Paying off interest while in school? or taking out a slightly smaller loan?

[sartort]

Hello everyone. I've been calculating the interest I will be accumulating while in school on the loans I plan to take out. I know it's recommended to pay on the interest while in school so that you aren't paying interest on the interest. Just looking at the Stafford loan it looks like the first month the interest will be $116 from the $20,500 loan, and (I think) will stay the same if I pay it off or increase if I don't. I haven't calculated it for the grad plus loans. I've never taken out student loans before so I'm unfamiliar with the best strategy. Is it better to pay the $116 of interest each month and whatever (going to be much higher) interest from the Grad plus loan, or to take out that much less in the initial loan amount and allow interest to accumulate? Is it even practical to lower my cost of living by $300 or more from what the school calculates, or will this just add to my stress while in school? I don't want to just allow myself to accumulate 20k in interest while I'm in school if I can help it, but I also don't want to make finances an issue that can distract me from the academics.

 

Does anyone have experience with this or know a lot about loans that can give me some advice?

[cinntsp]

You're going to accrue interest. Unless you have a source of income then just bite the bullet. Go to a 3 year program if you want to work part time.

[jdobbs]

I'm sure there are exceptions to every rule but generally your yearly loan amounts are dispersed evenly between three semesters. The cool thing about that is you only pay interest on what has been dispersed... So first month's interest would actually be $37.

 

My private loan terms require me to pay 25/month. It doesn't make much a dent in the long run but I reckon every little bit helps.

 

I urge you to investigate other options rather than taking out the grad plus loan. That loan does not do you any favors.

[sartort]

I'm sure there are exceptions to every rule but generally your yearly loan amounts are dispersed evenly between three semesters. The cool thing about that is you only pay interest on what has been dispersed... So first month's interest would actually be $37.

 

My private loan terms require me to pay 25/month. It doesn't make much a dent in the long run but I reckon every little bit helps.

 

I urge you to investigate other options rather than taking out the grad plus loan. That loan does not do you any favors.

 

That makes me feel a little better. I guess I will just see what I have left over at the end of each term and try to pay off some of the interest then if I can.

 

I have looked into some other options (haven't applied for any) but I am thinking the safety benefits to the federal loans make them better overall for me. If you know of a good private option with a fixed interest rate and similar safety nets in the worst case scenarios please let me know so I can look into them. So far I see too much risk associated with the private loans, but would love to learn more.

[sartort]

I'm sure there are exceptions to every rule but generally your yearly loan amounts are dispersed evenly between three semesters. The cool thing about that is you only pay interest on what has been dispersed... So first month's interest would actually be $37.

 

My private loan terms require me to pay 25/month. It doesn't make much a dent in the long run but I reckon every little bit helps.

 

I urge you to investigate other options rather than taking out the grad plus loan. That loan does not do you any favors.

 

That makes me feel a little better. I guess I will just see what I have left over at the end of each term and try to pay off some of the interest then if I can.

 

I have looked into some other options (haven't applied for any) but I am thinking the safety benefits to the federal loans make them better overall for me. If you know of a good private option with a fixed interest rate and similar safety nets in the worst case scenarios please let me know so I can look into them. So far I see too much risk associated with the private loans, but would love to learn more.

[jdobbs]

You're right, federal loans do offer the most protection against forbearance. There is also a program to have the remainder of your loan forgiven if you work for a non-profit for 10 years (but that is not a guarantee). The Stafford loan is pretty fair: 6.8% with minimal fees. The GradPlus is a little different: 7.9% fixed with 4% fees. So, just by taking out a $10,000 GradPlus loan you will owe $400 in fees and your first month's interest accumulation will be $22 ($10,000/3 = $3,333; $3,333 x 0.0065833= $21.94). The first month of your second semester interest accumulation will be approximately $45. The GradPlus also requires a credit check (and cosigner if you have adverse credit history).

 

There are private loans though various banks that offer fixed rate student loans with rates based on credit history, cosigner, and loan terms. I used Suntrust and got a fixed interest rate considerable less than both the Stafford and GradPlus. It has zero fees and a 1% graduation reward as well as 6 months post graduation deferment.

 

Are the benefits worth the risk? I thought they were, but my financial situation might be a lot different than yours.

[jdobbs]

You're right, federal loans do offer the most protection against forbearance. There is also a program to have the remainder of your loan forgiven if you work for a non-profit for 10 years (but that is not a guarantee). The Stafford loan is pretty fair: 6.8% with minimal fees. The GradPlus is a little different: 7.9% fixed with 4% fees. So, just by taking out a $10,000 GradPlus loan you will owe $400 in fees and your first month's interest accumulation will be $22 ($10,000/3 = $3,333; $3,333 x 0.0065833= $21.94). The first month of your second semester interest accumulation will be approximately $45. The GradPlus also requires a credit check (and cosigner if you have adverse credit history).

 

There are private loans though various banks that offer fixed rate student loans with rates based on credit history, cosigner, and loan terms. I used Suntrust and got a fixed interest rate considerable less than both the Stafford and GradPlus. It has zero fees and a 1% graduation reward as well as 6 months post graduation deferment.

 

Are the benefits worth the risk? I thought they were, but my financial situation might be a lot different than yours.

[ajames]

In 2017, I am still considering this question about whether to make payments on student loans with the little money I have saved up to minimize interest accumulation or to simply take out less loans to reduce interest accumulated. It's a vicious cycle! It is good to know that interest is added with each additional semester rather than as one whole bunch that way it is broken into smaller chunks and the grand total acures in less time than if it were to be allotted on the very first day.