem rather different, I think they have a lot in common and I can see myself as either one right now, with medical doctor being what I think I should do and engineering something I would thoroughly enjoy doing (I would also enjoy being a doctor, but it is a much tougher journey + career obviously).

As you may or may not know, Northeastern has quite a special program where students go on 1 - 3 six month experiences called Co-ops. These experiences are generally paid positions at companies or internships. For example, engineers will work at Raytheon, Merck, General Electric, Google (very competitive, ridiculously high pay) etc. I am looking to do either 4 or 5 years at Northeastern, 4 years being 2 coops and no vacation (but few summer classes). During those semesters of co-op, YOU DON’T PAY TUITION AT ALL, and you make money at most experiences. So, this money can be used to help pay for school if one is prudent with their money.

Right now, I am scheduled to take out all $5500 of student loans, and have close to zero out of pocket cost (something like $500 after deposit maybe?). I will have around $3400 at the end of the summer to start off the year which includes $1000 scholarship which I may or may not have to report.

SO, I can take away the unsubsidized loan which is $2000, and so $3400 - $2000 = $1400 for my pocket (or to save in a CD or Roth IRA or something). Then, I have $2200 work-study money which I will be earning during the year. Also, in January when I get my W2, I will get back something like $800 in tax refunds (my gross pay for the summer will be $4000).

Or I can keep the loan and take out the work-study, and save the money for after college. The benefit to this would be that I can spend less time working in work-study and more time studying, in clubs and activities etc. I have a pretty packed schedule with Physics, Chemistry, Calc 3 and English Writing, along with some clubs I am sure I will join. Also, I will have plenty of material for my resume by the time I graduate with Co-ops and all that.

Would you get rid of the loan and enjoy college a bit more fully or take the work study and remove the loan? Such a hard question for me !!!

2

Please explain… what determines whether or not you have to report a $1k outside scholarship?

3

Take the work study and reduce the loan. If you need to take the loan during the year because the work study isn’t working for you, you will still have that option. Remember that only half of the loans/FA will be there in August. The rest will be available in Jan. Work Study will also be cut in half, so only $1100 for the fall.

You do have to report the $1000 scholarship. It may not change your FA at all, but you have to report it to the school. Just do it.

4

If you don’t have to take out loans…don’t take out loans.

5

An IRA is for long-term investing. Not short-term savings. You would be heavily penalized if you put a loan into an IRA only to withdraw it a few years later to pay the loan. It makes no sense.

Take the work study and do co-ops. Earn more and get experience. That’s what’s valuable in this economy, no matter what field you’re in: having experience. People say you can’t work a lot while in a hard major, but that depends on a lot of variables. If your prior education is strong, and your time management skills are strong, you can probably handle it (even at the toughest schools). I’m in my notoriously hard university’s notoriously hard computer engineering program, and I work 25 hours a week. I far exceed all my scholarships’ GPA requirements. It’s totally possible if you have the right stuff going for you.

6

@CourtneyThurston thank you for these words, they are very motivational. I know what a tough schedule is like; high school my junior year was just hell. Leave the house 6:30 am, in school from 8:15 - 2:35, sleep/homework from 3 - 6, work 6 - 12 am, wash rinse repeat. I just don’t want college to be like that, but I realize it will be very different.

@thumper1 yes that is where I was originally leaning.

7

Do you mean that your entire COA is covered by your contribution of $5500 loan and $500?
Even books, transportation, etc?

Are you sure that your current health insurance is sufficient?

Also if you get outside scholarships you need to report them to the school. Especially if you get financial aid, since it is need based. The outside scholarship would reduce your need.

If you do get a few hundred back a semester from a loan (subsidized is best), keep it in a separate account from work earnings and tax refund. Money from financial aid does not count against FAFSA EFC.

Also keep in mind that you may owe taxes next year because any scholarships or grants that exceed tuition, fees and books are taxable and need to be reported on your tax return.

8

@mommdc health care is all set, I checked with my parents.

No, the COA is not covered by the loan and $500. That covers the direct costs. I do not factor in books etc because it is a variable amount. For example, I do not need to buy a laptop. Also, I will buy all my books used, which reduces the cost. I do have to save around $600 for transportation passes on the MBTA which I will use extensively.

I do not know what you mine by “If you do get a few hundred back a semester from a loan (subsidized is best), keep it in a separate account from work earnings and tax refund. Money from financial aid does not count against FAFSA EFC.” Can you explain this? Does this mean I should use my leftover money towards a loan or what?

