I want to make sure we are understaning this correctly. Kiddo is wrapping up 1st semester freshman year of college.
He has a subsidied loan, a perkins loan, and an unsubsidized loan for Fall. He also works 8 hours/week work study and puts it all towards his account. The plan is to use the credit from his work study to turn back the unsubsidized loan next week so that it doesn’t accrue the interest. Then take out the same 3 loans for Spring, work, and turn back the unsubsidized loan at the end of the semster provided he is able to complete his work study all semester (he should be able to). If for some reason he couldn’t continue the work study then the loan would be there to cover the amount.
The goal for school is to come out with less than $20k in loans - all subsidized so they don’t accrue interest until graduation.
Are we understanding the process correctly?
He can cancel his loan within 120 days of disbursement & the interest/origination fee will be removed. The loan has to be returned in that window, though, for that to happen. Depending on when the loan was disbursed, he may be able to have the school return it for him - otherwise, he will have to do it himself, but he needs to make sure he communicates properly with the lender so the loan is properly canceled.
You can also pay the interest now so it doesn’t accrue. My son is doing that. Small payments but it will make a difference.
I would not play the game of taking the loan, returning it, and taking it again every semester. It is probably only $1000. If he needs that as a cushion, just keep the first semester’s cushion and pay it off next May. He’d have the $10 origination fee, and then about $20 in interest. If you keep playing the game, you are going to miss that 120 day window at some point. When is 120 from Jan 3 (if that is when the next loan is disbursed? Is he going to be ready to pay it on May 2?
Unless he’s really bad with money, I wouldn’t have him turn back the very first loan - have him build a small emergency fund. He can turn down the next term’s loan once there’s a little money in the bank.