Use Grants To Repay Student Loans?

by Judge Josh on September 17, 2010

Kara’s done pretty well by herself. Good grades, community service, grants, and now admission to grad school at one of the best universities in the world. Yes, the entire world.

But even the most accomplished among us can rarely escape student loans, and she’s no exception. Up rises the question once again, then, about how you should treat a lump-sum grant or scholarship when you’re sitting on tens of thousands of dollars in student loans.

grants to repay student loans

Couldn't find an appropriate photo for today's topic, so enjoy this picture of a goat with large ears.

Hi Judge Josh,

Afternoon, ma’am.

I’ve been receiving your emails for a few months already and I’ve benefitted from reading quite a number of them – thanks for offerring such helpful and unbiased advice!

Hey, thanks for noticing and for saying so! I appreciate it.

But now I have a question of my own perhaps you could help with…

Sure, let’s hear it.

I recently graduated from Saint Michael’s College with a Bachelors of Arts majoring in English, minoring in Women’s Studies and in the Honor’s Program, Phi Beta Kappa, yada yada yada.

Congrats! Phi Beta Kappa’s nothing to yada about! :)

Apart from these accolades, I have been awarded about 24,000 in student loans (Perkins and Stafford, no private lenders).

Hey, if you’ve gotta take out $25,000 in student loans, those are the best ones to have.

Fortunately, this past year I spent serving with the AmeriCorps National Civilian Community Corps and am now the proud recipient of a Segal AmeriCorps Education Award for 5,350 which I can put towards loans or tuition.


Free money isn’t bad, either. :)

Next year I will be teaching English in France through the French Ministry of Education and I’m not too keen on spending my income on loans rather than travelling….

OK, since this is a long note, I’m gonna paraphrase just to keep it all straight for everyone (myself, mostly):

You got a grant that you can either use to pay next year’s tuition or to pay current student loans. And although you didn’t say this part, it’s true also: you have seven years to use all of the $5,350, per the terms of the Segal AmeriCorps Education Award.

OK, onward:

The year after that I will be attending McGill University for a graduate degree in Library and Information Science – yippee, 3 year plan! I was accepted this past year, but deferred for the year to take up the teaching opportunity that presented itself in France.

seagal

This is Steven Seagal.

OK, no problem. That’s one year in France and three years in Montreal at McGill. Four out of seven years, so still looking pretty good….

Now, although my parents were mighty helpful funding my undergraduate degree, I’ll be largely On My Own for this master’s program at McGill and intend on taking on some hefty PLUS loans.

Naturally.

Here is my question: would I be better off saving this AmeriCorps Ed Award for paying off my undergraduate loans or using it to avoid taking out additional PLUS loans and put it straight toward tuition at McGill.

I’d probably just use it to make the monthly loan payments until the money runs out. I’ll give you details below, but, speaking very generally, I’m not a huge fan of blowing a big wad of liquid cash, because once you write the check to McGill, the money’s gone. Better to keep the cash in your “pocket,” so to speak, and keep your options open down the line.

You can use that cash as a cushion to make your loan payments over the next seven years. Even if your payments are suspended while you’re doing your master’s, there will still be three solid years after that when you’ll be needing to make loan payments,  and that AmeriCorps cash wad will do just fine.

sagal

This is Katey Sagal.

Saving it for McGill would mean I would have to put my undergrad loans into forbearance for the upcoming year

I’m not sure why this is true, exactly — why you would HAVE to do this. I can see why you might want to, but my estimation is that it’d probably be a $250-ish payment. Is your budget tight to the point where it wouldn’t be possible to make this payment?

I don’t know, I’m just asking. Either way, though — forbearance is fine. I did it one year when my wife and I were broke as hell and starting our Google advertising agency and selling plasma twice a week just to pay the electric bill.

It’s one year — it won’t make a huge difference in the grand scheme of repayment of some $50,000 in student loans when your education is all said and done.

and would mean I would accrue even more interest than I already have since graduation in 2009.

That’s true, but again, over time, the difference will be imperceptible. Now, weigh that against having the extra money (from your income teaching) to spend in France, doing Frenchy things.

Let’s be honest — you may not get back to France for a year again. You may not get back to France EVER. Not to get all wishy-washy touchy-feely on you, but the enriching life experiences that you can make for yourself with the extra argent in France far, far, far outweigh any sort of practical comfort you’ll create for yourself with the sliver of reduced interest money you’ll have NOT paid by prepaying grad tuition.

seagull

This is a seagull.

It also makes me wonder about whether having a 5,350 credit to my name would affect my eligibility for financial aid.

Well, the way I read the AmeriCorps documentation is that while you do have to pay taxes on that money, it’s supposed to be excluded from your financial need calculation. So, it shouldn’t count against you.

However, even if it does — it’s not a huge sum of money versus the cost of graduate education at McGill. I’m thinking it’s unlikely to move the financial aid needle in a significant way, even if they do count it against you.

As of now I’m arranging for AmeriCorps to pay off the interest that has accrued while serving with them and for the Ed Award to pay off impending due payments but I’d be interested in hearing your opinion. Would I be better off filing for forbearance?

I don’t see how you’d be “better off” in any way, necessarily, by filing for forbearance. In fact, if you’ve got the Segal money just sitting there doing nothing, you might as well use it to pay whatever current loan payments you’ve got.

