<p>Ds, an incoming freshman, has a financial aid package that includes grants, scholarships, work study, Perkins Loan, and subsidized and unsubsidized Stafford loans.</p>
<p>Is it better to take the loans in the early years? I don't anticipate a big change in income for next year, but there's not guarantee of his future years' packages. </p>
<p>We could also afford to not take any loans his freshman year and pay cash for the balance. But I doubt we can do this for 4 years.</p>
<p>Taking subsidized loan now is the obvious thing that you can do that would be advantageous overall. No interest will be accrued while he is in school full time and could be extended if he goes to grad school. If you don’t need to money later on when he graduates, you can always pay it back without penalty. And if you actually need the money later on, having federal loan generally gives you better repayment options vs private loan.</p>
<p>Thanks, ttparent. I was a bit concerned that taking the loan out earlier and not spending savings would lead to an increase in assets for us in aid calculations for sophomore year. It would be about $7000. But I don’t think that will make that much of a difference. Our income won’t be increasing much if at all. We’re hoping ds won’t have to borrow more than $10,000 total for the 4 years. I guess it’s better to have most of that in hand if it’s subsidized?</p>
<p>Perkins loans are scheduled to end. So,yes, take the subsidized loans. If you are concerned about taking out the loan and not spending it, put it in a separate account and don’t put anything else in there other than financial aid money, so that you have an easy paper trail that it is financial aid so you do not have to report it as assets. That can be very important as assets in a student’s name/ssn on the day the FAFSA is filed are hit up 20% directly towards the EFC. No asset exclusion allowance for students as there are for parents, and parents get a 5.6% hit on the amount over the exclusion. Big difference. In fact, to avoid any problems, I would make that a joint account with the parents name/ssn first so that if there is some misunderstanding, the initial impact would be smaller than if it were to be hit up as student’s assets.</p>
<p>And absolutely, it’s better to have it in hand, as we don’t know what future changes will be happening with these loans and what the availability will be, particularly subsidized ones. The interest rate for them may double this year once the subsidy period is up. ALso there are loan fees, not big ones, but they are there. You can even maybe get a tiny bit of interest on these funds. Better the bird in hand. Also, these loan limits are by year and not retroactive so if you need more money for any reason in future years, that you did not use your allotment in earlier years does not allow you to borrow more.</p>
<p>This is the very thing I’ve been thinking about recently. I’ve been considering the strategy of taking the subsidized loans and hanging on to the funds for “just in case” purposes and paying it off before the interest starts accumulating if it was not needed. </p>
<p>My only concern was whether these funds counted as assets that needed to be reported on the FAFSA. So as long as I keep a paper trail showing the money in the account is financial aid/loan money, my DD does not have to report it as assets?</p>
<p>There really isn’t any need for an official paper trail. Kid borrows Perkins, and applies it to expenses for the year. You get to keep that amount of money in your own accounts which are assessed at the parent rate for FAFSA, rather than at the student rate. Wash, rinse, repeat. If at the end of X years, it turns out that the Perkins value was never spend down, it can be applied to the student loans that are outstanding.</p>
<p>Yes, save some of your current savings to be used for each year of college. The amount of subsidized federal loans is strictly limited by year - if you don’t use your allotment freshman year, you can’t take out more loans later. Also, no one knows what will happen to interest rates - it is extremely political, and Congress can’t agree on anything. If Congress does not act, new subsidized Stafford loans will double to 6.8% for loans issued after around July 2013. Each year, they will go through that political fight. </p>
<p>If you take out loans each year, you can hopefully then pay off the loans with the highest rates before the interest starts to be levied after graduation.</p>
<p>This is very different from unsubsidized Staffords, which should be only be taken out if absolutely needed. Although you don’t get billed for the interest rate while in college with an unsubsidized Stafford, the interest IS accruing while you are in school. Even if you pay off an unsubsidized Stafford before you graduate, you will still owe a chunk of change (plus loan fees).</p>
<p>Also, keep in mind that many students don’t graduate within 4 years, so you don’t want to plan your spending too tightly. Using subsidized Staffords, even if you don’t desperately need to use them, provides some margin of safety in your finances.</p>