Borrowing when you don't really need to


<p>Our D has decided to attend our in-state public U and we can likely swing paying for it with no debt. Should we still consider accepting the $5500 unsubsidized loan though because (a) in 2 years, we'll have a second child in college and (b) even if we decide to pay it off for her after graduation, would it help build her credit? It's also been suggested that if we take it, tell our D that that is HER portion, her "stake in the game" (even if we intend/decide to eventually pay it for her); that could help keep her focused. My issue w/ that is "What 18yo REALLY has much concept of what it means to have loans to pay off?". I mean, until you've actually DONE it, it might sound easier than it is.</p>


<p>We had our kids take the Stafford loans but that was our decision. To be honest, if you don't have to borrow the money...don't borrow the money. No reason to be indebted if you don't really need the money for college costs.</p>

<p>So, if you don't mind me asking, why did you have your kids take the Staffords?</p>

<p>Are you saying that you want to borrow the money because you fear that when your second child goes to college you'll be short of money and not be able to borrow enough Stafford loans at that point? If so, then I could see taking out the Stafford loans now. (You'd have to "do the math" and see if borrowing at a lower rate now, is better than borrowing at a higher Plus loan later.) </p>

<p>As for who should be responsible for paying them? You don't know if you or your children should pay for them.....Well, why not split the issue. You be responsible for half and your kids be responsible for half.</p>

<p>In our case, we wanted the kids to have some responsibility for their college costs. AND it improved the parent cash flow for the four years each were in college. WE are paying those loans back as a gift to our kids...but they didn't know that UNTIL was part of their graduation gift.</p>

<p>If we hadn't wanted to improve our cash flow (and really needed to do so), we would not have had them take these loans.</p>

<p>Yes, when our 2nd child enters college, depending where he goes and the cost, we might need to fill some gap, if the gap is > 11,000 (2 kids max unsub.). Our options: borrow from my 401k, home equity (~350k, only 2 years left on mortgage), or student loans. </p>

<p>But we'll also finish our last car loan next year, so we'll be debt-free except for the small amount remaining on our mortgage. So we can divert the funds that were going to the last car loan towards college. (and both cars are new enough that we won't need to replace for 5-7+ years.) </p>

<p>Our situation is this: we have enough funds saved to cover the first couple years of D's in-state tuition/room/board. Over the next couple years, we s/b able to save enough to cover her final two years. Ditto for S's final two years once D is no longer in school (unless grad school, which isn't in the plan as of now). So it's just really finding a way to cover S's 2 years while D is in school at the same time. That could be 40-80k, depending where he ends up. But it's something we're confident that we can pay back in 2-5 years once both kids are out of school, and still be on target to retire in our early-late 50s (2 pensions help in that area, plus retirement savings).</p>

<p>I can see Thumper's point. </p>

<p>I can understand the concern about cash flow especially with a second child going to college soon. It's hard to forecast the quality of FA packages or merit scholarships for a future child. Yikes!</p>

<p>Keep in mind, when child #1 is a junior, his Stafford will be $7500 (not $5500). It will be $6500 as a soph.</p>

<p>My son will have 10K in sub staffords and/or perkins for several reasons. First is I'd like him to have some skin in the game. Second, there are fed programs for loan forgiveness (he'll be a teacher) and depending on where he ends up those loans might just be forgiven :-)</p>

<p>How about going halfway for freshman year -- a Stafford loan of 2750, so she has some skin in the game? Over four years, this would come to $11K in loans, which isn't formidable.</p>

<p>In fairness, I hope that child #2 -- if at an in-state public -- doesn't end up with more loan responsibility than child #1. </p>

<p>And congratulations on being able to even think about retirement in your late fifties! We can only dream...</p>

<p>Both of our sons turned down full-rides to our State universities to attend $50,000+/year private schools on the other side of the country. In exchange, our children agreed to take out Stafford loans for 3 years (soph., jr., and sr. years) so that they could take responsibility for paying at least a small portion of the cost. The total amount owed upon graduation is not excessive ($15,500) and they can make the monthly payments out of their paychecks.</p>

<p>We were given the same kind of advice when our kids were going to college, but to me, it sounds as good as the advice of people who say they borrow money on their home equity line of credit "for the write off".</p>

<p>Borrowing money when you don't need to doesn't sound like a good idea to me. My kids' "stake in the game" was their grades, and their degree. If they didn't want to do it, I couldn't imagine borrowing money would help any. My oldest actually said to me that he'd feel more like working hard if he were using our money than if it were his. He said he'd feel a bigger sense of responsibility to do well if he were beholding to us for the tuition money. But every family is different.</p>

<p>We're taking unsub Stafford loans to conserve cash in these unpredictable times. If we have cash when our youngest finishes, we'll pay them off. It seems prudent to us.</p>

<p>It is. An unsubsidized stafford loan can be a great investment in your education. While the interest loan is slightly higher than a Perkins loan, you can use the money onwards incidental expenses related to college towards such as the books, the tuition, or even room and board if something happened.</p>

unbaptized stafford loan



<p>Maybe such a loan can't be forgiven upon arrival in heaven.</p>

<p>UNSUBSIDIZED. its hard to type using this keyboard, and its really had to select the right spellcheck option without a mouse! :D</p>

<p>And to make this better, if you take a round number unsubsidized!!! :D Stafford loan, you can calculate the interest each month. For example, I know that $2000 UNSUBSIDIZED STAFFORD LOAN amounts to about $1100 a month; which is barely pocket change and if you can pay that off each month it will stop the Interest Amount from captializing on the principal, making the loan practically the same as a Subsidized St-afford Loan.</p>

For example, I know that $2000 UNSUBSIDIZED STAFFORD LOAN amounts to about $1100 a month;



<p>Agreed with post 17....what are you talking about, Bedouin?</p>

<p>I can dig up the equation for you, but if you take out an unsubsidized Stafford loan and pay off just the interest it should cost you about ELEVEN DOLLARS and a negligible amount of cents per month. Now, I normally just round that off to 0 (as in $1100/month) but I think that it's actually closer to $1133 per month (ELEVEN DOLLARS & THIRTY-THREE CENTS).</p>

<p>The reason why I mention this is because of a little math trick called CAPITALIZATION. Capitalization is when interest multiplies on a principal (the original amount of a loan borrowed). Let's say you take out the 2.000 Stafford Loan. On the first month, if you dont pay, they will add the 1133 to the 2000, leaving you a balance of 2011,33. Then THAT amount is multiplied (or capitalized) by the interest rate of 6.8, which means that the interest payment is higher and that higher amount will be added to 2011,33 and if you don't pay it can increase. It starts out slow, but it can grow really fast so if you wait till graduation that $2.000 loan can jump up BY A LOT and be a real nuisance even if you have a good job.</p>

<p>Makes a lot more sense when you put in the decimal point. :)</p>