Unsubsidized Stafford Loan - pay interest while in school?

[kirkcameronsgf]

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[The Poster]

new plan: spend every last dime of cash you have first before you even touch stafford unsubsidized or any other loan (except for stafford subsidized, you got nothing to lose with that while you are in school).

[Uptown *2*L]

new plan: spend every last dime of cash you have first before you even touch stafford unsubsidized or any other loan (except for stafford subsidized, you got nothing to lose with that while you are in school).

This will depend on how well your investments are doing. My portfolio has performed in excess of 14% a year for the past five years. I wish I could borrow MORE money, not less.

[The Poster]

new plan: spend every last dime of cash you have first before you even touch stafford unsubsidized or any other loan (except for stafford subsidized, you got nothing to lose with that while you are in school).

This will depend on how well your investments are doing. My portfolio has performed in excess of 14% a year for the past five years. I wish I could borrow MORE money, not less.

nice that you have investments

[Uptown *2*L]

If you have enough cash that you plan on burning through it before you take out loans, then you should have investments.

To do otherwise is irresponsibility bordering on stupidity.

[The Poster]

If you have enough cash that you plan on burning through it before you take out loans, then you should have investments.

To do otherwise is irresponsibility bordering on stupidity.

i don't have *that* much chash...i'll save the investments for when i have a steady income again.

[Uptown *2*L]

If you don't have that much cash, it's probably a bad idea to burn through it.

I'd say this rule would apply if you have less than $5,000 in cash. That's the absolute minimum you should keep around for emergency money. A million things could force you to drop out of law school and give up your loans; you don't want to be caught without ANY safety net -- unless you're lucky enough to have rich parents who can support you in the meantime.

I'll stand by my earlier post, though: above about $5,000, you should definitely have some sort of investment account. Even just index and bond funds, that should definitely not be sitting in cash. The rest should go to ING Direct or something similar -- might as well earn the 5%. The real cost to you is the difference between the SL interest and the 5% you're earning in high-yield savings. That's only 1-3% (subsidized stafford = 6.8%; Grad PLUS = ~7.25% after discounts) -- which is WELL WORTH the added safety net you're getting.

[naturallybeyoutiful]

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[Big Slick]

If you don't have that much cash, it's probably a bad idea to burn through it.

I'd say this rule would apply if you have less than $5,000 in cash. That's the absolute minimum you should keep around for emergency money. A million things could force you to drop out of law school and give up your loans; you don't want to be caught without ANY safety net -- unless you're lucky enough to have rich parents who can support you in the meantime.

I'll stand by my earlier post, though: above about $5,000, you should definitely have some sort of investment account. Even just index and bond funds, that should definitely not be sitting in cash. The rest should go to ING Direct or something similar -- might as well earn the 5%. The real cost to you is the difference between the SL interest and the 5% you're earning in high-yield savings. That's only 1-3% (subsidized stafford = 6.8%; Grad PLUS = ~7.25% after discounts) -- which is WELL WORTH the added safety net you're getting.

THIS IS ABSOLUTELY INCORRECT if you have any debt (Credit card, Car, and etc) that charges you relatively high interest, say 8% or higher.  It absolutely does not make sense to keep $5000 as emergency cash (or cash equivalent like Money market) while paying 13 or 14% interest on credit card.

smart thing to do is to use whatever cash you have to pay down high interest loans.  When emergency comes, draw from the credit account then because there is a good chance nothing catastrophic will happen to you.

Even though I have enough cash to pay for law school out of pocket, I am still opting for unsubsidized loan because I rather borrow at 6.8% and deduct interest expense on my tax return while my cash generates return in financial market.

If I had any debt that charges me anything above 7% APR that is non-deductible for tax purpose, I would pay that off first.  Guaranteed 7% rate of return is better than 12% possible return in my book. 

Does anybody know if balance transfer option from credit card could be applied to student loan balance? I can transfer balance at 2.9% fixed for the life of the loan but I dont have anywhere to transfer to since I have no credit card debt.

it would be pretty sweet to get unsubsidized loan and pay that off with credit card at 2.9% fixed APR for the life of the balance

[SanchoPanzo]

qmmm is correct. For example, my lender allowed sends me a notice (not really a bill) showing the accrued interest every 3 months even though I opted NOT to pay interest while in school. I can pay it or choose not to. Essentially, any payments I make while in law school is put towards any interest I've accrued. However, I don't have to send them a dime since I opted not to pay interests.

of course, i can't say this is the same with ALL lenders. My lender is MEFA.

I could be wrong, but you're also not losing anything by saying yes to paying interest payments while in school. It gives you the option to, but you are not under obligation to do so. So if you change your mind and don't pay or don't pay for a particular month, it has no effect on you than if you had said no from the get-go.

I'm not sure that you can claim that you are 'not under obligation' to make the interest payments.  I suspect that this is strongly dependent on the particular lender and you may be obligated to pay or suffer some sort of penalty.  I further suspect that for private loans, especially those that tie your interest rate into your repayment plan, you would be obligated to pay on time.

Besides, if you say that you won't be making interest payments while in school, you certainly are 'not under obligation' to pay.  However, the lender will always accept payment.  In fact, most loan agreements that I have investigated contain a clause that if you return part of a loan payout within 120 days from the time of issuance, it will be as if you had never taken out the money in the first place.  That is effectively a 4 month interest free loan for the portion returned.