Consolidating debt onto student loan

[Anonymous]

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.

[MarineVietVet]

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@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.

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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".

[haulingthescoreup]

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!

[Anonymous]

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@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.

[MarineVietVet]

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@Anonymous wrote:

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@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.

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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".

[laz98]

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@MarineVietVet wrote:

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@Anonymous wrote:

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@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.

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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. 

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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.

[Anonymous]

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.

[laz98]

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@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.

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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?

[MarineVietVet]

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@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.

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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.

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".

[chia04]

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.