What do to do with these loans?

[InbredDummy]

I am entering my senior year and I will be getting more financial aid that I need. The problem is I don't know what to do with the extra money. See I owe about $4500 in students loans dating back to my freshman and sophomore year. It's not a lot of money at all, and I could pay it off all in one shot so I can graduate debt free. But is this the best way to use the money?

What have you guys done when you have a decent sized loan, but not in the 5 digit range? Do I just wait till grad school to pay it off, because I don't see myself taking out anymore loans in grad school, ie PhD programs.

I'm weighing whether or not to use the money to just
1) pay off a lot of the debt immediately
2) pay off some of the debt and use the rest to go on a vacation during the winter break
3) use all the money on whatever I want

 

[PhillipKP]

Since you're a senior, pay it off when you get a job. Until then, you may never know what kind of unexpected expense you will need to pay. And I'm not talking about spring break in cancun. I'm talking car repair etc.

 

[mgb_phys]

In your country is the interest on the student loans very low or is it defered until you reach a certain income ? If so you might want to put the extra into a savings account and earn some money on it.

 

[Beeza]

Buy a motorcycle ;)

 

[physics girl phd]

Also -- while graduate schools may be giving you a stipend... you will likely need to pay MOVING expenses to GET to the grad school location, and have to pay apartment deposit, first month's rent, and sometimes student fees not covered by graduate school tuition waivers... often these will need to be made BEFORE the first stipend payment comes in.

While you are in school (even grad-school), many loans are interest-deferred. If yours is not... (because MGB_phys has a point with investing) make sure you meet the BIG expenses of those first few months then pay off the loan (in a big chunk or gradually as your expenses allow -- and giving yourself a bit of a buffer with regards to unexpected expenses).

 

[SRode]

Definitely hold on to that extra money, you'll never know what kind of expenses you will run into after graduating, and you won't want to use credit to get out of it. Figure it like this, a loan of that size will be paid off in a few months at the most, and if you are in the USA student loan interest is tax deductible so it won't hurt you too badly. If you are trying to figure out what to do with your extra cash, maybe put it into a short term investment such as a CD that will term around when you graduate so you have a bit of extra cash that will get you started.

 

[euler_fan]

As already stated, keep some for a "rainy day" and invest the rest!

 

[cristo]

I think this is the first thread I've seen where students are complaining about being given too much financial aid!

 

[makethings]

Repay the debt. Teach those lenders a lesson. Show them that their days of collecting interest from you are over.

 

[Dr Transport]

Either pay off the debt or take a portion of it to buy the computer you really want (splurge and get the high end processor, extra memory etc...).

 

[las3rjock]

physics girl phd makes some very good points about the hidden or ill-timed costs of grad school. The best choice is probably to save the entire $4500 to pay those expenses.

 

[InbredDummy]

hmm a lot of good suggestions:

physics girl, i did not think of all the "startup" costs to being a first year PhD student. the housing deposit, the moving costs, paying for new furniture, etc.

maybe a more relevant question at this point is, have you guys taken out sizable loans in grad school? like i said, right now my debt is at $4500, i figure if I can stay below $10,000 i'll be ok, because I think I can pay that off working any job really. I could work minimum wage, live at home and pay off a decent portion of that in a year. So $10,000 is my magic number, but I would like to keep it at $4500.

on the other hand, no time like the present right? there are some nice things i wouldn't mind buying. for sure i need to purchase some new math books. i need analysis, algebra and topology books that are reccomended for PhD prelim exams. i also need the money to pay for grad school app fees, GRE fees (these two together are nearly 700-800 for me, I'm applying to 6-7 schools), the math books and i might "splurge" on some dvds i wanted.

i guess this is just another sacrifice, one of many, that i have to make to get to that PhD.

thanks for al your advice everyone

 

[InbredDummy]

another question that has been bugging me, if I'm going to grad school, when do i start repaying my undergraduate loans? do i pay them while I'm in grad school? i feel like that would cripple me financially; paying for rent, food, the startup cost of living on my own, etc.

 

[ice109]

are you in the us? are you getting a subsidized or unsubsidized loan? if you're getting a subsidized loan then interest is deferred until you graduate and then can still be deferred in 6 month increments if you can convince the guarantor. even if you're not getting subsidized loans you interest rate is probably pretty low though i don't know how low. if it is lower than 5%, it might not be I'm just throwing a number out, look into opening a high interest savings account. these are not cd accounts, they are regular savings accounts so your money stays liquid. this way not only do you keep the money for a rainy day you either make a little or at least cover the interest on the loan

http://www.fatwallet.com/t/52/437553/

some are 6% now, wow

 

[InbredDummy]

are you in the us? are you getting a subsidized or unsubsidized loan? if you're getting a subsidized loan then interest is deferred until you graduate and then can still be deferred in 6 month increments if you can convince the guarantor. even if you're not getting subsidized loans you interest rate is probably pretty low though i don't know how low. if it is lower than 5%, it might not be I'm just throwing a number out, look into opening a high interest savings account. these are not cd accounts, they are regular savings accounts so your money stays liquid. this way not only do you keep the money for a rainy day you either make a little or at least cover the interest on the loan

http://www.fatwallet.com/t/52/437553/
some are 6% now, wow

hi thanks for the quick reply.

Yeah I'm a US citizen, all these loans are Federal Stafford loans, I will graduate with $4475 total in Stafford loans, I didn't take out any other loans.

