Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev Thread | Next Thread
Author: 38Packard Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8174  
Subject: Borrow now or later? Date: 4/7/2007 1:04 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
My daughter has been accepted to Marymount Manhatten College starting in September. She was awarded both academic and competetive scholarship money which will reduce her tuition by more than 25%.

We have a 529 account which can probably pay the remainder of her tuition for this year and most of her second year.

I am wondering whether it is best to put off taking out loans until she depletes her 529, or should we take 25% of her 529 each year until it is depleted and borrow the rest?

We do not qualify for any student low interest loans, so we will have to get unsubsidized loans for the balance of what is due. Should we start borrowing now/ Or wait until we depelete her 529? She has averaged about 5% return annually on the 529 account.

It seems to me, that if she can get loans that do not accumulate interest until after she leaves college, and we can get 5% on the 529, then it makes sense to use 25% of the 529 each year and borrow the remainder each of the four years.

Am I missing something?

Cheers!
'38Packard
Print the post Back To Top
Author: tbear2 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6981 of 8174
Subject: Re: Borrow now or later? Date: 4/7/2007 1:34 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Somehow it just seems logical to deplete the 529 first, and then get loans as required.
Why incur loans before you have to?
Of course that is JMHO.
I am sure if there are special reasons this would not be wise, someone else will jump right in and tell us why.

tb2


Print the post Back To Top
Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6982 of 8174
Subject: Re: Borrow now or later? Date: 4/7/2007 1:45 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
38Packard writes (in part):

It seems to me, that if she can get loans that do not accumulate interest until after she leaves college, and we can get 5% on the 529, then it makes sense to use 25% of the 529 each year and borrow the remainder each of the four years.

I reply:

I think that your premise is mistaken. Unless things have changed since I went to college, interest accrues on the loan from the outset. She won't have to start repayment until after graduation, but interest will accrue. Since she will almost certainly pay substantially more than 5% interest, the wealth-maximizing strategy appears to be to spend down the 529 plan first. --Bob

Print the post Back To Top
Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6983 of 8174
Subject: Re: Borrow now or later? Date: 4/7/2007 2:53 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Before you use 529 money, you may want to run your tax scenarios(and check the due dates for each semester's bills before doing that).

I can't find a great link to explain it but this one's pretty good :
http://www.finaid.org/savings/taxbenefitcoordination.phtml

Also, if the scholarships are not guaranteed for more than one year, find out what the details are - are they renewable under certain circumstances ? Will she have to compete again ?

All of this can help you map out how you'll pay for each year.

rad

Print the post Back To Top
Author: dougdoogle Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6984 of 8174
Subject: Re: Borrow now or later? Date: 4/7/2007 8:21 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
We do not qualify for any student low interest loans, so we will have to get unsubsidized loans for the balance of what is due. Should we start borrowing now/ Or wait until we depelete her 529? She has averaged about 5% return annually on the 529 account.

It seems to me that if she can get loans that do not accumulate interest until after she leaves college, and we can get 5% on the 529, then it makes sense to use 25% of the 529 each year and borrow the remainder each of the four years.


My daughter has both subsidized and unsubsidized loans as she graduates next month. It is my understanding that the interest on the subsidized loans is paid by the government during the years of college and assumed by the student a few months after college ends.

The interest on unsubsidized loans accumulates from Day One, becomes part of the loan, and is due after college ends.

If I had more funds available, I would have helped her reduced the amount of unsubsidized loans first.

Doug

Print the post Back To Top
Author: 38Packard Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6985 of 8174
Subject: Re: Borrow now or later? Date: 4/8/2007 11:49 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks everyone for your replies.

I will be shopping around for loans soon and I was under the impression that the interest did not accrue from day 1 - this appears to not be a correct assumption! It make sense to me then, that if we get a loan for 8% and the 529 is only paying 5%, then it makes sense to use the 529 money first.

The scholarship money is guaranteed the first year, and she must maintain a 3.0 average for each year for it to renew. For the competetive scholarship, she must re-audition each year for it. (She actually must re-audition each year to stay in the Musical Theater program as well).

Thanks for the replies!
'38Packard


Print the post Back To Top
Author: davekone Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6986 of 8174
Subject: Re: Borrow now or later? Date: 4/11/2007 9:15 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
She has averaged about 5% return annually on the 529 account.

5%? Is the money sitting in a fixed income fund or something? Just curious?

David

Print the post Back To Top
Author: 38Packard Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6989 of 8174
Subject: Re: Borrow now or later? Date: 4/14/2007 7:27 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
David,

5%? Is the money sitting in a fixed income fund or something? Just curious?

Yes. She is now college-age, so most (if not all) of her investments are in a fixed income allocation. We did the Fidelity College Plan which starts out a bit more agressive at younger ages, and then allocates more to fixed income as the child gets towards college age.

Cheers!
'38Packard



Print the post Back To Top
Author: pschaaf42 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7243 of 8174
Subject: Re: Borrow now or later? Date: 11/21/2007 5:10 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
IMO you're better off burning through the 529 and any savings you have first and then taking out loans for the rest if the 529 runs out. That will reduce what assets you have that are considered when they calculate your financial aide. Basically they take whatever the cost is for the school and subtract your assets from that and if anything is left, then you might get financial aide. Seems odd but basically you're rewarded the most if you DON'T save for college.

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (9) | Ignore Thread Prev Thread | Next Thread
Advertisement