Loans in Grad School

[eralexander18]

This fall I will be entering a PhD program in the fall with full funding, including a really great level of stipend for the city I'm living in. Currently, though, I'm considering taking out a few student loans in order to help myself feel more financially secure in the case of an emergency. I come from a relatively low income working class family and have put myself through college, and I have relatively no savings. I also have no student debt from undergrad, thankfully, so I won't be adding to an already significant pile. I'm just curious as to what others think I should do, is it worth feeling secure to go into some debt? I've gotten mixed reviews from people within my personal life so I'd love to hear opinions from some of my peers!

[Sandmaster]

Keep in mind that graduate student loans often are a much higher interest rate than undergraduate student loans. So it may not be worth it depending on the interest rate.

[Chai_latte]

My first thought was no.  But, if you live frugally, save a lot each term and take out a ~$5K loan at the start of each year (that you repay at the end of each year you're enrolled), you may get the small security blanket you're looking for without bone crushing compounding interest at the end of your program.  If you save a lot, your nest egg will get larger as you advance through your program (of course).  

Just don't take out a big, lump sum of $15-20K at the start of your program and let it sit.  That's when interest can get out of hand...really quickly.

 

[eralexander18]

37 minutes ago, Chai_latte said:

My first thought was no.  But, if you live frugally, save a lot each term and take out a ~$5K loan at the start of each year (that you repay at the end of each year you're enrolled), you may get the small security blanket you're looking for without bone crushing compounding interest at the end of your program.  If you save a lot, your nest egg will get larger as you advance through your program (of course).  

Just don't take out a big, lump sum of $15-20K at the start of your program and let it sit.  That's when interest can get out of hand...really quickly.

 

This was exactly my plan! I just plan on taking on $5,000 and then sitting on it (unless I have a major emergency). I literally plan on putting the entire sum into a savings account once I receive it. 

[Chai_latte]

My only additional piece of advice is don't just let it sit for 5 -7 years.  Interest rates can vary between years.  I took out some loans that had 5.3% interest, but the following year (or the prior year...I forget) I had loans that were 6.8%.  So, ALWAYS check each year to see what the interest rate is.  Why sit on a 6.8% loan, when you can pay it off and replace it with a 5.3% loan the next year?

[Warelin]

Depending on your school and program, there might be interest-free or very low interest loans for 6-12 months.

[lemma]

I would actually consider getting any job you can prior to the program commencing to save up, be it in fast food, tutoring, ad-hoc work like vote counting in elections... anything. If something goes wrong with the loans it can seriously impact your ability to get a mortgage in the future or other loans, and you don't know what life circumstances might cause you to take out loans.

[iwearflowers]

If you do this, shop around for a savings account with a high interest rate and no fees. That will help with paying back the interest once you’re ready.

[rising_star]

Right now, there are no savings accounts with an interest rate high enough to make this a good plan. You'll be paying 6%+ in interest on the loan and earning >1.2% on the savings account. My advice would be to either get a job now to save up money or find out how quickly you can get an emergency loan from your institution if something does come up and you need the money. I totally getting wanting to have a cushion but it's worth considering what the cushion will cost you to have.

(Another option might be to apply for and get a credit card with 0% interest for X amount of time or a 0% APR on a balance transfer. If something happens, you could use the credit card upfront and then apply for, get, and use a student loan to repay the credit card balance. That gives you some additional flexibility versus taking out a loan and paying interest on it in case something happens.)

Good luck!

[iwearflowers]

18 hours ago, rising_star said:

Another option might be to apply for and get a credit card with 0% interest for X amount of time or a 0% APR on a balance transfer. If something happens, you could use the credit card upfront and then apply for, get, and use a student loan to repay the credit card balance. That gives you some additional flexibility versus taking out a loan and paying interest on it in case something happens.

This is a better idea. Assuming an interest rate of 6.13% (current rate for Grad PLUS loans), you'll owe about $1800 of interest after 5 years. A credit card would have less risk, and you can always get a loan to pay off the balance after the fact.

[eralexander18]

Thank you everyone! I actually am working two jobs right now and plan on attempting to keep one of them in the fall, if I can. Saving is difficult right now as I'm not really making THAT much money and have all of my bills to pay as well, but that is my plan for the summer.  I'm just not sure how much I can save up, realistically, which was what prompted my thought process. 

[chocolatte_]

You would probably be better off getting a credit card with a low limit, as someone else said. If you don't use it, you pay nothing. If you take out $5K through, say, a federal Stafford loan, you're paying back your $5K plus compounded interest, as no grad school loans are subsidized anymore. So, you would need to take out $5K plus the projected interest (plus loan origination fees).

Another benefit of a credit card is that, if you choose a points based card, when you put a lot of your monthly expenses on there you'll accrue points for things like gift cards, air miles for any travel related expenses you need to make, or the option to get a check mailed to you. This is how I would get free groceries and also free gift cards to give to people for the holidays.

If you're going to end up needing that money, I'd say the loan is a better option. Otherwise you're stuck with what could be a terrible APR on a maxed out card.

Edited July 26, 2018 by chocolatte_

[HTM18]

do not recommend taking a loan at all... no need to let it sit... if u need at the time then get it