Loans+cash

[r2thekesh]

Hi All,

I'm a bit of a non-trad and got accepted recently. My COA this upcoming year is about 53k and I have some money built up from working/investing. I was wondering if you guys had any advice on these options.

Option 1: I could use my funds and pay for school for about 1.5 years and then begin to take out loans. I would end up having to take unsubsidized stafford loans for 42k and grad plus for another 10-15k depending on the year and tuition increases.

Option 2: I could max out unsubsidized stafford loans every year and pay the rest with my funds and never take any of the grad plus loans out. In fourth year, I would use all of my funds and minimize those loans as well. Also I would be able to pay less in taxes from my fund.

Any ideas? I feel like option 1 would be good if I paid down my loans rapidly and option 2 would be good if I paid down my loans while working slowly. Is that correct?

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[sgv]

Cool what school are you going to? Maybe if you're invesetment savvy you can reinvest your savings if your yearly return is greater than the interest on your loans >5.4% * principal. For your question of comparing options 1 and 2, you could calculate the answer yourself with less than 15 minutes of math.

 

[sacapuntas]

Keep in mind that interest rates on loans are likely to go up in the next few years. For this reason, I would go with option 2. In all likelihood (obviously no one knows what will happened, but rates are artificially low right now) 4th year will be the highest rates on loans, and you would also avoid the higher interest on grad-plus loans.

 

[r2thekesh]

The problem I was dealing with the math is the origination fees and I think I would have to do 4 separate numbers (1 for each year of loans I took and separate numbers for each type of loan) and then add them?

 

[sgv]

The problem I was dealing with the math is the origination fees and I think I would have to do 4 separate numbers (1 for each year of loans I took and separate numbers for each type of loan) and then add them?

orginiation fee is like a one time processing fee. It's like 1% of principal for the unsub. it might have changed.

 

[InspiredDDS]

The origination fee for the Grad PLUS loans is a little over 4% now (versus 1% for Direct subsidized). So 50,000$ a year in grad plus loans = 2,000$ a year just to get your money. Of course this 2,000$ accrues interest just like the rest of the loan at around 7% interest.

The only way to know for sure how to get the most out of your money would be to crunch the numbers.

 

[sacapuntas]

The origination fee for the Grad PLUS loans is a little over 4% now (versus 1% for Direct subsidized). So 50,000$ a year in grad plus loans = 2,000$ a year just to get your money. Of course this 2,000$ accrues interest just like the rest of the loan at around 7% interest.

The only way to know for sure how to get the most out of your money would be to crunch the numbers.

Wow...I am glad I don't have to dip into Grad Plus very extensively. I had no idea the origination fee was that high.

 

[r2thekesh]

I crunched the numbers and it came out that option 2 saved me a few thousand dollars. I ended up not putting the origination fee because that would push it further towards option 2 due to the high origination fee. This doesn't include the fact that in option 1 I would pay more capital gains tax in 2013 and 14 than if I spread it out and used all the education rebates each year to reduce taxes. So I think I will have saved about 10,000 dollars in option 1.

But I might have to dip into grad plus because I'm buying a house to live in.