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Old 04-14-2013, 12:14 AM   #1 (permalink)
Captainneeda
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College and College Loans

I feel like I have spent too much time trolling this section of the forum and not contributing. So, without further adieu, a couple of thoughts and points on college loans, in the US.

Subsidized vs Unsubsidized loans:
Know the difference, it matters when it comes interest. With a Subsidized loan the federal government pays the interest on the original principal until you finish school. With an Unsubsidized loan, you being accruing interest the moment the loan in dispersed.

Advice: Pay as much of the interest as you can, on your Unsubsidized loans, while you are in school. That way you are not paying interest on your accrued interest. Even $20 bucks a month can make a huge difference, by the time you finish school.
Forbearance:
Allows the borrower to delay payments for a period of time. Accrued interest may be added to your principal (called capitalized interest).

Advice: Avoid forbearance like the plague. It should be thought of as a 'nuclear' option
Federal vs Private student loans:
I have nothing to say for this section other than federal student loans are lesser of two evils. Believe me when I say that private student loans border on usury. Here is a great story of a private student loan issuer who went after the parents of a dead college student (TLDR, after a public uproar the bank forgave the debt).

Advice: If you have to take out private student loans, know what you are getting into. Know the interest rate(s), what kind of interest it is (fixed, variable, etc), and what your overall obligation is.
Loan Consolidation:
Do not count on being able to do a loan consolidation when you are done with school. In the case of a federal consolidation, not all loans are eligible for consolidation, even loans issued by state institutions!

Furthermore, it might not be in your best interest to consolidate immediately. Generally, the interest rate that you pay post consolidation is a weighted average of the amount of money you have borrowed, and at what interest rate you have borrowed it. Here is an example:

Loan #1: Subsidized Federal Stafford Loan $5,000.00 3.400%
Loan #2: Subsidized Federal Stafford Loan $7,500.00 3.400%
Loan #3: Unsubsidized Federal Stafford Loan $2,500.00 6.800%

Loan post consolidation: $15,000 4.000%


That kinda sucks. That one unsub loan is kinda killing your interest rate. What would happen if you were to pay back just part of that loan before consolidating?

Loan #1: Subsidized Federal Stafford Loan $5,000.00 3.400%
Loan #2: Subsidized Federal Stafford Loan $7,500.00 3.400%
Loan #3: Unsubsidized Federal Stafford Loan $1,000.00 6.800%

Loan post consolidation: $13,500 3.750%

Hey, a quarter percent difference. You might be saying 'Well that is not too impressive'. I disagree.

Great tool from the federal goverment: Loan consolidation calculator

Advice: Try to knock out as much of your higher interest loan debt as possible, before consolidating.
Enrolling in EDA:
An Electronic Debit Account is just an automatic payment from your bank account. Not only will you never forget, they give you a quarter percent reduction on your interest rate. Furthermore, nothing is stopping you from making additional payments!

Advice: I think it is a great program. YMMV
Watch this space, more tips and advice inbound!
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Last edited by Captainneeda; 04-14-2013 at 12:37 AM.
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