anyone willing to help with some college loan payment questions?

[Homerboy]

First please excuse my complete stupidity in these matters. For some reason, when it comes to money, interest, loans etc. I just am not the sharpest tool in the shed and I can't wrap my brain around things.

My son just finished his 1st semester of college. He will be going back full time in 2 weeks.

To pay for college, he has some loans through the school and in addition we took out a Parents Plus loan for $5,500 per semester ($11,000 total for year 1)
We have about $4,000 or so in a 529 that we could cash out and put towards the loan in question.
In addition, I'd like to make a nominal payment towards his loan(s) every month just to help him a little so he's facing less of a mountain if/when he graduates.

That being said, I assume right now the interest SHOULD be accumulating, but since the whole COVID mess, all interest has been halted. Since it's been COVID since he started school, he has accrued $0 in interest thus far. Once COVID is over (or the forbearance is lifted) if I'm understanding things properly, his 5.x% will kick in again. (I keep saying "his loan" and I realize it's in MY name and I"M 100% responsible for it)

So, my questions are these:

Does it make sense to cash out that 529 and throw it all at this Parents Plus loan right now? Or should we hold onto that 529 money longer?
And, if I'm making a monthly payment on this now to help him out a little later down the road, I'm given two options to apply the payment:

a) (This selection only affects accounts that aren't in repayment yet AND are within 120 days of you receiving loan funds.) Refund payments directly reduce the amount of money you originally borrowed (principal), recalculate any existing accrued interest based on reduced principal, and may reimburse a portion of the federal loan origination fees.

b) Your early payment will be applied first to any accrued interest, then to your principal balance. This helps you keep up with your accrued interest so it's not capitalized, but you won't benefit from the reduced principal that refunds provide.

Which option makes more sense?




Thanks in advance!

 

[DainBramaged]

First question: Personally, I'd defer doing anything with the 529 at least until interest begins to accrue. Money in the pocket is worth ten monies in the bush. That's my own original folk saying, but you can reuse it if you want.

Second question: I'm a "principal whore.™" I'm completely obsessed with reducing the principal. I will go to extreme lengths (probably irrational lengths) to pay off principal. BUT. That's your call. If you know you'll be paying lots of interest, maybe the other option? I'd make a spreadsheet about it lol.

 

[Tweak155]

I would compare the eventual interest rate of the student loan to your average rate of return on the 529 and see which is greater. If they're close, then it's to your preference.

Option A nets better return than option B assuming you have any interest accrued, but in this case they're equal since you have $0 interest - so doesn't matter.

If it were me, I'd wait at least until interest accruing becomes a possibility again. Last I heard, Biden wants to extend the 0% interest as one of his first initiatives.

 

[s0me0nesmind1]

Depends, do you have any other loans with interest higher than your 5.5% or whatever?

Also consider tax benefits of paying off college loans if it's tax deductible - I never had loans so I'm not up to date on the latest deductions/credits for student loans. Since the loan is in your name, I also don't know if those tax benefits apply to only the student or the person paying.

 

[ponyo]

What if Biden forgives like $10k in student loans for everyone?

 

[s0me0nesmind1]

What if Biden forgives like $10k in student loans for everyone?

I wouldn't even think these parent based loans would qualify? Doesn't sound like a typical student loan financing?

 

[highland145]

What if Biden forgives like $10k in student loans for everyone?

So much for being responsible and paying your loan off but that's another topic.


1 other thing is that the 529 is state tax free. I can draw out of my son's anytime that I want as long as I keep supporting documentation so it might help to put it in the 529 1st and then pay on the on the loan. YMMV

 

[deadlyapp]

I think just about everyone else has covered it, however here are my recommendations:
- Hold onto the 529 - there's no reason to cash it out to pay until interest starts accruing again. Assumedly your 529 is continuing to gain value, even if it is in low growth bonds, vs the loans which are fixed in value for time being. If your 529 is high value, it may even make more sense to hold onto it after the interest comes back on the loan, if you can best 5.x% APR in growth over the lifespan (probably more risky considering market over the next year or so).
- Check on the loans - if they are federal unsubsidized loans, then yes, the interest starts accruing immediately, so starting paying them early will reduce the overall interest over time. If they are subsidized loans, then there is no interest accrued until 6 months after graduation
- Generally, you want to pay as much towards the principal as possible up-front. Student loans are a little sneaky as they generally allow you to basically pre-pay future payments, so basically they're applying your lump sum over multiple months, but you will end up paying more interest over time when applying in this way
- As others have said, there is a high likelihood that the student loan deferment will continue in the next month or two. The debt pay off probably won't apply (and I'm sure there will be some strings attached to it if/when it does happen) so I wouldn't figure that into your decision making process.

