<p>I'd like to hear some opinions from some more experienced parents on subsidized loans. My D received some subsidized loans and I don't know that she'll need them this year. I've read it's a good idea to take them and put the money into a CD and let it earn interest and then pay it back when it's due. Have any of you done this and what are your thoughts? I'm neurotic about debt and am trying to teach my D the same thing.</p>
<p>I haven't heard of anyone who qualified for a subsidized loan, not actually needing the money to pay tuition and expenses.</p>
<p>I suppose you could take advantage of it in that way- but Stafford loans go directly to the school- so you would just be investing your own money in teh CD or whatever you choose.</p>
<p>From a financial point of view I think it is a good idea. Say she received $3000 in subsidized loans. If she invests $3000 in a CD for 4 years at 5% (yeah good luck finding 5% after the recent rate cuts) then she will make @ $480 over 4 years (not allowing for compounding). Also if next year she does not get a subsidized loan she would have that money in hand to use for school expenses. Just make sure it is invested - not frittered.</p>
<p>Remember, the subsidized loan does not accrue interest while still in school and there is no pre-payment penalty. So even if you have the $$, save it and have your student take the loan. Pay it off in full after graduation; you keep the investment interest and your student is on his/her way to a fine credit rating.</p>
<p>^That's our plan. Yes, we did qualify for subsidized the last two years, and could've paid it out of savings (which were reported to school.) We had S take the loan, we'll pay it back before interest begins. I hadn't thought about his credit rating--cool!</p>
<p>One thing to consider is that next time you report FAFSA, you will have to include your assets such as CD's and Savings Account that accumulate interest that might affect your EFC and it will be taxed.</p>
<p>Can they go back and change a loan agreement from the previous year? We had daughter take subsidized loan last year (in fact there were 2 loans). This year we will not qualify for FAFSA at all. Will those loans immediately be due or will they convert to unsubsidized?</p>
<p>No - they will stay in place as subsidized until she graduate/quits plus the grace period.</p>
<p>Thanks for that info, swimcatsmom.</p>
<p>Wouldn't the amount invested appear as an asset each year and be assessed at the 5.6% rate towards the parental contribution? Or if it is the student's money, be assessed at a higher rate? Am I missing something?</p>
<p>How do you get a subsidized loan when you don't need it? I thought those were only awarded based on need?</p>
<p>They are based on need as calculated by FAFSA taking income and assets into account. For instance someone with low income and low assets might still have some assets that fall below the protected asset limit. In that case they may qualify for subsidised loans. Though they may still be willing to tap into those limited assets but FAFSA looks at the overall financial picture and says they qualify for a subsidised loan. ie they do not expect you to spen every penny you have the first year (though sometimes it may feel like it).</p>
<p>Thanks, scm.</p>