My situation will be one where when I graduate, I will be in a position to pay off at least 75% of the student loans. But I also plan on going to grad school. Physics girl opened my eyes up to the initial costs of going to grad school; paying security deposits, paying for books, paying for the travel back and forth, paying for furniture, YIKES. But I'm also in a situation where I might need a lot of that money for the startup grad schools costs since my family is very poor. I will have about $5000 available to me once I graduate college, all my own money earned from scholarships or working.

I might take $2000 or $3000 of it and put it in a savings account, like you suggested, and pay off grad school loans that way, slowly but surely. And then use the other $2000 and allocate that for any expenses that might come up starting grad school.

My Stafford interest rate is 6.62%.

What is the rule of thumb when deciding how much I can afford in rent? Some say it should be 1/3 of your post-tax income, anything more is above your means, anything less is below your means. I understand cost of living is also an important factor. Most likely my cost of living will be very high; I'm applying to schools in the San Francisco, NYC and Chicago area for the most part.

I'm assuming when I first start grad school I probably will not be able to rent an apt. A major factor for me is that I will not be able to get money from my parents in any regard, they are barely scrapping by themselves. I will probably need to rent a room, and hopefully that room is already furnished.

I just don't want to be unprepared when the time comes.

If it helps me at all, my credit is quite good. I have some high limits (for my age, around $6500) on my credit cards and I've never had a late payment in nearly 3 years of credit history.

 

[ice109]

i didn't want to take up space by quoting your post so i'll just reply and you know it's directly to you.

you didn't tell me if your loans are subsidized or not. stafford loans can be both subsidized and unsubsidized. do you know the difference? on subsidized loans the government pays the interest while you're in school and for as long as you can get them to defer repayment. on unsubsidized loans the interest is always accruing.

to that end if you have subsidized loans always take them they are essentially free money because if you don't use them you can just return them.

as far as rent goes look for the cheapest thing you can find. I'm not very materialistic so i don't really care about living conditions other than AC and hot water and cleanliness but you might be different, not that I'm considering materialistic a bad thing, there's nothing wrong with enjoying luxury.

in the end the only thing that really matters is that you eat, have a place to sleep and can attend school. so definitely take the loans if they're subsidized and they're not i would still probably take them, just return em quick if you find you don't need them, or put them in one of those 6% interest account 6.62%-6.00 is very small.

 

[leright]

i didn't want to take up space by quoting your post so i'll just reply and you know it's directly to you.

you didn't tell me if your loans are subsidized or not. stafford loans can be both subsidized and unsubsidized. do you know the difference? on subsidized loans the government pays the interest while you're in school and for as long as you can get them to defer repayment. on unsubsidized loans the interest is always accruing.

to that end if you have subsidized loans always take them they are essentially free money because if you don't use them you can just return them.

as far as rent goes look for the cheapest thing you can find. I'm not very materialistic so i don't really care about living conditions other than AC and hot water and cleanliness but you might be different, not that I'm considering materialistic a bad thing, there's nothing wrong with enjoying luxury.

in the end the only thing that really matters is that you eat, have a place to sleep and can attend school. so definitely take the loans if they're subsidized and they're not i would still probably take them, just return em quick if you find you don't need them, or put them in one of those 6% interest account 6.62%-6.00 is very small.

ha, with subsidized loans just take out as much as you can and put it in a high interest CD for 4 years. When you graduate repay the principal interest free. win.

 

[InbredDummy]

i didn't want to take up space by quoting your post so i'll just reply and you know it's directly to you.

you didn't tell me if your loans are subsidized or not. stafford loans can be both subsidized and unsubsidized. do you know the difference? on subsidized loans the government pays the interest while you're in school and for as long as you can get them to defer repayment. on unsubsidized loans the interest is always accruing.

to that end if you have subsidized loans always take them they are essentially free money because if you don't use them you can just return them.

as far as rent goes look for the cheapest thing you can find. I'm not very materialistic so i don't really care about living conditions other than AC and hot water and cleanliness but you might be different, not that I'm considering materialistic a bad thing, there's nothing wrong with enjoying luxury.

in the end the only thing that really matters is that you eat, have a place to sleep and can attend school. so definitely take the loans if they're subsidized and they're not i would still probably take them, just return em quick if you find you don't need them, or put them in one of those 6% interest account 6.62%-6.00 is very small.

i just checked my loan, it seems I have a subsidized Stafford loan. i called the bank that issued my subsidized Stafford loan and they said I can defer the loan if I am in graduate school, these were the qualifications to defer the loan:
- Have at least a bachelor's degree confirmed by an institution of higher education.
- Be engaged in full-time study, which may be independent of an education or cultural institution, in an academic or professional subject area for which you have shown interest and ability and have been recommended by an institution of higher education that is for a period of at least six months.
- Have the deferment form certified by a program official (e.g., dean, professor, director, or chief; generally not the Registrar).
- There is no time limit on this deferment.

So I'm guessing I can defer the loan until I am done with graduate school, now this means that since I took out a subsidized Stafford loan, as long as I am in graduate school, the interest will not accrue on my loan, right? So when I'm done with grad school, I'll essentially owe the principal amount. Am I interpreting this correctly?

again, thank you to everyone who replied, especially ice109 for giving me really good insight and advice.

 

[ice109]

yes with subsidized loans you only owe the principal when you graduate. after that point the loan will begin to accrue interest and you will not owe just the principal from then on.