<p>Would it make sense to pay off unsubsidized undergraduate loan by taking out subsidized graduate school loans? I am assuming that the grad loan I am being offered would be in excess of what I would need, since I am getting a full ride. Any thoughts?</p>
<p>borrowing from paul to pay peter is not good, especially if paul finds out</p>
<p>How exactly is Paul going to find out? And why would Paul care? It seems like a reasonable thing to do, in my opinion. Maybe you could look at loan terms to see if that’s in violation.</p>
<p>why not just defer your undergrad loans while you’re in grad school? so much easier…</p>
<p>I don’t think you have to pay on them until you are out of school, but doesn’t the government send the money to the school?</p>
<p>If the loans are unsubsidized then deferral will cost the OP more money in the long run. While using a grad loan to pay off past loans isn’t ideal, it may work in this case if it’s the only option.</p>
<p>Wouldn’t the grad loan be disbursed directly to the graduate educational institution anyway? If that’s the case, and I’m pretty sure that it is, how is the OP going to use the grad loan to pay off the undergrad loan? Also, I think there is going to be language in the grad loan promissory note that says that the loan proceeds must be used for the educational program for which the funds are being borrowed. Using them for another purpose, including paying off another educational loan, is going to constitute a default of the promissory note which could cause the lender to accelerate the grad loan and demand repayment of the entire outstanding balance immediately. In short, I think that the OP’s proposal is not the way to go.</p>
<p>I was thinking the same thing, they try to make sure the student can’t use the money for other things, re taking a vacation, etc. They usually send the money to the institution and you never see it. I never heard of federal loans being put on past federal loans, but that would be interesting if it was viable.</p>
<p>Stafford loans are disbursed to the institution, as a hedge to ensure that funds go first to direct educational expenses. However, excess loan monies are released to the student after it has been verified that all tuition and fees have been paid - usually a few weeks into the semester.</p>
<p>There is a statement in the Stafford agreement that says the loans can only be used for educational purposes, but this includes living expenses because education often prevents employment. In the end, once the money is distributed there really is no means for the government to verify that there was any educational purpose behind expenditures.</p>
<p>Regardless, I do not think there would be any major issue with using a grad loan to pay off an undergrad loan. Just remember that your total limits are dependent on the disbursed amout, not the balance, so if you find yourself in need of that $20k later on it will not be there.</p>
<p>One thing to consider is that Graduate Student loans (if you get PLUS loans) are set at that 8.5% Interest rate…which is a lot higher than Undergrad Student loans which currently are set at 6.5-6.8%. Obviously, you don’t want to simply “switch” over to the graduate interest rate which is higher…it’d be smarter to just keep the undergrad loans on deferral while in grad school and if possible pay portions of the interest that accrues on the unsubsidized ones (if possible) if you’re trying to avoid getting raped on interest. If you did pay your undergrad loan with a grad loan, you’d hope that you’re doing it at a lower (private loan) interest rate…which would then be variable and there is the chance that it will go up from whatever you had that was lower than 8.5% to something much higher like 11%. </p>
<p>I suggest getting as many subsidized loans as possible (and keeping them on deferment as long as possible until you get a well paying job) and if you can somehow get someone to help you pay the interest monthly on the unsubsidized ones do that as well. I wouldn’t go for the variable interest rate private loans…that’s like asking for a sudden and surprising interest rate hike. Then, I am going to try to pay at least $2,000 per month when I get a good job to avoid ridiculous amounts of interest accrual and try to get it paid off in 3-4-5 years if possible. </p>
<p>I hope this helps a bit!</p>
<p>RamblingMan</p>
<p>This depends on two issues-
- Can you get a lower interest rate on your graduate student loans
- How much are the distribution fees on the graduate student loans</p>
<p>IMHO, this seems unnecessary but if you can make it work financially, more power to you.</p>