There’s not much sense that I can see in a) having student loan payments due and accruing interest, b) having the Segal money right there and available to pay them, and c) not paying them.

Thanks for your words of wisdom!

You’re welcome, and thanks for asking. I hope this was helpful, and hope the comments add some additional perspective. Enjoy France (and Montreal)!

— What about you guys? Any words of advice for Kara? Recommendations for France? Money moves? Let us know in the comments below.

{ 5 comments… read them below or add one }

Nia September 17, 2010 at 7:11 pm

Hey everyone, how’s it going?

Listen. Kara… well first let me say congrats on your recent graduation and all of your accomplishments! Sounds like you are on the move toward great things!

As usual, Josh gives good advice. RIght now, you are at a point in your life where you have a world of opportunity in front of you so definitely go for it. I understand your concern about student loans and debt, but there are plenty of ways to take care of that and still live your life without it having some type of negative effect on you.

The fact that you’ve worked with the Americorps lets me know that you’re not afraid of a challenge. One way to get some of your student loans paid off it to actually get a job that provides for repayment of your loan in return for your service. So let’s see here – you have a bachelor’s in English and you’re going to get your graduate degree in Library and Information Science. THere is a Teacher Loan Program through the Department of Education that will offer to pay off a certain amount of your loan in return for teaching in underserved areas. I’m guessing that you want to be a librarian, but call the Dept. of Ed and see what they have to offer. I know there are other national programs for policement, doctors, nurses and even social workers – if you scout around, I’m sure you’ll find a program to meet your needs.

But that’s just for future reference. For now, take Josh’s advice, and enjoy France and Montreal!

Best of luck to you!

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Idih September 20, 2010 at 4:10 pm

you open an account, instead of paying government intrest you pay your your self with compound intrest. that is scholarship money, not loan.

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Emily What June 28, 2011 at 5:11 pm

I think Josh is right. You shouldn’t use up all of your forbearance unless you really need to, because you may need it in an emergency situation at some point!

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Chelsie August 28, 2011 at 3:33 pm

If I had over $5,000 bucks that I could do anything with I’d invest at least part of it so that it could continue making me more money!!

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Zach August 30, 2011 at 10:49 pm

Hi everyone – would love to hear some advice. Josh hasn’t gotten me an answer for a long time despite his promise to answer within a couple of days if we publicize this site via social media sites. I guess he’s busy.

I’ll keep it as short as I can. Thanks for your advice in advance…

I will be a senior this fall at Alfred University, on track to graduate with a BS in Marketing. Unfortunately, after classes and a couple of internships, I realize that I detest the concept and practice of marketing. My passions, I believe, lie in writing and thinking about “softer” fields including sociology/psychology, theology, and ethics.* I have 35k in debt so far.

But at this point, I wonder if I should just make the smartest decision financially and pursue a field that I won’t kill myself doing like marketing/selling.

Should I switch majors to Accounting, costing me another 10k in debt and year of school plus whatever else for a CPA? Or–my brother is a mechanical engineer at Cornell, I come from a long line of engineers, and I’m pretty bright–should I go for a second bachelor’s in engineering after graduating with my Marketing degree? That option might run me another 40k in debt and 4 years’ time, but pay out better than accounting in the long run.

Other options I’ve played out in my head include joining the peace corps to forgive some loans, starting my own PR business after graduating, studying for a Master’s in philosophy in the UK on a full-ride (fingers crossed for that scholarship)…feeling overwhelmed. What’s the smartest call here, you think?

*One last note on “following your passion,” which I hope you’ll include as I think applies broadly to a lot of the questions you receive on here. While it’s true that an English major can–to the relief of many English majors–be employable after all (in advertising, technical writing, etc.), I don’t believe that any fiction writer is thinking “press release” when asked about her true passion.

I just question the logic in many of the comments saying “less money is worth following your dreams”…I mean, yeah, hypothetically, I’d consider writing essays on my theological musings for a 30k salary the rest of my life instead of doing some ******** for 60k. An exciting/interesting gig is probably worth that 30k difference per year in overall happiness points…

…but I doubt I can get paid anything to be an essayist. More likely, well-meaning students write essays for 4 years in college (“following their passion”), then for the next 40 years write sparingly trying to impress consumers, publications, etc. or write soulless freelance how-to articles, kissing ass, teaching, and/or some other b.s. for that lower salary that they had assumed would be worth the tradeoff in extra fulfillment of “following their bliss.” Point is, when you realistically appraise what you can get paid to do, I’m wondering if anybody besides rock stars actually get paid to do what they love…I don’t know if writing for the sake of writing is worth the 30k difference I could be making as an engineer/accountant.

That is a bare-bones assumption that all your theater/art/English Lit/philosophy/anthropology student advisees should think about quantitatively: What’s the value on the fulfillment I’ll get from a career loosely related to my passion (like writing advertisements), as opposed to a better-paying gig that is unrelated to my passion (like accounting)? Will your job’s loose connection to your true passion for 40 hours per week REALLY offer you more happiness overall than an extra 30k in salary in an unrelated field?

After all, happiness is the end-game here.

Is a job just a job, and might we all be better off doing something tolerable and challenging for the most money per hour possible?

Thanks for your thoughts on my situation! Your site is a godsend for indecisive students like me and many others.

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