<p>So I've had some ideas on what do with my excess loans ... I could pay the previous year's loans back! Especially with the unsubsidized loans (I've deferred interest payments, so my accumulated interest currently stands at $95). </p>
<p>But I figure, what if in fact, I just borrow say, the 5500 in Stafford subsidized loans I have this year, use them to pay off the previous year's subsidized loans (Perkins and Stafford) too? If things go my way, I won't ever have to take out an unsubsidized loan ever again.</p>
<p>According to Student</a> Aid on the Web, the post-graduation interest rate will fall for subsidized loans made after each successive year, right up to my graduation. So each year, can I just replace last year's loans with this year's loans?</p>
<p>Right now I only have an outstanding balance of $1850 this semester, and with an incoming scholarship of $1,000/semester, and about $4,000 worth of loans this semester, I figure there's a way to put the other $3,000 to good use this way? But I wonder if I can keep repeating this each year.</p>
<p>I use loans this way, I figure I could:
* Make all my outstanding loans have an interest rate of 3.4% after graduation?
* Not ever accumulate any interest while in school
* Have the loans apply to my loan cap, and thus hit it earlier
* Make it seem that I'm borrowing way more than the debt I'm really getting into, thereby increasing my credit score?</p>
<p>The thing is, loans apply to my loan cap. After I hit the loan cap, all of my financial need becomes grants.</p>
<p>Also, I figure if I’m using I’m borrowing say 6500 dollars to pay off 6500 dollars of last year’s debt, then next year I use 6500 more dollars to pay off the new debt, etc. I will only be 8000 dollars in debt when I graduate, all at a lower interest rate (3.4%) even if I borrowed 21000 dollars. (My loan cap is 22k.)</p>
<p>I mean, if I don’t pay off last year’s debts with new loans, then those last year’s loans will accrue 6.8% interest upon graduation, right? But if I pay off past debts with new debts (just strictly in the context of student loans) without paying any interest, then I will reduce the interest that I will have to pay when I get out to 3.4%?</p>
<p>The thing that concerns me most is the origination fee. I note that the guarantor can waive the default fee (the origination fee becomes 0.5% this year and 0% next year), although some website tells me my guarantor is some federal organisation, so if I was going to be 8000 dollars in debt anyway, would reducing the interest rate from 5.6% (and 5% for Perkins) to 3.4% on that 8k dollars be worth the default or origination fees I would have to pay for 13k worth of loans??</p>
<p>As I understand it, you want to run up the loans NOW so that you get to the loan cap sooner.</p>
<p>BUT are you so very certain that with your given situation you will actually end up with total loans that reach the loan cap at your present rate? Do you really want to owe the maximum amount any earlier than you have to? And, what are you going to do if you deliberately run up your loan amounts and then your college changes its policy?</p>
<p>Don’t take any more loans than you absolutely have to, and try to NOT reach that cap before you graduate if you can avoid it.</p>
<p>Most certainly, by my 7th semester. (Unless I’m graduating early … I don’t think I am, but it’s always an option if some lucrative job offer comes my way 3rd year.) </p>
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<p>Well I don’t think I would “owe” the maximum amount in the sense that I use current loans to pay past debts. So the past debts would be gone, and current debts would be incurred. So if I took the 5500 subsidised this year, I really wouldn’t be racking up 5500 more in debt, since that 5500 would be going to pay previous loans (especially unsubsidised stafford).</p>
<p>Are you a junior or senior this year? Otherwise, I don’t think you actually have $5500 in subsidized Staffords available - the cap is $3500 freshman, $4500 sophomore, $5500 junior/senior. Anyway, your plan to pay off unsub Staffords with subsidized loans now does make sense and I would do it. If you have additional subsidized money available in future years it may make sense to swap the current 5.6% subsidized rate for the lower rates available in the following two years. You would lose your small loan origination fee.</p>
<p>What I don’t understand is how you have an “unused” $3K in subsidized loans if you still have an outstanding balance of $1850 and you already have $4K in loans for this semester. At the end of it all, just make sure you are not borrowing more than you actually need to.</p>
<p>Well I currently have 81 credits (but 43 of those are AP/dual-enrollment credits – I’m a 2nd year). Maybe the government <em>really</em> thinks I’m a third year. That must be how I lost my $1300 ACG wahhhhh. =( ) </p>
<p>I’m also Pell Grant eligible ($3800 + $600 supplementary), so I don’t know if that makes a difference.</p>
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<p>My outstanding balance is $1859 without any loans.
A $1,000/semester scholarship reduces that to $859.</p>
<p>I have only taken out Perkins (I intend to accept all of it) this year. That’s $500/semester, so that reduces my final amount to $359.</p>
<p>I intend to pay the rest using subsidized Stafford, so if I take the whole $2750/semester, I’d have $2391. This semester, I could pay off the 2000 unsubsidized Stafford debt I currently have, plus 95 dollars interest, leaving me with $296… which I could keep in my bank account (will this hurt EFC – I’m just leaving a buffer for next semester, and for travelling back home), or apply it to my other loans. </p>
<p>The fees, if I accept the Subsidized stafford, would be $41.50…</p>
<p>Of course, next semester, I prolly won’t have any unsubsidized debt. I’d have $500 Perkins and $2750 Stafford that I <em>could</em> use next semester. Right now I have 3500 subsidized stafford and 2500 Perkins (not counting this year’s Perkins) that I could apply extra loans to. Do you know if Perkins’ interest rate will change to match Stafford’s?</p>
<p>No, proceeds from financial aid are not reportable assets for FAFSA so it won’t affect your EFC at all.</p>
<p>I see what you’re saying, I was confused about the timing and the outstanding amount. I haven’t heard anything about Perkins rates changing, so not likely for this year. I would keep the $296 for books/expenses and, if you don’t need the subsidized Stafford next semester, don’t take it just to replace an earlier subsidized loan if you anticipate having excess funds again later. Wait til the following year and replace it with a lower interest rate loan.</p>
<p>Paying off your unsubsidized loans with your subsidized loans is a variant on what’s called ‘targeted repayment’. </p>
<p>‘Targeted repayment’ refers to the practice of targeting your highest-interest loan and paying it off first so it has less time to accrue interest. The classic targeted repayment scenario is a student who graduates with a combination of loans that have different interest rates. Ideally, this student would apply to get all of their loans deferred (usually on the basis of economic hardship) except the highest-interest loan, and would then use all their available income to pay off that loan as quickly as possible. Once that was done, they’d get the next-highest-interest-rate loan out of deferment and start making payments on that one.</p>
<p>What you’re talking about, instead, is using funds from a loan that’s not accumulating interest, to pay off a loan that is accumulating interest. That’s not a bad idea, as long as you expect to have some other resources in the future that you can use to eventually get yourself out of debt. If the loans you’ve taken to pay off other loans, start accumulating interest of their own, you haven’t really solved anything.</p>
<p>Sounds good, and then stop playing with loans. I think you suggested investing in equities above. Very bad idea. As a Pell Grant recipient, it sounds like you don’t have parents to bail you out. Keep the loans low and wait until you make some real money to play the market. Look around at all that lost their shirts last year–it looks a lot easier than it is to time it right.</p>