topic Re: Consolidating debt onto student loan in Student Loans

Consolidating debt onto student loan

Anonymous — Thu, 13 Jan 2011 17:25:11 GMT

I don't think I have ever seen this topic before, so I thought I would ask everyone's opinions.

My wife and I have combined CC debt of approximately $6k total. I have recently gone back to school for a masters degree - this semester, I was offered $8,500 in subsidized federal loans when my tuition bill was only $3k. Would you accept the full amount to payoff revolving debt to move it to subsidized student loans?

My logic:

1. Student loans are installment debt, and as such it would help my fico score to transfer the debt.

2. The interest rate on a federal student loan is capped at 6.8% (CC debt is at 10.24), and as long as I am in school I do not have to make payments and pay no interest.

3. We are not at any risk to run up further CC debt. We currently have over $50,000 in available CC credit, but have not and will not use it. The current balances were a result of our wedding and the birth of our first child.

Re: Consolidating debt onto student loan

MarineVietVet — Thu, 13 Jan 2011 17:28:08 GMT

@Anonymous wrote:
I don't think I have ever seen this topic before, so I thought I would ask everyone's opinions.

My wife and I have combined CC debt of approximately $6k total. I have recently gone back to school for a masters degree - this semester, I was offered $8,500 in subsidized federal loans when my tuition bill was only $3k. Would you accept the full amount to payoff revolving debt to move it to subsidized student loans?

My logic:

1. Student loans are installment debt, and as such it would help my fico score to transfer the debt.
2. The interest rate on a federal student loan is capped at 6.8% (CC debt is at 10.24), and as long as I am in school I do not have to make payments and pay no interest.
3. We are not at any risk to run up further CC debt. We currently have over $50,000 in available CC credit, but have not and will not use it. The current balances were a result of our wedding and the birth of our first child.

I don't know a lot about SL's but when my son got his SL the money went straight to the school. He didn't see any of it.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Re: Consolidating debt onto student loan

haulingthescoreup — Thu, 13 Jan 2011 17:36:55 GMT

Dang it, you moved the post while I was replying!

Anyway, here's what I was writing, I think:

It might make sense in terms of FICO scoring, because installment util has less impact than revolving.

It might not make sense financially, though. I know that you don't have to repay while a student, but will the balance accrue interest while you're in school? These loans are often split where one part (a small part) doesn't accure interest, but the rest does. It can be very motivating to have CC debt, in that you will probably attack the balance much more quickly and vigorously. If it's moved over to the SL, you might be paying for your wedding for the next 10 years.

And finally, just so you're aware: student loans are currently not dischargeable under bankruptcy except in very, very rare circumstances. I know that people always intend to repay their debts, but if financial disaster strikes, even through no fault of your own (medical expenses not covered by insurance, extended period of unemployment), you'll still be stuck with the debt forever, and by then, it might well be racking up interest and late fees and negatives on your credit reports and all the rest of the dismal story.

Congrats on your life changes!

Re: Consolidating debt onto student loan

Anonymous — Thu, 13 Jan 2011 18:10:23 GMT

@MarineVietVet wrote:
I don't know a lot about SL's but when my son got his SL the money went straight to the school. He didn't see any of it.

You are correct that initially excess student loans go to the school, but the excess is refunded to the student via check shortly after the tuition bill is paid. You are allowed to take out student loans in excess of school costs to pay for books, living expenses, etc.

Hauling - The loan that I have been offered is fully subsidized, which means that the interest is paid by the government while I am in school, for 6 months after I finish school, and at any point I file for a deferment do to an approved cause (loss of job, etc.) - and can also be forbeared.

Because of this, it makes sense to me use the funds to pay off revolving debt. Especially considering that any payments I make over the next 2-3 years while back in school go directly to principal and no interest to deal with.

I do understand SLs cannot be discharged.

Anything else I am missing, please feel free to chime in.

