Subsidized loan planning question Forum

[Kiwi917]

Requesting advice from anyone who has had subsidized loans: I have enough savings and grant funds to cover my first two years, but in my third year, I will most likely need to borrow more than $8,500. Is it a good idea to accept the subsidized offer for 1L (only about $4,000) in order to keep more of my savings (and subsequently not need to take unsubsidized loans in 3L)? It seems there is no penalty for repaying the loan early, so my thought is that if I end up with enough savings, I could repay the loan before I graduate and avoid paying any interest on it. Are there any downsides to this approach? Hidden fees I am not aware of? It seems like the best way to maximize use of the unsubsidized option and distribute use of my savings over the three years, but I am hesitant to take out a loan that I do not actually need this year. I'm grateful that it is ultimately a small amount of money in question, but I still want to make the best financial plan possible. Any thoughts?

[SemperLegal]

There is a 3% loan origination fee. The amount of interest you get by not depleting your assets may make up for (some) of that.

[Kiwi917]

There is a 3% loan origination fee. The amount of interest you get by not depleting your assets may make up for (some) of that.

Thanks! Guess I have to do some more math to figure out if it is worth it.

[brose]

I'm in the same boat. My plan right now is to use my money to pay for 1L/2L, then take out the max loans for 3L in order to pay for the tuition and living. Since I won't need as much as I am taking out that last year, I will use that money to have some kind of liquid assets. I'd rather have some debt when I graduate and liquid assets than no debt and no assets. I also won't be paying interest for 1L and 2L.

[bigben]

There is a 3% loan origination fee. The amount of interest you get by not depleting your assets may make up for (some) of that.

Thanks! Guess I have to do some more math to figure out if it is worth it.

Seems like your plan is sound. 3% origination fee, but you could throw that amount in a 2 year CD at 1.5% per year. At the end of 2 years you break even, then avoid 4k in unsub loans which you would have to pay another 3% origination fee on plus any interest that you would allow to accumulate.

So the value of your proposition is basically $120 savings two years from now, plus any interest that would accrue on the 4k unsub before you paid it off. Not much money, but probably worth the small extra effort.