When do I take out a student loan?

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tundratoy
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When do I take out a student loan?

Post by tundratoy »

My daughter is going to college. I am not sure whether to pay for the first year or take out a student loan? I can pay for the first year today without a loan. The risk in paying today would be missing out on possible loan forgiveness.
My instincts tell me not to take a loan until I absolutely need it? What should I do?
DoubleComma
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Re: When do I take out a student loan?

Post by DoubleComma »

IMO, you should NOT expect any loan forgiveness and only take loans when you actually need them.
Lee_WSP
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Re: When do I take out a student loan?

Post by Lee_WSP »

If you can cash flow it without hardship, just pay for it with your salary. Paying off her loans later may amount to a taxable gift (uses up your lifetime exemption) if you exceed the annual exemption limit.

It's really a consumption and cash flow question as opposed to a personal finance issue. It isn't your loan.
AnEngineer
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Re: When do I take out a student loan?

Post by AnEngineer »

Lee_WSP wrote: Sun Jun 13, 2021 3:17 pm If you can cash flow it without hardship, just pay for it with your salary. Paying off her loans later may amount to a taxable gift (uses up your lifetime exemption) if you exceed the annual exemption limit.

It's really a consumption and cash flow question as opposed to a personal finance issue. It isn't your loan.
Most of the loans are cosigned by parents, right? Wouldn't that be paying off your own debt?
Lee_WSP
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Re: When do I take out a student loan?

Post by Lee_WSP »

AnEngineer wrote: Sun Jun 13, 2021 6:36 pm
Lee_WSP wrote: Sun Jun 13, 2021 3:17 pm If you can cash flow it without hardship, just pay for it with your salary. Paying off her loans later may amount to a taxable gift (uses up your lifetime exemption) if you exceed the annual exemption limit.

It's really a consumption and cash flow question as opposed to a personal finance issue. It isn't your loan.
Most of the loans are cosigned by parents, right? Wouldn't that be paying off your own debt?
Those are parent plus. You should not sign. Tell your kids to go elsewhere or pay out of pocket.
AnEngineer
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Re: When do I take out a student loan?

Post by AnEngineer »

Lee_WSP wrote: Sun Jun 13, 2021 6:42 pm
AnEngineer wrote: Sun Jun 13, 2021 6:36 pm
Lee_WSP wrote: Sun Jun 13, 2021 3:17 pm If you can cash flow it without hardship, just pay for it with your salary. Paying off her loans later may amount to a taxable gift (uses up your lifetime exemption) if you exceed the annual exemption limit.

It's really a consumption and cash flow question as opposed to a personal finance issue. It isn't your loan.
Most of the loans are cosigned by parents, right? Wouldn't that be paying off your own debt?
Those are parent plus. You should not sign. Tell your kids to go elsewhere or pay out of pocket.
The limits outside of those loans are pretty low though, right? You could probably finance community college without parent plus, but nothing else.
Lee_WSP
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Re: When do I take out a student loan?

Post by Lee_WSP »

AnEngineer wrote: Sun Jun 13, 2021 6:45 pm
Lee_WSP wrote: Sun Jun 13, 2021 6:42 pm
AnEngineer wrote: Sun Jun 13, 2021 6:36 pm
Lee_WSP wrote: Sun Jun 13, 2021 3:17 pm If you can cash flow it without hardship, just pay for it with your salary. Paying off her loans later may amount to a taxable gift (uses up your lifetime exemption) if you exceed the annual exemption limit.

It's really a consumption and cash flow question as opposed to a personal finance issue. It isn't your loan.
Most of the loans are cosigned by parents, right? Wouldn't that be paying off your own debt?
Those are parent plus. You should not sign. Tell your kids to go elsewhere or pay out of pocket.
The limits outside of those loans are pretty low though, right? You could probably finance community college without parent plus, but nothing else.
There's nothing wrong with state school and community college.
AnEngineer
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Re: When do I take out a student loan?