Re: Consolidating debt onto student loan

MarineVietVet — Thu, 13 Jan 2011 18:30:27 GMT

@Anonymous wrote:

@MarineVietVet wrote:
I don't know a lot about SL's but when my son got his SL the money went straight to the school. He didn't see any of it.

You are correct that initially excess student loans go to the school, but the excess is refunded to the student via check shortly after the tuition bill is paid. You are allowed to take out student loans in excess of school costs to pay for books, living expenses, etc.

That's not what you plan on using the money for. I just don't think the purpose or intent of SL's is to pay off other debts.

But I'm wrong quite often and might be about this.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Re: Consolidating debt onto student loan

laz98 — Thu, 13 Jan 2011 19:05:39 GMT

@MarineVietVet wrote:
@Anonymous wrote:
@MarineVietVet wrote:
I don't know a lot about SL's but when my son got his SL the money went straight to the school. He didn't see any of it.

You are correct that initially excess student loans go to the school, but the excess is refunded to the student via check shortly after the tuition bill is paid. You are allowed to take out student loans in excess of school costs to pay for books, living expenses, etc.
That's not what you plan on using the money for. I just don't think the purpose or intent of SL's is to pay off other debts.

But I'm wrong quite often and might be about this.

you're not wrong, MVV. that's not the purpose of student loans. that being said, many people do use their excess student loans for just this purpose, among others.

Re: Consolidating debt onto student loan

Anonymous — Thu, 13 Jan 2011 20:47:16 GMT

Although I would plan on paying off other debt with them, that is truly not the purpose of student loans, I will correct you all though that according to the Federal Student Aid website, student loans are to be used for:

Using the loan for education expenses: You may use the loan money you receive only to pay for your education expenses at the school that is giving you the loan. Education expenses include school charges such as tuition, room and board, fees and indirect expenses such as books, supplies, equipment, dependent child care expenses, transportation and rental or purchase of a personal computer.

http://www.direct.ed.gov/inschool.html

Just thought I would point that out for others that might be wondering.

Re: Consolidating debt onto student loan

laz98 — Thu, 13 Jan 2011 20:54:48 GMT

@Anonymous wrote:
Although I would plan on paying off other debt with them, that is truly not the purpose of student loans, I will correct you all though that according to the Federal Student Aid website, student loans are to be used for:

Using the loan for education expenses: You may use the loan money you receive only to pay for your education expenses at the school that is giving you the loan. Education expenses include school charges such as tuition, room and board, fees and indirect expenses such as books, supplies, equipment, dependent child care expenses, transportation and rental or purchase of a personal computer.

http://www.direct.ed.gov/inschool.html

Just thought I would point that out for others that might be wondering.

so you're saying you put a bunch of school expenses on your credit cards, & now you are going to pay them off, thereby using your funds for education-related expenses, is that right? or you're just saying that you COULD?

Re: Consolidating debt onto student loan

MarineVietVet — Thu, 13 Jan 2011 21:16:25 GMT

@Anonymous wrote:
Although I would plan on paying off other debt with them, that is truly not the purpose of student loans, I will correct you all though that according to the Federal Student Aid website, student loans are to be used for:

Using the loan for education expenses: You may use the loan money you receive only to pay for your education expenses at the school that is giving you the loan. Education expenses include school charges such as tuition, room and board, fees and indirect expenses such as books, supplies, equipment, dependent child care expenses, transportation and rental or purchase of a personal computer.

http://www.direct.ed.gov/inschool.html

Just thought I would point that out for others that might be wondering.

You said in your first post: The current balances were a result of our wedding and the birth of our first child.

From the Federal Student Aid website: You may use the loan money you receive only to pay for your education expenses at the school that is giving you the loan.

I have a hard time understanding how CC debt from a wedding and the birth of a child is related to education expenses. Any child care expenses after the birth seem to be included in what is allowed but that has nothing to do with expenses from the birth itself.

