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axe-e-dental

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Looking to get some perspective on a GradPlus loan I'm thinking of taking out this year. I would greatly appreciate any feedback.

Normally, I only borrow only what I need. This year, due to the new lower 5.3% interest rate compared to last year's 7.08%, I was hoping to take out the maximum amount and use the excess to reduce my last year's GradPlus principal for an overall lower rate.

As far as numbers go: my last year's GradPlus loan is for $50,000. This year I have the potential to borrow upto $65,000 (only need $50k) for an excess of $15,000 that I can apply to my last year's loan. Logically, this makes sense to me and seems beneficial but I'm not really a financial-minded person so I can't see if I'm missing any caveats or hidden disadvantages. I was hoping if anyone sees anything wrong with this idea, they could elaborate on that.

I have contacted both my loan servicer and my school loan counselor for advice but they didn't really help. The loan servicer said I do have the option to target my principal from last year's loan for payments so that's cleared up. So I'm reaching out here to see if anyone can offer their two cents. Thank you for reading. Have a good one!
 

Firik

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The only thing I can point out is that GradPlus has a very high origination fee (4.248%) compared to 1.062% for federal subsidized and unsubsidized loans.
 
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Blackca3

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The loan servicer told you that you could pay directly on the principal without paying down the interest first? I would double and then triple check on that because that is not typical. If true, then you could use a time value money calculator to do the math and see if it makes sense.
 

axe-e-dental

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The loan servicer told you that you could pay directly on the principal without paying down the interest first? I would double and then triple check on that because that is not typical. If true, then you could use a time value money calculator to do the math and see if it makes sense.
You're right, they did tell me that I would have to pay off my accrued interest first before anything can be applied to my principal amount. I do stay on top of my interest payments so essentially it is negligible. Most of that excess $15,000 would go towards that principal after I pay off a couple hundred dollars of accrued interest.
 

Blackca3

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You're right, they did tell me that I would have to pay off my accrued interest first before anything can be applied to my principal amount. I do stay on top of my interest payments so essentially it is negligible. Most of that excess $15,000 would go towards that principal after I pay off a couple hundred dollars of accrued interest.
You’re already paying off the interest each month? If so then yeah what you’re saying does seem like it could make financial sense. Do the math and see if you’ll come out ahead.
 
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