Debt Reduction Strategy

[ekb1701]

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I'm attending medical school in the fall, and I recently applied for Stafford loans up to my school's first year cost of attendance (about $37000). My living situation will save me some money, I don't have a cellphone or gas bill, and I doubt that I will need the almost $19000 allotted to "living expenses."

My question is--at the end of my first year, if I have money from my loans left lover, is it possible that I can use the leftover money to pay off the interest accumulated on the first year loan to prevent it from being capitalized when I graduate?

If it's not possible, I'm planning on subtracting my leftover money from next year's cost of attendance and only taking out that amount. Is that a good idea as well? I don't expect my living situation and everyday expenses to change.

Thanks!

 

[Crelal]

My understanding is that any payment before six months after the last disbursement date goes toward the principal, not the interest. This is advantegeous in the long run as smaller principal=less interest over time.

After six months has passed, I am not sure how a payment is distributed- if it all goes towards interest or is split by some formula.

Our finan. aid office said to take out what you need versus taking out extra and then paying it back, that it is fairly easy to adjust budgets. Can anyone speak to this?

 

[WellWornLad]

My question is--at the end of my first year, if I have money from my loans left lover, is it possible that I can use the leftover money to pay off the interest accumulated on the first year loan to prevent it from being capitalized when I graduate?

Your interest won't be capitalized until you graduate. Put it towards principal.

In other words, the interest you've accumulated won't start accumulating interest of it's own until you graduate. Your principal, however, is accumulating interest right now.

 

[MassTransport]

As I understand, your loans begin accruing interest off of your principal the first month after disbursement. You have a certain period of time (below 6 months, I forgot how long, and this may be lender-dependent) to "return the money" and dent your principal. After that, any repayments go to interest first and extra to principal.

OP, I would calculate how much money you need, throw in another couple of thousand for overhead, and decline the extra. If you take the full disbursement and return extra money a year later you'll be eating some unnecessary interest charges.

 

[zenlike]

There may also be origination (3%?) and guarante fees (1%?) based on your lender that you might want to avoid.

 

[MassTransport]

There may also be origination (3%?) and guarante fees (1%?) based on your lender that you might want to avoid.

Yeah, this is a very good point.

 

[Igor4sugry]

I'm a first year student now and here are things that worked for me:


[1] You are only looking at living expenses since tuition + books is fixed.

[2] Make a budget and see whether your loans are enough (for example my budget is $1500/month x 12 = $18,000/yr
*also, remember that the money given is not for 12months, but for 10months (so include the 2 months of summer in there)

[3] Try to avoid GradPLUS b/c it is at 8.5% interest

[4] Since this is your first year, I suggest taking out the maximum amount of money. Then during the first year you will see how much money you realy need per month. If there is something left over at the end of the year then return it to the lender. You may even do this during winter break. Its better to take the penalty on interest than to run out.

[5] How to return money to the lender?
Its very easy. I go to their website and transfer money electronically.

[6] I suggest you look for private foundations that give 0% loans. Applications for these are due in spring, so if you want to be considered start searching today.

But at the end of the day you will still be in a ton of dept. The amount by which you can reduce your living expenses is quite small compared to the total cost.

Hope this helps.

 

[TMP-SMX]

But at the end of the day you will still be in a ton of dept. The amount by which you can reduce your living expenses is quite small compared to the total cost.

Hope this helps.

You spelled debt wrong again. Take note of the correct spelling.

Anyway... 😉

Take only what you need. If you need more you can request it. Either way, if you take out too much just keep it around. There is no reason to pay your loans early. If you are taking out too much money you might as well just not take out as much for the next year instead of paying off your principal. You'll probably find that you run out of money either way and if you are low on cash it keeps you from spending too much. Credit cards can give you a 1.5 month buffer before they have to be payed in full so they are good to have especially in the very beginning of school when you are waiting for your loan disbursements to come in.