 

[Homerboy]

So, to recap:

A) don't cash out the 529 now. Wait until the interest starts accruing (when the COVID forbearance is lifted). This makes sense and pretty much what I was assuming.
B) federal debt payoff, while still entirely unknown, probably won't apply to the Parents Plus loans. Which is fine, he has an additional $3K per year or so from the school directly under his name so if that debt relief ever happens, it should apply to those loans.
C) making a monthly payment now is (obviously) a good idea. Even if nominal (which it will be... I just want to help him out A LITTLE behind the scenes. Even if it's $25-$50 per month) Those payments should be applied to option A in the OP (Refund payments directly reduce the amount of money you ...)

 

[Homerboy]

What if Biden forgives like $10k in student loans for everyone?

I follow a couple of subs on Reddit. And I find this student debt relief thing... interesting.

1. People in those subs want ALL (not $10k or any partial) student loan debt erased or "Biden and no other democrat is getting my vote"
   1. when I try to explain to them that giving the GOP the position (or any position) by not voting Democrat things will only get worse AND they will NEVER get student loans erased.
      1. They respond. "We don't care. Burn it all down"
2. I feel that a lot of these posts and comments are troll accounts - sowing the seeds of discontent which makes sense tactically from a GOP standpoint. Keep planting the seeds of not voting or voting 3rd party and that betters the cause of the Republican candidates across the board
3. When I ask about FUTURE student loans, and kids currently taking out loans today (like my kid!) they don't care. They just want THEIR loans erased but try to defend it by saying the whole system is rigged and nobody should be doing it etc (which they are right to an extent)
   1. This really undermines their position in my eyes though - they just want THEIR debt removed. So they are taking the FYGM approach? Makes no sense. See #2 above.

 

[Torn Mind]

I follow a couple of subs on Reddit. And I find this student debt relief thing... interesting.

1. People in those subs want ALL (not $10k or any partial) student loan debt erased or "Biden and no other democrat is getting my vote"
   1. when I try to explain to them that giving the GOP the position (or any position) by not voting Democrat things will only get worse AND they will NEVER get student loans erased.
      1. They respond. "We don't care. Burn it all down"
2. I feel that a lot of these posts and comments are troll accounts - sowing the seeds of discontent which makes sense tactically from a GOP standpoint. Keep planting the seeds of not voting or voting 3rd party and that betters the cause of the Republican candidates across the board
3. When I ask about FUTURE student loans, and kids currently taking out loans today (like my kid!) they don't care. They just want THEIR loans erased but try to defend it by saying the whole system is rigged and nobody should be doing it etc (which they are right to an extent)
   1. This really undermines their position in my eyes though - they just want THEIR debt removed. So they are taking the FYGM approach? Makes no sense. See #2 above.

Might be trolls but it is probably exactly how humans roll.

At the same time....colleges are indeed hustling studnets into degrees based on a high schooler's "intellectual ideals" rather than earning a living.

If I had to do it over again for the money, I would have just gotten an associates with the Pell Grant money I got and became a radiologic tech and reel with 70+k a year. I have the charisma of a paper bag, a voice that sounds like someone from a special needs class, and build that is scrawny, and hate job listings with "intangibles". I'm too simple-minded and mechanistic in that regard.

 

[Homerboy]

Might be trolls but it is probably exactly how humans roll.

At the same time....colleges are indeed hustling studnets into degrees based on a high schooler's "intellectual ideals" rather than earning a living.

If I had to do it over again for the money, I would have just gotten an associates with the Pell Grant money I got and became a radiologic tech and reel with 70+k a year. I have the charisma of a paper bag, a voice that sounds like someone from a special needs class, and build that is scrawny, and hate job listings with "intangibles". I'm too simple-minded and mechanistic in that regard.

Yeap - my son is just wrapping up year 2 of his undergrad (psychology) and plans/dreams getting into med school. I think he has a good shot, but at the start of EVERY semester I talk to him and drill into him "If you are not SURE about this, or what you want to do etc... there's NOTHING wrong with hitting pause for now versus going deeper into debt with something you will never use." Granted he's "only" paying $14k/year or so. So, he won't be SUPER buried for his undergrad (still a truck ton of money and a good potion in my name too...)

 

[Brainonska511]

Yeap - my son is just wrapping up year 2 of his undergrad (psychology) and plans/dreams getting into med school. I think he has a good shot, but at the start of EVERY semester I talk to him and drill into him "If you are not SURE about this, or what you want to do etc... there's NOTHING wrong with hitting pause for now versus going deeper into debt with something you will never use." Granted he's "only" paying $14k/year or so. So, he won't be SUPER buried for his undergrad (still a truck ton of money and a good potion in my name too...)

My spouse is in med school right now. Tuition for it is eye-popping.

As for dreams of med school, best of luck for when he applies. Having seen my partner go through it last year, it is quite a slog (and also expensive just to apply).

