Can you pay back loans while still in school?

[Sean2tall]

Hey. . sorry if this has been answered, but I am a trying work out some sort of budget (Excel-spreadsheet masta) . Yikes. . .

So say that I borrow the max. Stafford amount for medical school, even though I will have other sources of money and hope to not use it all. I have heard that at the end of the year, people will often "pay back" whatever surplus they have leftover. So basically you are just giving back the loans that you didn't use, right? (Minus the interest you will have to pay for the 1 year you had them.) So if this is perfectly cool, can you also give back some loans mid-year to avoid accumulating interest on money you will never use? Basically I am trying to work out a way to have some emergency money, but without paying a lot of interest for no good reason.

Or do you guys recommend that I just keep it all year and pay the interest?

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[flighterdoc]

Hey. . sorry if this has been answered, but I am a trying work out some sort of budget (Excel-spreadsheet masta) . Yikes. . .

So say that I borrow the max. Stafford amount for medical school, even though I will have other sources of money and hope to not use it all. I have heard that at the end of the year, people will often "pay back" whatever surplus they have leftover. So basically you are just giving back the loans that you didn't use, right? (Minus the interest you will have to pay for the 1 year you had them.) So if this is perfectly cool, can you also give back some loans mid-year to avoid accumulating interest on money you will never use? Basically I am trying to work out a way to have some emergency money, but without paying a lot of interest for no good reason.

Or do you guys recommend that I just keep it all year and pay the interest?

If you have the resources to pay it back, you probably won't be eligible to get a subsidized stafford loan. But, yes you can start repaying (but once you start you have to keep it up, I think).

Right now though, the interest accruing on the loans is 2.8%, and you can get 5% easily in investing it in safe investments (bonds). Even with I-bonds the interest rate is almost 4%, if you want to arbitrage your way through school.

 

[Sean2tall]

If you have the resources to pay it back, you probably won't be eligible to get a subsidized stafford loan. But, yes you can start repaying (but once you start you have to keep it up, I think).

Right now though, the interest accruing on the loans is 2.8%, and you can get 5% easily in investing it in safe investments (bonds). Even with I-bonds the interest rate is almost 4%, if you want to arbitrage your way through school.

Hmm. . . ok thanks for the info. It's not as though I have money to actually start paying the loans off, but I probably will not need every last penny of what I am allowed by the budget. So I guess I wouldn't want to start repaying if I have to commit. I guess the alternative would be to borrow less the second year and use the first year's surplus in its place. . .

Is it frowned upon or anything to invest some of your loans as you suggested? I guess that's just sematics, since nobody could tell if I was investing my loans and spending my living expenses or vice versa.

 

[zinjanthropus]

Hmm. . . ok thanks for the info. It's not as though I have money to actually start paying the loans off, but I probably will not need every last penny of what I am allowed by the budget. So I guess I wouldn't want to start repaying if I have to commit. I guess the alternative would be to borrow less the second year and use the first year's surplus in its place. . .

Is it frowned upon or anything to invest some of your loans as you suggested? I guess that's just sematics, since nobody could tell if I was investing my loans and spending my living expenses or vice versa.

you have to put your money somewhere - you can't just stick more than a few grand under a mattress. putting your money in a savings account is technically a form of investment, so why not take the money and put it in places you deem best.

 

[Annette]

Savings accounts are FDIC insured- so if the bank goes belly-up, the Feds will give your your money (or loan money) back. You technically are not supposed to invest your loan money in accounts that are not insured.

Another thing to consider is that you have to pay origination fees when you take out the loan. Some private loans have other fees as well, and they are usually based on the amount you borrow.

 

[flighterdoc]

Hmm. . . ok thanks for the info. It's not as though I have money to actually start paying the loans off, but I probably will not need every last penny of what I am allowed by the budget. So I guess I wouldn't want to start repaying if I have to commit. I guess the alternative would be to borrow less the second year and use the first year's surplus in its place. . .

Is it frowned upon or anything to invest some of your loans as you suggested? I guess that's just sematics, since nobody could tell if I was investing my loans and spending my living expenses or vice versa.

There is no penalty to pay any federal loan early.

If you have excess cash in any year, it will increase your EFC and reduce the amount of subsidized loans you can get.

I'd try and work it out quite closely...

 

[Pinkertinkle]

Yes, don't forget that you can easily make 5% risk free on your money in federal or municipal bonds, or up to 10% with a reasonable ammount of risk in corporate bonds. No point in returning the money really, just let it sit and it'll actually pay itself down. Anyways, financial saavy is always useful, so look it up.

 

[Sean2tall]

Ahhh thanks everybody, this is very helpful I think I am starting to grasp it all finally

 

[A.D.O.R.]

If you have excess cash in any year, it will increase your EFC and reduce the amount of subsidized loans you can get.

Is this school specific? I spoke to my financial aid people earlier in the year and they never mentioned this.