<p>Our EFC came out to about 10k annually but we can only afford to cover 5k out of pocket. The university has an interest-free payment plan that will allow us to make 10 annual installments. Assuming this university was our only choice, would it be better to:</p>
<p>Pay the school 5000 on installment and get a PLUS loan for the other 5k, and defer payments till after graduation. After 4 yrs we would have a debt of 20k+ accrued interest.</p>
<p>or…</p>
<p>Get a PLUS loan that covers the entire amount then pay $500/month which would be an overpayment (based on 10 year pmt schedule). After 4 years we would have borrowed 40k + accrued interest but by then we would have paid down a out half of that and accrued less interest. </p>
<p>I am guessing I’ll end up with a slightly (?) smaller post-graduation balance with the second option due to less accrued interest. I also think that the second option will allow me to reduce my monthly payments to the minimum if other needs arise. The school installment plan in the first option is like a contract so we would not have the flexibility to adjust monthly payment amounts. </p>
<p>Comments appreciated.</p>
<p>I would try to do the payment plan, at least for the first year, to minimize the interest and fees, or do a combination lesser payment plan with a higher loan. With PLUS loans, you have origination fees and interest and the interest definitely piles on. If the payment plan is too difficult to maintain, you can always switch for the second year.</p>
<p>Also, when considering FA for the future years, if the FA calculation is factoring in any assets that you would be spending down with the tuition payment plan, it would help your future efc.</p>
<p>From Clark Howard:</p>
<p>Subsidized Stafford loans are the single best source of money you can borrow.
The interest is picked up by taxpayers while you’re in school. </p>
<p>Once you exhaust your subsidized Stafford stockpile, you want to move on to unsubsidized Stafford loans. </p>
<p>As a third option, parents can take out PLUS loans.</p>
<p>One category of loans to avoid is private student loans.</p>
<p>Finally, remember the consumer champ’s rule of thumb when it comes to determining what level of borrowing you can comfortably handle: Do not take on loans that exceed the likely first-year earnings in your field.</p>