Post by AnEngineer »

Lee_WSP wrote: Sun Jun 13, 2021 6:54 pm
AnEngineer wrote: Sun Jun 13, 2021 6:45 pm
Lee_WSP wrote: Sun Jun 13, 2021 6:42 pm
AnEngineer wrote: Sun Jun 13, 2021 6:36 pm
Lee_WSP wrote: Sun Jun 13, 2021 3:17 pm If you can cash flow it without hardship, just pay for it with your salary. Paying off her loans later may amount to a taxable gift (uses up your lifetime exemption) if you exceed the annual exemption limit.

It's really a consumption and cash flow question as opposed to a personal finance issue. It isn't your loan.
Most of the loans are cosigned by parents, right? Wouldn't that be paying off your own debt?
Those are parent plus. You should not sign. Tell your kids to go elsewhere or pay out of pocket.
The limits outside of those loans are pretty low though, right? You could probably finance community college without parent plus, but nothing else.
There's nothing wrong with state school and community college.
No, nothing wrong with state schools, or CCs for that matter.

First year loan limit is $5500. A quick Google search shows a significant number of states (if not most) have tuition in excess of that amount, let alone other costs, fees, and living expenses.
Trader Joe
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Re: When do I take out a student loan?

Post by Trader Joe »

tundratoy wrote: Sun Jun 13, 2021 1:21 pm My daughter is going to college. I am not sure whether to pay for the first year or take out a student loan? I can pay for the first year today without a loan. The risk in paying today would be missing out on possible loan forgiveness.
My instincts tell me not to take a loan until I absolutely need it? What should I do?
Community college for the first two years of college is a solid, tried and true strategy with negligible cost. Student loans are not required.
TheDDC
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Re: When do I take out a student loan?

Post by TheDDC »

tundratoy wrote: Sun Jun 13, 2021 1:21 pm My daughter is going to college. I am not sure whether to pay for the first year or take out a student loan? I can pay for the first year today without a loan. The risk in paying today would be missing out on possible loan forgiveness.
My instincts tell me not to take a loan until I absolutely need it? What should I do?
How about never? Pay cash.

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JonnyDVM
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Re: When do I take out a student loan?

Post by JonnyDVM »

I would definitely pay for it rather than letting her carry a loan burden for 25 years hoping forgiveness comes through.
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White Coat Investor
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Re: When do I take out a student loan?

Post by White Coat Investor »

tundratoy wrote: Sun Jun 13, 2021 1:21 pm My daughter is going to college. I am not sure whether to pay for the first year or take out a student loan? I can pay for the first year today without a loan. The risk in paying today would be missing out on possible loan forgiveness.
My instincts tell me not to take a loan until I absolutely need it? What should I do?
I wouldn't borrow and pay fees and interest to do so in hopes that maybe some amount is forgiven down the line. If I could pay cash, I would do so. Good luck with your decision.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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leeks
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Re: When do I take out a student loan?

Post by leeks »

Pay directly. No question.

Loan forgiveness is complicated, unreliable as policies keep changing, and if your daughter makes a high salary - or gets married during the repayment period to someone with high income - most if not all of the loan could be repaid before forgiveness eligibility anyway. She would also lose out if she doesn't stick to jobs in the eligible categories or takes breaks from "eligible" employment.

That is what happened to me. The 10-year loan forgiveness seemed to calculate as advantageous based on my own earnings and nonprofit career preferences. So I made only minimum payments on $80K after grad school and I completely ignored (in retrospect it was glaringly obvious) that the longtime boyfriend I was living with was likely to be a high earner after finishing his ivy league computer science PhD. I literally never considered what his future income would be like and what dual incomes would do to the loan repayment (loan forgiveness required having been on an income-based repayment plan).

After we married, he soon finished his phd and then started a high salary. Our income-based minimum payments became much higher (but filing separate tax returns would have been even more expensive). Then we had a child and I stopped working (so my years of eligible employment were paused). Based on minimum income-based payments (as long as he didn't lose his job), we would have paid the balance of the loan before I could have been eligible for forgiveness. So we switched to paying off the loans ASAP and they were paid off before our second child and long before I was ready to return to work (to get more "eligible" employment years).

I wasted a lot of money on 6.5% interest when I should have just paid off the loans ASAP after grad school instead of chasing forgiveness which even if it had worked would have been of minimal benefit. Hindsight.
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