Downside to taking subsidized loan & paying off as soon as grace period ends?

Paying for College Financial Aid (Need-Based, Merit Aid, Loans)
1

(I looked for previous answers to this & didn’t find any; please feel free to point me to any previous discussions that answer it!)

We’re considering taking our rising college junior’s offer of a federal direct subsidized loan, with a plan to pay it off as soon as she’s at the end of the 6-month-post-graduation grace period. Our thinking is that she can put an equal amount of money away in a high-interest savings account, and then pay off the loan when the time comes with no financial hit and the bit of interest she will have earned in those 2.5 years.

Is there a downside that I’m missing here? (The 1.057% loan fee will be a lot less than the, say, 3.9% APR, no?) I feel like I must be missing something obvious. Negative effects on her credit rating? Thanks for any thoughts.

2

We paid off the loan at the end of the grace period, I hadn’t actually thought of the savings interest angle but I suppose that was true for us! Basically we wanted to delay paying up front because my now-ex had had a stroke and we were fighting for disability payments, which came in time to pay off the loan!

1 Like
3

Our kids took some direct loans. They actually were UNsubsidized but we paid the interest off each year. Then we paid the whole thing off after they graduated.

1 Like
4

Just be sure that the payment is made and processed before the end of the grace period. As soon as the grace period is over, the interest kicks in. You want to pay off the loan before you get stuck with any interest.

1 Like
5

Good tip—thank you!