<p>My parents have heard two things from two different people regarding loans.
1. Take out as least loans as possible. The interest will add up and you will end up paying much more.
2. Taking no loans will affect your FAFSA for next year, as it will seem like you have enough money for college. You should accept all the loans offered, or a majority of the loans, as it will make you look poor, thus in the end getting more financial aid for next year.</p>
<p>I'm leaning towards taking out as least loans as possible, and just wondering if what person #2 said is a complete lie?</p>
<p>I'm also wondering if I do accept loans, which one is better, the Federal Direct Unsubsidizd loan, or parent (PLUS) loan?</p>
<p>Any help would be greatly appreciated. Thank you.</p>
<p>Seeming to have or not have money is not how FAFSA works. You EFC is determined based upon the assets and income of the parents and student with allowances for both based upon various factors. Taking out a loan is not one of the factors.</p>
<p>FAFSA’s formula determines your contributions for assets and income separately and adds them together to come up with your EFC. If your assets are high enough to warrant a contribution, then using assets to pay for college could lower your EFC the following year. Trying using an EFC calculator with 2 or 3 what-if scenarios varying only the amount of assets and see what happens to your EFC.</p>
<p>Of course subsidized loans are best if that is an option. </p>
<p>Unsubsidized direct loan is a student loan in the student’s name. The interest rate is 6.8%. Plus loan is a parent loan in the parent’s name. The interest rate is higher - 8.5%. Neither the unsub or the PLUS are need based loans.</p>
<p>What person 2 said is nonsense. Aid is recalculated every year based on your financial situation for that year. You are not penalized for not taking out loans even if they are need based, which the 2 you mention are not.</p>
<p>I just hung up with D’s financial aid officer because I had a question similar to this one. She told me that if you are asking for a review or receive need based aid it does raise a question to a reviewing committee why a student isn’t taking out a federal need based loan. It appears that the student must not really need it. Now of course there are situations where a student my have a private loan, family loan, home equity loan or line of credit etc which does not get listed on a fafsa app. This ofcourse explains why a kid isn’t taking other loans from the school. Last year I called the school’s loan officer (diff dept) and she said don’t borrow more than you need which I agree with. But this year and this phone call makes me wonder what to do. If a student is asking for need based aid or a review I can’t imagine someone isn’t wondering why isn’t the kid taking out a federal subsidized loan. A parent loan or an unsubsidized loan is a different story. So, just sharing Swimcatsmom. You are the financial aid goddess to me on this board!!</p>
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<p>I can completely see questions would be raise if someone asking for a review of a current aid offer is not accepting federal subsidized loans for the current year (I have read questions on CC where people think if they turn down a federal loan they may get more grant money - I wish it worked that way!!). I would not expect a student to be penalized with less aid in a subsequent year though.</p>
<p>We did have a similar concern my daughter’s first year when it came to Work Study. My daughter already had an outside job related to her career plans (at a veterinary clinic where she quickly learned she did not want to be a vet) so did not expect to use all her WS award. We were concerned she would not be offered it again in the future if she turned it down or accepted it but did not use it. We talked to the financial aid officer and they said this was not the case and asked that she did turn it down if she did not plan to use it as they could then re award it to someone else. She did so. Last year she did receive (and earn) the full award again. She did not get WS for next year as she gets the SMART grant as a junior. </p>
<p>From what I understand there is set matrix they follow based on EFC. I think, from what one of the financial aid officers said, that at bigger schools it is often a computer program (at the small CC where I am taking classes it is all manual - I actually sat there while the financial aid officer worked mine out for the summer classes I am taking). I don’t think the procedure generally includes ‘oh they didn’t accept loans last year so we won’t offer them this year’. Not accepting any loans in the current year and hoping for grants to replace them is a little overly optimistic I would think. Though I am more familiar with schools that do not have their own funding for grant aid so are limited to federal and State aid which has very defined limits.</p>
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Thanks - never been called a goddess (of any sort) before ;). In all honesty the real Goddesses are kelsmom and Nikkil, our resident real life financial aid officers, who amaze me by taking the time during their busiest season to come and answer questions on CC.</p>
<p>I have never heard of anyone being penalized for NOT taking out a loan through the school. That is not to say that it may not happen, and I would like to hear from Kelsmom and Nikkil if that is even a possibility. </p>
<p>Basically, everyone is entitles to the unsubsidized Stafford and the PLUS if they meet the requirements which involve making it past the FAFSA clearing house and for the PLUS, making the minimum credit worthiness, and if other awards do not exceed the COA. You do not even have to demonstrate financial need.</p>
<p>The unsubsidized Stafford is better than the PLUS because the interest rate is lower. Also the Stafford is one of the few loans students can get without a credit history and without a co signer. It is truly a student loan as opposed to most other loans that will require someone credit worthy and income verified to cosign. </p>
<p>You should take out the loans if any other source of money is more expensive than the loans offered, or you need to keep them earmarked. For instance, you may be depending on home equity loans for some things looming in the future. You don’t want to dry up that well making college payments because you cannot then turn around and tap the school loan sources if your kid is not in school. On the other hand, if you feel that the home equity is there for such purposes, the interest rate may be lower than the PLUS or Stafford numbers and it would be a good decision to borrow from there.</p>
<p>I believe the point of the phone call with our FA was that if you qualify for a need based subsidized loan and turn it down and they review need based aid each year it may stick out as a flag next year during a review if it wasn’t taken with regards to how much need based aid they will award in the form of grants not loans. It wouldn’t affect next years loans if the student qualifies. This was from a small LAC that seems to know each student and family’s situation pretty well just from my experience with them. A bigger university might not have the time or resources to look at each situation that closely.</p>
<p>If the school is a small one, and they know each student so well, you might want to tell them why you are not taking a loan. I’ve not known a school that will replace a loan with a grant simply because you will not take the loan to meet need. You can tell them you are eating beans and rice every day and gluing your shoe soles to keep them together so that you don’t have any debts since you are not going to have the money to pay them back, or help your student get a start on life after school, or with his loans in the future. That you would rather use the exempted assets to pay for college than to add debt to your student.</p>
<p>Unless it is against your religion (Muslims don’t borrow, do they?) I don’t see why you would not have your child take the subsidized Stafford loan. No interest accumulates while the student is in school. If you take the money and invest it, making sure you don’t fall off a financial aid cliff where you are suddenly disqualified for that marginal increase, or put it in an IRA or towards your mortgage or something.</p>
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<p>I presume you are discussion SUBSIDIZED loans where the Governement pays the interest while the child is in school. In that instance, take out the loan. Even if you put the money into a savings account. When the kid graduates, then you payoff the loans from the savings account. All you are out is the origination fee, which is hopefully made up with the interest earings on the savings account.</p>
<p>If you don’t take out the loan, it could raise the question of whether you really needed the money in the first place. Even if you are drawing down on savings (rather than taking out the loan), better to keep the savings and use it in future years if future aid is reduced.</p>