Scary idea. Forum

[BarbellDreams]

Ok, here is the deal. I have about 28K in a UG PRIVATE loan that has a fairly high interest rate. I am thinking of maxing out my COA and taking on the max GradPLUS amount to pay off this UG loan with it. In my mind this gives me two advantages:

1. Compunding interests starts all over again with the new loan so I have paid off all of the interest on the first loan.

2. This one is most important. The interest rate on gradPLUS is fixed and is lower than the rate I have on my private loan. My private loan's interest rate is NOT fixed and can fluctuate, on top of that it is at least 2% higher than the gradPLUS loan. This would save me a good deal of money in the long run.

Thoughts?

[narkizopoint]

If you use the loan to pay off your other debt, what are you going to live off of/pay tuition with? If you have that pickle solved, I think its a good idea.

[lawyering]

I'm not a financial consultant, but I'm pretty sure #1 doesn't mean anything. Either way, it's the same balance and the interest is still compounding. #2 is where the difference would come in, and as the last poster said, if you can afford to do this and still support yourself through law school, go for it.

[chocho]

well #1 does make a big difference bc if it is compounding, then interest compounds on top of interest etc etc thus growing exponentially, if you can get by with doing what you plan on doing (which requires pretty specific instances), then go for it.

[lawyering]

um. the interest compounds and becomes the new balance. you take out that new balance as a new loan, you're still compounding the original interest from the old loan.

[BarbellDreams]

The COA that I have been given for GradPLUS from the only school that has sent me my Fafsa SAR back with figures (not the school I am actually attending) has given me about 10K more than I need to cover everything. If my school gives me a similar figure I plan on using the 10K for the UG loans.

-The compounding interest would be with a lower interest rate so less total was the point of #1.

[lawyering]

The lower interest rate would definitely be tempting. Another thing to consider is whether the loans accrue interest while you're in LS. I'm pretty sure all GradPLUS loans would. Subsidized federal loans don't, so these would be ideal. But subsidized loans are not the majority of financial aid packages.

[sumus romani]

You'll want to look into legitimate uses of college loans. They are supposed to cover certain things, such as tuition, transportation expenses, books, etc. I'd be surprised if paying off other loans is one of the legitimate uses. Now, having said this, I'm not suggesting that you would get caught if you used to loans illegally, but I would look into the legitimate uses of the money before considering the cost-benefit analysis.

[twopoodles]

Well, since he'd be paying off loans used for education, I think it'd be hard to prove the money wasn't used toward education?

[narkizopoint]

The COA that I have been given for GradPLUS from the only school that has sent me my Fafsa SAR back with figures (not the school I am actually attending) has given me about 10K more than I need to cover everything.

Projected COA is a tricky matter, especially if you are moving to a new area. If you are staying with the folks and not changing any of your current habits then you probably have a rock solid grip on your COA but if you are moving out something as trivial as monthly internet/laundry/parking can wreak havoc on a tight budget. If you got a handle on all the variables that could pop up and you can save money I can see nothing wrong with doing what you are proposing.

[Unadilla Kayaker]

I'd be tentative doing this your first semester. Max out the GradPlus loans your first semester but don't pay extra on the private stuff until you see what you have at the end. I plan to do much the same thing (pay the extra money on parental loans), but if the shit hit the fan for me my parents would still help me out.

Be frugal, but also remember that worrying about money is a big distraction from your legal education. What I mean is, you don't want to have to think about where you can find a free dinner since all your extra pennies are going to the private loan. Max out the GradPlus, but I'd recommend keeping the extra money as a safety net until you get the disbursement for the 2nd semester and then use the extra 1st semester money as a balloon payment. HTH.

[Genericswingman]

Make sure you are including the origination fees in your calculation of the effective interest between your UG loan and the Grad loan. I may be mistaken, but I believe the org. fee is pretty high and this can have a hugh impact on the effective interest rate (credit card companies use it as a way to attack unsuspecting consumers...give them 0.99% interest rate for a year with a 5% transfer fee)