Re: Consolidating debt onto student loan

chia04 — Thu, 20 Jan 2011 18:45:05 GMT

Oops, accidently deleted my post while trying to edit. For those that check this board in the future. I have used student loan overages to pay off credit card debt, but my situation was different than the OP. I had financed a laptop computer that was used school through Dell (big mistake!) and used my overage to pay that off. For me it meant paying off a high APR with a lower fixed one, but it does mean that this debt is now default-proof. It made a big difference in bringing my monthly payments down, however.

Re: Consolidating debt onto student loan

Tazman81 — Thu, 13 Jan 2011 21:28:32 GMT

I would not recommend consolidating debt into a student loan because if you run into trouble down the road, there is no way to get rid of that debt. Why take out more student loan debt then you actually need. Also, I doubt that full $8500 is subsidized by the government. Normally 1/3 - 1/2 may be subsidized, but the other amount is unsubsidized. I would just be very careful with that because if you were to ever default on the loan (not that you intend to, but of course I didn't intend to filing bankruptcy either), they WILL guarnish your wages, and take your tax returns until it is paid back. I mean, its the government we are talking about here. I think more and more people are seeing this happen ever since the government started taking over the majority of the federal loans. Anyhow, that's just my 2 cents. I think its a bad idea to do.

Re: Consolidating debt onto student loan

laz98 — Thu, 13 Jan 2011 21:32:57 GMT

@Tazman81 wrote:
I would not recommend consolidating debt into a student loan because if you run into trouble down the road, there is no way to get rid of that debt. Why take out more student loan debt then you actually need. Also, I doubt that full $8500 is subsidized by the government. Normally 1/3 - 1/2 may be subsidized, but the other amount is unsubsidized. I would just be very careful with that because if you were to ever default on the loan (not that you intend to, but of course I didn't intend to filing bankruptcy either), they WILL guarnish your wages, and take your tax returns until it is paid back. I mean, its the government we are talking about here. I think more and more people are seeing this happen ever since the government started taking over the majority of the federal loans. Anyhow, that's just my 2 cents. I think its a bad idea to do.

that's a really good point. what year in school are you? it hadn't occurred to me that 8500 was a really high amount for a subsidized loan. are you sure that's not the combined total of a subsidized & unsubsidized loan? not saying you're wrong, just trying to work out the math.

Re: Consolidating debt onto student loan

Anonymous — Fri, 14 Jan 2011 13:53:55 GMT

Hey everyone, sorry just had a chance to get back on the forums. Let me clarify.

1. Yes, the student loan excess would be to pay off items OTHER than school expenses. Yes, I understand that is not the intended purpose. I am not asking this from a moral perspective.

2. Yes, I was offered $8,500 in a subsidized federal loan and $1,500 in unsubsidzed (which I would never accept). This is because I started my grad school in the Spring Term, so I am eligible for the full years cap on loans, but only need for 1 term.

3. I agree that student loans not being discharged in a bankruptcy could be a concern for many people. Although I have considered that, both my wife and I have very stable jobs and are confident in repayment ability.

That being said, I am glad to hear that someone else has done this, as I have a lot of friends that have as well. Although nobody likes to shift debt around - the ability to cut an interest rate in half, switch from revolving to installment, and have no payments/interest until 6 months after graduation is a really good deal. If for some reason we ever did lose our job, or another unforseen circumstance, we could change our repayment plan over to income sensitive to protect ourselves, or at worst case ask for a forbearance. Both are legitimate options in a bad situation. Anyways, thanks for everyone's opinions. That's why I posted - to here the other side of the story.

Re: Consolidating debt onto student loan

Tazman81 — Fri, 14 Jan 2011 17:47:31 GMT

So, this was poking at me all night, so I am just going to say my peace and move on. Stuff like this burns my chops. I am not trying to fault just the OP, but just anyone in general that would handle a subsidized student loan in this way. I wish there were more regulation regarding this making sure that these types of loans can only be used for school expenses. Why should I (the taxpayer) have to pay for interest on a loan that isn't even going toward an individual's education? Anyhow, I've said my peace, and I'm going to leave it at that.