 

[Homerboy]

My spouse is in med school right now. Tuition for it is eye-popping.

As for dreams of med school, best of luck for when he applies. Having seen my partner go through it last year, it is quite a slog (and also expensive just to apply).

So you're volunteering for some help in navigating it?
Yeah - we're aware of the costs. Brutal.
He's aware of the "slog" to get through all the hurdles. He's sitting on a 3.93 GPA right now. Has good volunteering to list. Working on a CNA job for the summer/school going forward. Going to start going through MCAT studying and learning etc this summer as well.

 

[nisryus]

My son is aiming to study Pre-Med so he can prepare himself to try to go into a medical school. He is currently in an EMS Post group and volunteer some of his time. He knew med school is hard to get unto and cost is.. very very high.

He is going to be Junior next year, so we are looking at every venues to see if there is a way to help him with costs. (Wife tries to talk him out of medical field, into something easier..)

 

[Brainonska511]

My son is aiming to study Pre-Med so he can prepare himself to try to go into a medical school. He is currently in an EMS Post group and volunteer some of his time. He knew med school is hard to get unto and cost is.. very very high.

He is going to be Junior next year, so we are looking at every venues to see if there is a way to help him with costs. (Wife tries to talk him out of medical field, into something easier..)

As a doctor, the degree can pay for itself easily (and if you want to work in some specialties and underserved areas, there are also loan forgiveness programs). I'd say one of the bigger hurdles is just having to shell out thousands up front just to apply.

And of course, once you get in, there are sometimes other expenses federal loans can't cover (like if you need a car for clinical rotations).

Also, nothing wrong with taking a year or two between undergrad and med school, either to save some money or gain experiences before you start a process with few breaks. Plenty of people in my spouse's class, including my spouse, have taken that approach.

 

[Homerboy]

Re-opened the app and now it's running.... whatever.

As a doctor, the degree can pay for itself easily (and if you want to work in some specialties and underserved areas, there are also loan forgiveness programs). I'd say one of the bigger hurdles is just having to shell out thousands up front just to apply.

And of course, once you get in, there are sometimes other expenses federal loans can't cover (like if you need a car for clinical rotations).

Also, nothing wrong with taking a year or two between undergrad and med school, either to save some money or gain experiences before you start a process with few breaks. Plenty of people in my spouse's class, including my spouse, have taken that approach.

man, my kid is just struggling to find a job right now to get "patient hours" for the med-school application resume. He got his CNA over winter break and now has been applying to local hospitals near his school (he's staying there this summer) and not getting any hits. He's concerned with the hours and I'm concerned about the lack of income to pay for his apartment up there!

 

[nisryus]

I guess it depends on where one is located. I see plenty of CNA openings around my area (Central Texas).

Maybe also because he just got his CNA and might need some experience first? Has he volunteered at local hospitals before? This usually get one into the door because ppl would know him.

 

[Hans Gruber]

My son is aiming to study Pre-Med so he can prepare himself to try to go into a medical school. He is currently in an EMS Post group and volunteer some of his time. He knew med school is hard to get unto and cost is.. very very high.

He is going to be Junior next year, so we are looking at every venues to see if there is a way to help him with costs. (Wife tries to talk him out of medical field, into something easier..)

There is no such thing as pre-med. No degree exists other than on soap operas and in movies. There are advanced science degrees that would pass for a pre medical school degree. A bachelors in bio chemisty, that sort of thing.

 

[nisryus]

Oh we know Pre-Med is not a degree. Pre-Med is to only to help a student to prepare to take the MCAT exam before getting into Med school (if). He is taking International Relation along with Pre-Med classes.

 

[Homerboy]

I guess it depends on where one is located. I see plenty of CNA openings around my area (Central Texas).

Maybe also because he just got his CNA and might need some experience first? Has he volunteered at local hospitals before? This usually get one into the door because ppl would know him.

yeap lots of openings at Mayo (branch) where he's applying. He was an idiot and sent in one application for a full time position and I'd think that since he will be going back to school and end up PT he needs to re-apply. He just carpet-bombed them yesterday with like 8 applications for every available CNA position - even ones that are per diem (which is something I didn't know existed). He's actually been volunteering there for the past 18 months or carting patients around (and loves it)

 

[nisryus]

Ah cool. Hopefully he will get some good news soon.

 

[deadlyapp]

Friend of mine is 34 and just started his clinicals this year. He got a degree in construction management, worked in the field a few years, then went to CU Boulder for his med degree, graduating a year or two ago. He opted to go into the military for clinicals and I think he has a 4 year or 6 year commitment as a resident and attending. They pay for everything which helped him a lot but salary is lower and you don't really get to choose where you have your rotation (he ended up in El Paso).