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Making payments

3kidsMultipleSports3kidsMultipleSports Registered User Posts: 122 Junior Member
So after the scholarships are all applied, my son will have 3 different student loans (2 subsidized and another unsubsidized). We will also have a balance. Our family plan is for us (mom and dad) to set up monthly payments on the balance and for him to work and make monthly payments on the unsubsidized loan since it will begin accruing interest. The hope being he can pay it down at least 1/2. He is also going to pay on his books. He plans to work full time next summer and sock as much as possible towards the parent portion (since $1500 of his scholarship is just first year). My question - can he go in and make a payment of how much he can afford and specify it goes towards the balance on that loan or will his payments and our payments go toward the "owed" amount and then at the end of the semester he just sends back the balance on the unsubsidized loan (meaning he will still have accrued the interest for the semester).
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Replies to: Making payments

  • thumper1thumper1 Registered User Posts: 63,122 Senior Member
    How many hpirs a week are you expecting this college freshman to work...and what do you anticipate his hourly salary will be?

    What is the amount of the unsubsidized loan?

    Did you know that you can also pay the interest on that loan yourselves at the end of the school year...thus subsidizing that yourselves? That's what our kids did. You might want to consider that.

    If he can earn THAT much money...perhaps he can bank it and use it instead of taking out additional loans next year.
  • 3kidsMultipleSports3kidsMultipleSports Registered User Posts: 122 Junior Member
    Not too many hours during school - at least during fall since he has a heavy load w/ a sport. Spring he may be able to work more. He does qualify for up to $1750 work study. The unsubsidized is $1000 a semester. Hmm .. hadn't thought of paying the interest at the end. Was thinking more along the lines of him paying on it so he wasn't having to accrue interest. Yes, saving that amount and then putting it towards the following year tuition so he doesn't have to borrow it would be an option we hadn't considered.
  • 3kidsMultipleSports3kidsMultipleSports Registered User Posts: 122 Junior Member
    'm guessing if he waited until the end of the semester after we had paid our portion and made a payment on his account that would go towards that unsubsidized loan and probably wouldn't impact a huge amount of interest? If he saves it up will that impact his fafsa for the following year?
  • thumper1thumper1 Registered User Posts: 63,122 Senior Member
    If it's work study money...it won't be income on the fafsa.

    If he uses it to pay for something the day before he files his fafsa...it won't be an asset.
  • mommdcmommdc Registered User Posts: 8,637 Senior Member
    Is he working this summer?

    He can accept his loans, but if he finds he doesn't need all $2,000 of the unsub loan, then he could cancel part of the loan within 4 months of disbursement I believe.

    $2,000 @4.5% would be about $90 in interest a year, if I calculated that correctly.

    The work study money is a maximum amount he can earn per year with a federal work study job. He does not get that credited to his student account up front. He has to find a job and work the hours and get a paycheck.

    Work study money should mostly be counted on to be availble for spending money, laundry money, etc.
    It would be about $50/week.

    Depending on major, and if he is in a sport as well, he might not be able to work enough to earn all of the work study award.

    If he pays towards his fall bill with summer earnings, that will not affect FAFSA EFC, because the money should then be spent by the time FAFSA is filed in October.

    So you need to find out what the direct billed costs are for the school, tuition, fees, room, board, and then subtract scholarships, grants, loans. (Not workstudy). Don't use COA because it might include estimates for misc expenses like books and travel, which might be different from the actual costs.

    That will give you the amount that still needs covered by your installment payments.

    We paid for books because we could claim them for the AOTC. You should check and see if you will qualify for this education credit on your taxes next year. It's worth up to $2,500.
  • twoinanddonetwoinanddone Registered User Posts: 13,638 Senior Member
    I think you are confusing where payments are made. If you set up a payment plan with the school, you (parents) are paying the school (or a billing service the school uses) for current billed fees AFTER the loan is applied to the bill. Of course your son could make payments too, but that's on the account with the school, not on the loan. They will not send any overpayment to loan servicer, they'd either return it to you or apply it to the next semester's bill.

    His student loans will be issued through the school, but then immediately transferred to a servicer who will take care of payments and bills. If he wants to make a payment on the interest, he can but he needs to work with the servicer and be very specific on what he's paying. They will apply any payment to outstanding fees and charges (there shouldn't be any), then to accrued interest, then to principal. If you don't specify which loan, they can apply any excess to which ever loan they want, including the subsidized loans. Make sure you specify that you are paying the accrued interest, and any extra should be applied to the principal of the unsubbed loan.

    IMO, once you take out the unsubsidized loan, leave it alone. The interest is simple interest, not compounded, so it makes no sense to pay it off just to borrow more money for the next semester. Since there is a (very small) origination fee, it makes more sense to borrow once and use any earnings to reduce the need for further borrowing.

  • thumper1thumper1 Registered User Posts: 63,122 Senior Member
    edited June 14
    Actually...when you set up,the payment plan with the school...YOU (the family) determine how much you want to have included on the monthly plan to pay for college. So...you can really pick any number...and it might or might not include the loans.

    We typically allocated an amount...and very often did not have our actual bill when it was time to set up the school monthly payment plan. So...we picked an amount we wanted to fund via the payment plan. we hoped that that number...plus the loan...plus any grant or scholarship money...would cover the school billable costs...and it did. We tended to over estimate...so sometimes got a little refund at the end of the year from the school because we had over paid.

    So...you need to look at the total billable costs...tuition, fees, room, board....and maybe health insurance. These will be the things the SCHOOL will be sending you a bill to pay. Get that total. Subtract the annual loan amount...and the remainder would be your payment plan amount.