Re: Consolidating debt onto student loan

MarineVietVet — Fri, 14 Jan 2011 18:43:54 GMT

@Anonymous wrote:
Hey everyone, sorry just had a chance to get back on the forums. Let me clarify.

1. Yes, the student loan excess would be to pay off items OTHER than school expenses. Yes, I understand that is not the intended purpose. I am not asking this from a moral perspective.

2. Yes, I was offered $8,500 in a subsidized federal loan and $1,500 in unsubsidzed (which I would never accept). This is because I started my grad school in the Spring Term, so I am eligible for the full years cap on loans, but only need for 1 term.

3. I agree that student loans not being discharged in a bankruptcy could be a concern for many people. Although I have considered that, both my wife and I have very stable jobs and are confident in repayment ability.

That being said, I am glad to hear that someone else has done this, as I have a lot of friends that have as well. Although nobody likes to shift debt around - the ability to cut an interest rate in half, switch from revolving to installment, and have no payments/interest until 6 months after graduation is a really good deal. If for some reason we ever did lose our job, or another unforseen circumstance, we could change our repayment plan over to income sensitive to protect ourselves, or at worst case ask for a forbearance. Both are legitimate options in a bad situation. Anyways, thanks for everyone's opinions. That's why I posted - to here the other side of the story.

A million people can all do the wrong thing and it still doesn't make it right.

And that's all I'm going to say in this thread.

Re: Consolidating debt onto student loan

Anonymous — Fri, 14 Jan 2011 19:52:10 GMT

cdtotten wrote: I am not asking this from a moral perspective.

Just because you can do something, doesn't mean you should. (You can become a fan of this on facebook!)
closely related to: Just because you lost yours, doesn't mean you can borrow mine.

What I'm most fascinated by is being able to take off your "moral hat" when asking this question. What hat is it that you are then putting on?

Re: Consolidating debt onto student loan

laz98 — Fri, 14 Jan 2011 19:56:52 GMT

if you already knew that people had done it, & that you were probably going to do it anyway, why would you even need to ask the forum?

Re: Consolidating debt onto student loan

Tazman81 — Tue, 18 Jan 2011 18:05:45 GMT

All I have to say is REALLY????

http://ficoforums.myfico.com/t5/Auto-Loans/Should-we-buy-a-new-car/td-p/822020

Re: Consolidating debt onto student loan

Anonymous — Wed, 19 Jan 2011 15:14:15 GMT

Tazman, I dont quite understand why you are attacking the OP. He asked a legitimate question and was looking for help. I know I come on this site a lot (dont post a lot) because people ask questions that I already had (and this is one of them actually). Your argument against him seems to be that student loans aren't to be used for other reasons... I agree, but student loans are meant to pay for the cost of room/board/living expenses while at school... and if this poster wants to pay off some CC debt so he has money to afford those extra costs, then so be it. You link to his post about his wife getting a new car, which I just read, and act like he did something wrong.

It appears they added a family member and were curious based on their current payment and positive money situation whether they should upgrade now or later... the two posts aren't even related.

Anyways, I just don't think we need to be attacking someone on this board because you don't agree with their question. I see people everyday on this board "using credit" instead of being a slave to it... it appears that's what he is trying to do.

Re: Consolidating debt onto student loan

Anonymous — Wed, 19 Jan 2011 17:28:31 GMT

I don't think tazman is attacking anyone - he is also asking a legitimate question.

If I were OP, I would welcome this discourse. As he stated in his original post, "I thought I would ask everyone's opinions"

He also states that "My wife and I have combined CC debt of approximately $6k total." That makes it appear that this debt is not all his, but is also his wife's. In that case, it's probable that garnering opinions will be helpful to him as he and his wife discuss using his student loan to help pay off her debt as well as his - rather than using it for educational purposes. Adding the purchase of a new vehicle into the mix is not unrelated - but an appropriate point to consider in reference to OP's original question.