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As I've posted before, we have covered the first 2 years of college without needing any loans. We've known all along that when year 3 rolled around, we would need to start borrowing to cover costs.
DD signed the promissory note last week for her first Stafford loan of $7,500. DW and I will also be taking a Parent PLUS loan for the remainder of what we need. I'm still trying to figure out exactly how much to borrow. The problem is with my new job, my income is higher (not that that's actually a problem
) so I can't accurately predict how much we will need to cover with the loan. I don't want to take out more than we need and pay interest unnecessarily. On the flip side, though, there is no prepayment penalty so if we do borrow more than we end up needing, I can just make an early repayment of principal to minimize the interest. There is also a cash flow issue. I might earn enough to cover costs 100% but I won't actually have all of that money in time for when tuition is due.
So the end result is that we'll probably borrow about $15,000 and plan to pay about $5,000 out of pocket. Then with the additional income from the new job, I'll make substantial payments on the loan, likely $1,000/month or more, so we won't need to carry that loan for more than a year or so. Another option is to tap some savings and either borrow less or repay the loan faster. We'll need to borrow again next year for her final year and do the same, aggressively repaying it while she's still in school.
The other piece of the puzzle is how much DD will be paying toward the loans. She currently pays us $450/month toward school expenses. The plan is for her to start using that money to pay her loan instead rather than deferring it until after graduation. So if she borrows $7,500 and pays back $450/month, by next year, she'll have repaid $5,400 of it leaving about a $2,100 balance. She'll then borrow another $7,500 and by graduation, repay another $5,400 so she'll come out owing about $4,200 on those loans.
So the end result should be that upon graduation, the total student loan debt shouldn't come to more than maybe $10,000. She and we will take out loans but will basically cash flow the repayment over the next two years.
DD signed the promissory note last week for her first Stafford loan of $7,500. DW and I will also be taking a Parent PLUS loan for the remainder of what we need. I'm still trying to figure out exactly how much to borrow. The problem is with my new job, my income is higher (not that that's actually a problem
) so I can't accurately predict how much we will need to cover with the loan. I don't want to take out more than we need and pay interest unnecessarily. On the flip side, though, there is no prepayment penalty so if we do borrow more than we end up needing, I can just make an early repayment of principal to minimize the interest. There is also a cash flow issue. I might earn enough to cover costs 100% but I won't actually have all of that money in time for when tuition is due.So the end result is that we'll probably borrow about $15,000 and plan to pay about $5,000 out of pocket. Then with the additional income from the new job, I'll make substantial payments on the loan, likely $1,000/month or more, so we won't need to carry that loan for more than a year or so. Another option is to tap some savings and either borrow less or repay the loan faster. We'll need to borrow again next year for her final year and do the same, aggressively repaying it while she's still in school.
The other piece of the puzzle is how much DD will be paying toward the loans. She currently pays us $450/month toward school expenses. The plan is for her to start using that money to pay her loan instead rather than deferring it until after graduation. So if she borrows $7,500 and pays back $450/month, by next year, she'll have repaid $5,400 of it leaving about a $2,100 balance. She'll then borrow another $7,500 and by graduation, repay another $5,400 so she'll come out owing about $4,200 on those loans.
So the end result should be that upon graduation, the total student loan debt shouldn't come to more than maybe $10,000. She and we will take out loans but will basically cash flow the repayment over the next two years.
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