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.
Hi Judge Josh,
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.
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.
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.
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.
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.
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.