    Your kiddo then could use his summer and work study monies to pay for books and all of his personal expenses. And if there is money left in his earnings...then think about where that will be applied...maybe the interest for,the year on the unsubsidized part of his loans.
  • mamommamom Registered User Posts: 3,246 Senior Member
    After reading your post, I felt really stressed out! I think it is wise to try to pay down, avoid loans if possible. But, especially if your kid is playing a sport let your S get through freshman year without having to worry about it all if possible. I am not saying you do not worry, or your S does not work, but rather play it by ear. I am guessing that your S may or may not have lots of extra time for work and depending on where he is going to school there may or may not be opportunities for eating out, going to the movies, concerts, etc. See how first year goes without ensuring your S makes all kinds of money and is extremely frugal and then re-evaluate at end of year. JMO. As the parent of a rising Sr who wants to play a sport in college, I can tell you that many sports expect kids to work out off season which may limit how much they can work for money, especially at some schools. I can't imagine expecting my kiddo to have to worry about working that first year. Not saying kiddo shouldn't work, and will encourage them to work, but expectations are low freshman year.
  • twoinanddonetwoinanddone Registered User Posts: 13,638 Senior Member
    ^^I agree, except that an athlete with a work study job can usually get a job in the athletic department. They are very flexible and usually the student would be hanging around anyway. My daughter's teammates have had jobs score keeping, setting up the cones on the fields, working at the athletic department, checking equipment out, checking students into the study table area at the library (where one needs to be anyway), etc. My daughter hasn't had to work, but she could easily do these jobs in the opposite season (she plays in the spring, could work in the fall).

    Athletes need to be very organized. Just add the 10 hours to the schedule. Many work study jobs still have the 'study' part available. A friend is an RA and had to work the desk at her dorm. She always picks the 2-5 shift. The 2-5 AM shift so she can study while working.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,437 Senior Member
    edited June 15
    <<<My question - can he go in and make a payment of how much he can afford and specify it goes towards the balance on that loan or will his payments and our payments go toward the "owed" amount >>>>


    If he makes payments towards his unsub loan, that money doesn't get sent to his college. The gets sent to whoever is servicing the unsub loan. There would be no confusion as to how to apply funds.

    The parents monthly payments would go to the school, since you'd be owing the school.
  • thumper1thumper1 Registered User Posts: 63,122 Senior Member
    There would be no confusion as to how to apply funds.

    Actually...there could be plenty of confusion by the loan servicer. You need to SPECIFY that any extra payments are going towards the principal of the loan.

    But honestly, if he REALLY can earn that much money...perhaps it would be better to save that money to then NOT need additional loans. Or to NOT need additional unsubsidized loans.

    Regardless...I think you could very well be overestimating the amount this student can work and earn...so be very careful with that.
  • 3kidsMultipleSports3kidsMultipleSports Registered User Posts: 122 Junior Member
    edited June 15
    Thanks everyone! We certainly don't want to overload him freshman year and want him to have down/fun time. Reality is though that he is taking out $7500 loans/year and if he can cover some of them along the way it will help. He is very organized though and used to lots of homework, playing two sports and all the practices that go with it and doing extra workouts at home. From what I understand it sounds like we would should have him sign for the loans. Then we may want to pay for his books so we can claim them on taxes (need to research that to make sure it applies) and possibly have him pay us back for some of them. Mostly, he should use his saved money to pay for his living expenses (gas, meals outside meal plan, fun, etc). Then, save any extra including a summer job and try to put it down before Oct 1 next year and not take out/send back the unsubsidized loan if possible. It sounds like the interest he will pay on it might balance out the origination fee. It looks like his outside scholarships may all get applied to the Fall semester so we will save up our payments and then apply them to the spring. I think the confusing part is trying to figure out how not to have too much saved that isn't applied when doing FAFSA, when to apply payments so the apply to the correct semester/loan, and minimize the extra amount we are having to pay out of pocket (12 straight years of college coming for 3 kids :) ). If we can help him with loans we can, but he should be able to manage them with a job when he graduates so we can afford to retire one day I hope.
  • 3kidsMultipleSports3kidsMultipleSports Registered User Posts: 122 Junior Member
    Honestly, if he commuted he wouldn't have to borrow nearly as much, but we would really like for him to have the experience and gain the independence that comes with living on campus (plus with sports it is important to be there). That's always a fall back, but trying to figure out how to best manage the limited cash flow available. He's done a fantastic job of earning scholarships to allow him to attend, but we don't have $20k a year to put towards school.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,437 Senior Member
    <<<think the confusing part is trying to figure out how not to have too much saved that isn't applied when doing FAFSA, >>>

    Yes he can spend saved amounts by Oct 1st (if that's when you'll submit FAFSA). If there's some reason why he can't put/spend the money by the time you file FAFSA, then perhaps he could make your "parent payments" and then you later would put that same amount towards his loans.

    As for deducting textbooks for undergrad, is that possible? Why am I thinking that people can deduct textbooks if they are employed and they're taking classes related to their job and they can deduct textbooks?? Not sure. Someone here will chime in with the right info.
  • BelknapPointBelknapPoint Registered User Posts: 2,814 Senior Member
    Then we may want to pay for his books so we can claim them on taxes (need to research that to make sure it applies) and possibly have him pay us back for some of them.

    Using text book expenses to claim the tuition and fees deduction would preclude you from taking an education credit for the same student. Generally, if it's an either/or situation between a tuition and fees deduction and a tuition credit, you want to take the credit.
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