I just want to be clear; will the scholarship work towards work-study and loans and NOT grant money?

9

You will need to ask the school. To make sure you can waive their health insurance and if the scholarship will reduce the loan or work study or grants.

I meant if all direct costs are covered with a loan and there is an overage they will refund you that money.
It’s smart to keep it separate from your other savings since it is a federal student loan refund. It will not have to be included in asset balance for FAFSA.

Your money saved from work will have to be reported as an asset if it’s not spent before you file FAFSA.

10

@mommdc Got it.

Should I tell them directly that I want to cancel the loan with incoming summer job money?

11

There should be a box on your school portal to accept or reject loans.

It is nice to plan to buy used books, but if you are in science, math, foreign language and a few other classes, you should be aware that a lot of courses require you to buy a code for online work. You can’t buy these used. They are very expensive.

12

@twoinanddone okay, that is useful, I will keep this in mind.

Through extensive calculations with spreadsheet software, assuming $1000 for books and $500 for laptop, I will start off the year with $1800 and then add $2100 throughout the year with workstudy. With just $200 more I could cancel the whole loan. Is this a solid course?

13

You could take the Stafford loan or a portion of the loan and then pay it back if you end up not needing it. My son attends Northeastern as well (congratulations!) and with his coop earnings has paid off several loans while a student. His skin in the game for college is the equivalent of the Stafford loans but he will graduate debt free due to coop.
Additionally, as my son did his first year, you can decline it for fall semester and then use it for your summer semester instead. Summer term is considered part of the school year and you won’t get another semester’s worth of Stafford loan. The $5500 has to stretch over the three semesters.
Personally, I’d take work study (Boston is a very fun city for students and it’s nice to have spending money) and pare back the hours if it is too much. Talk to your financial aid counselor at NU and discuss your options, including taking just a small amount of your Stafford for fall and keeping the remainder for spring and potentially summer. They are really helpful.

14

@premstudent

Do you know that you can take the Direct Loan later in the school year if you need it?

15

Let’s say that your final direct cost after all aid is $6,000.

Then add the work study amount since that money is not earned yet. $2,200

That’s $8,600 right?

So then if they are not reducing your grants by the $1,000 you only have to pay $7,600

If you take the $3,500 sub loan you would still owe $4,100

$2,050 for each semester

Then you need $600 for transit pass.

My D rented her Bio book from Amazon for two semesters, plus paid for access code, bought the chem book, lab manual, goggles, bought a german book and workbook, that was about $700.

So the book money and transportation money you will need ahead of time.

If you earn $4,000 in the summer. About $2,000 for first semester bill plus about $1,500 for books and transit pass, that’s $3,500. So you would only have $500 left.

You might need some things for your dorm, notebooks, pens, snack foods, some spending money.

Then when you are on campus and start your work study job you will earn about $73 a week ($2,200/30 weeks).

You can use that as spending money for laundry, occasional meal out with friends, etc and save the rest towards second semester. But you know second semester will also cost about $2,000 so since you only earn $1,100 during first semester and might need to spend some of that and might need books for second semester, you might come up short.

So you could take out additional loan money for second semester if you need to.

16

^sorry my math was incorrect. $6000 + $2200 = $8200

17

^I just realized that you are commuting from home?

So you probably won’t need to budget laundry money.

18

Yes that is correct, at least for the first year.

19

So, I have run some calculations on books:

All my books for the first semester BRAND NEW from the Northeastern Bookstore would run me at $700. Multiply that by two and I see where people get the $1200-$1400 figure for college expenses on books. However, all the books used (very good condition from Amazon) will run me at around $259.72, multiplied by two gets me to a minimum of $519.44 for books. In essence, it all depends on how frugal/smart with money you want to be.

Put in $500 for a laptop (this is the maximum I am willing to spend on eBay) and I come out to almost exactly $2000 conveniently enough to cancel the loan. I will discuss with my parents to see what they think. And then work-study will of course give me a steady income of around $60 a week which will be good I think.

20

Some of your books (chem? math?) might be good for 2 semesters. My daughter spent about $700 her first semester but about $200 her second, and even less as a sophomore and figured out ways to get the materials for free or at least at a discount.

You should be able to get a new laptop for $500 at Costco or bestbuy or Amazon.