<p>I am currently taking out Federal Stafford Subsidized loans (3500) and Federal Perkins loans (1800).</p>
<p>My parents insist on paying off the loan right away if we have to pay interest on these amounts, but I'm not sure if interest is being paid for or not until i graduate.</p>
<p>For the Perkins loans it says: "The loan interest rate is 5 %. Loan repayment and interest accrual begin nine months after graduation or less than half-time enrollment."</p>
<p>For the Fed. Subsidized Stafford it says: "Interest is paid by the government until six months after you leave school or drop below half-time enrollment status."</p>
<p>Does this mean there is not interest on my loans until six and nine months after i graduate? So i can expect my loan amount to still be a total of 5300 for this year when i graduate?</p>
<p>yes, the govt is paying that interest for you while you are in school and for a few months after on both of those loans.</p>
<p>there is no incentive to pay them off early, imo</p>
<p>if you got an unsubsidized stafford loan as part of your package, that would start to accrue interest you would ultimately have to pay from the beginning</p>
<p>The government will pay the interest on the loans until you graduate, unless you drop to less than 1/2 time enrollment before graduating. So yes, your total amount owed will still be the total amount borrowed until you graduate.</p>
<p>I am not completely sure I understand your question, though - Do you mean your parents want you to take out the loan and then immediately pay it off? So you have funds available now to pay off the loan? As there are fees associated with securing the loan, I would suggest that if you and your parents have funds available to immediately pay off the loans, you should decline the loans and use the funds you have available to avoid those fees.</p>
<p>If your plan is to take the loans and put the money aside in a savings account to pay off the loans at graduation, the savings total will be reported on your FAFSA and you will be expected to contribute part of that (I think it is 20%) EACH year as part of your EFC. That would not be a sensible course of action. You would be much better off to use available cash now and decline the loans.</p>
<p>If you mean that your parents want you to start immediately making payments on the loan that might be difficult because the FAFSA will expect you to contribute part of your income to the EFC, and if you have used your income for early payments, you may come up short. Maybe try to convert some of the Stafford to work/study, but don't exceed about 10 hours/week of work while in school.</p>
<p>Your parents are giving you a good message - avoid and reduce debt whenever possible.</p>
<p>I don't understand either why you are taking the loans if you have the money to pay what the loans are being used to pay. For you to qualify for these loans, you had to have the need. These loans are not offered to everybody or anybody. You do not have to take the loans if you don't need them. As Alamemom says, if you set the money aside somewhere, you will be assessed the 20% of student assets.</p>
<p>in other words, if your parents(or you) have 5300 sitting in the bank that they want to spend now in addition to whatever else they are spending for college, don't take the loan.</p>
<p>But if you need the money and just were curious if it accrues interest while you are in school, the answer is no</p>
<p>does anyone know what the difference is in paying unsubsidized interest while in school for the stafford loan, besides the time you make the payment? like does paying in school or paying it all later cost more?</p>
<p>For others who wonder that same question ... it costs more if you don't pay the interest while in school. If wait to pay off the interest that was due while you were in school, you will pay interest on the interest.</p>
<p>So let me give you guys this scenario. I'll use simple numbers so it's easier.</p>
<p>Let's say my school costs 8 dollars total so each semester I would need to pay 1 dollar.</p>
<p>I can take a loan for 2 dollars each year, and I will take subsequent loans for a total loan of 8 dollars which I will pay after graduation.</p>
<p>Say I have a friend who has 8 dollars for me. Can I take those 8 dollars and put it in the bank and let it accrue interest and then pay the 8 dollars at the end of graduation and then net the total interest?</p>
<p>Yes, but...
Let's make an assumption that you would earn about 3% on your little savings account.
Year one you would have $2 and would earn 6 cents.
Year two you would have $4 and would earn 12 cents.
Year three you would have $6 and would earn 18 cents.
Year four you would have $8 and would earn 24 cents.
For a grand total of 60 cents earned. (Actually a bit more because of compounding, but we are keeping it simple.)</p>
<p>In the meantime...
Remember that the FAFSA will add 20% of students savings to your EFC, and schools will reduce your aid by that amount.
When you fill out your FAFSA for year two, you will have to report your $2 in the bank and they will reduce your aid by 40 cents.
Year three you report $4 and aid is reduced by 80 cents.
Year four you report $6 and aid is reduced by $1.20.
For a grand total of $2.40 lost in aid because of your savings account.</p>
<p>So you would lose a net of $1.80 by putting your loan proceeds in the bank.</p>
<p>Gotcha. Makes sense when you put it that way.</p>
<p>So in such a situation, it'd be more complicated, but would it be better to just leave the money with someone else (who does not go on my FAFSA) and have them save it in their name?</p>
<p>Wouldn't trust someone with the money. Plus that is fraud to be hiding your money that way when you are filling out FAFSA. Why on earth would you be hoarding school loan money anyways?</p>
<p>I agree with cptofthehouse. If you have funds available, it is best to decline the loan and use the funds. With tuition increases (your $2 tuition year one is likely to become $2.50 by year four, and your hidden money will come up short), inflation, low interest rates, possible loan fees and the temptation to spend the money as you go, I feel confident saying your plot to make a profit using your financial aid funds would result in a net loss. Even worse, if the fraud is discovered, you risk losing all of your financial aid.</p>
<p>Alright. I guess I might just run something shorter term.</p>
<p>Then instead for the all 4 years, I could just use one of the payment plans, and then put that money in the bank, and gather interest month by month. Or would I get bit in the ass for htat as well?</p>
<p>The payment plans generally have a set-up fee that would wipe out any interest you might earn. The money in the bank would be counted on your FAFSA and would reduce any aid you are eligible for.</p>
<p>You should not "run" anything - short or long term.</p>
<p>You do a budget and figure out how much you actually need for a particular semester, and only take out loans you actually need at that time. Trying to "run" a scam to make a profit on financial aid is - at best - immoral and at worst illegal. The good news is that the ideas you have presented so far will all end up costing you money, so I guess that would be a type of justice.</p>
<p>It's like a 50 dollar signup fee which would not wipe out any interest that I may earn.</p>
<p>And to make a little interest is far from immoral. Rather it's managing money to make it work for me. For it to be immoral, I'd be making a gigantic "profit" at the expense of someone else. Besides the Stafford loan, all the interest begins to accumulate after graduation. </p>
<p>The only problem I see is the FAFSA bit. How are loans reported on your fafsa?</p>
<p>Gee, I'm sorry Jimmy! I see now that you are a financial wizard who is sure to make a fortune by investing your loan proceeds and I wouldn't insult you by offering my useless advice. I am sure you know far more about the FAFSA and the big, wide world of finance than I ever will. I am humbled.</p>
<p>If I take a loan for say 1000 dollars. Can I not pay that 1000 now and put that in the bank instead? Not even to earn interest, but to even use that as some spending money.</p>