Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

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badProgrammer
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Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by badProgrammer » Fri Jun 26, 2020 9:19 am

Good morning - I searched the forum posts for a situation like this but couldn't find anything, though it's hard to know the right search terms to find it.

Basic question: I work for a company that has a student loan repayment program (up to $10K/year) and I am also working on a second graduate degree. I have the opportunity to borrow $20K/year as long as I am a graduate student, though I don't need it since I am able to pay my tuition out of pocket at this point. Should I take the student loans (at 4.3% with a ~1% origination fee), pay the interest monthly, and then take advantage of my company's payback program at future 12-month intervals?

I have no specific need for this money and 4.3% is not exactly a low interest rate in the current environment. I paid off my undergraduate loans in a lump sum a few years ago, so I have no other debt besides home mortgage.

Is there something I'm overlooking here? It seems to me that I'd essentially be leaving money on the table if I didn't take the loans, and I feel sort of foolish for paying off my student loans.

Thanks.

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WoodSpinner
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by WoodSpinner » Fri Jun 26, 2020 11:12 am

OP,

Personally, I would NOT take a student loan with those costs if I didn’t have to!!

This is NOT the time to leverage UP — it’s a great time to be defensive, cautious, and reduce risk.

What do you think you are leaving on the table?

WoodSpinner

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badProgrammer
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by badProgrammer » Fri Jun 26, 2020 11:31 am

WoodSpinner wrote:
Fri Jun 26, 2020 11:12 am
OP,

Personally, I would NOT take a student loan with those costs if I didn’t have to!!

This is NOT the time to leverage UP — it’s a great time to be defensive, cautious, and reduce risk.

What do you think you are leaving on the table?

WoodSpinner
Thanks for the reply. Basically, I am leaving $10K/year on the table, which I could get as a student loan repayment just for the cost of disbursing and carrying the loan.

As for what I would "do" with the money - use it to replace >10 year old Honda rather than a car loan? Or do a lump sum into my taxable S&P500 at Vanguard.

I don't like the idea of "gambling" with the loan money, but I am also trying to look at it alternatively: as a lump-sum, $10K/year bonus.

sd323232
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by sd323232 » Fri Jun 26, 2020 11:34 am

who pays for loan if you lose your job?

tashnewbie
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by tashnewbie » Fri Jun 26, 2020 11:47 am

sd323232 wrote:
Fri Jun 26, 2020 11:34 am
who pays for loan if you lose your job?
In line with this comment: when would your job pay you for the loan? If it's when you take it out at the beginning of a semester, the risk of losing the benefit to unemployment would be lessened.

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tyrion
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by tyrion » Fri Jun 26, 2020 12:19 pm

I would absolutely take advantage of this, it's part of the total compensation package they are providing you.

As I understand it you take out a loan (max 20k/year) and they reimburse you 10k every 12 months until it's paid off. In the meantime you pay for the servicing and interest on the loan.

If you lose your job you lose the benefit, but the cost to you has been roughly $500/year (1% origination fee plus 4.3% interest). I would definitely risk $500 to earn $10k unless I knew my job was about to disappear. And then I might do it anyway for cash flow reasons.

Now whether you want to take out 10k or 20k per year in loans depends a bit on how many years you will be in grad school and how long you plan to stay with your employer.

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WoodSpinner
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by WoodSpinner » Fri Jun 26, 2020 12:56 pm

badProgrammer wrote:
Fri Jun 26, 2020 11:31 am
WoodSpinner wrote:
Fri Jun 26, 2020 11:12 am
OP,

Personally, I would NOT take a student loan with those costs if I didn’t have to!!

This is NOT the time to leverage UP — it’s a great time to be defensive, cautious, and reduce risk.

What do you think you are leaving on the table?

WoodSpinner
Thanks for the reply. Basically, I am leaving $10K/year on the table, which I could get as a student loan repayment just for the cost of disbursing and carrying the loan.

As for what I would "do" with the money - use it to replace >10 year old Honda rather than a car loan? Or do a lump sum into my taxable S&P500 at Vanguard.

I don't like the idea of "gambling" with the loan money, but I am also trying to look at it alternatively: as a lump-sum, $10K/year bonus.
I misunderstood your post ....

So if you don’t do the loan you don’t get a reimbursement?

That isn’t how it worked when my Meg-Corp helped pay for my degree. I fronted the money (out of pocket) and they reimbursed after the semester as long as my grades were passing.

WoodSpinner

j0nnyg1984
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by j0nnyg1984 » Fri Jun 26, 2020 1:06 pm

I would absolutely do this. The risk is minimal and the upside is huge.

Work it to the best of your advantage!

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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by Jack FFR1846 » Fri Jun 26, 2020 1:24 pm

Sure, but if they'll only reimburse $10k a year, do the math and borrow the amount that will leave you with a balance at reimbursement time of exactly $10k. Not $20k. This gives you the most in your pocket at the least cost.
Bogle: Smart Beta is stupid

Topic Author
badProgrammer
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by badProgrammer » Fri Jun 26, 2020 4:11 pm

tyrion wrote:
Fri Jun 26, 2020 12:19 pm
I would absolutely take advantage of this, it's part of the total compensation package they are providing you.

As I understand it you take out a loan (max 20k/year) and they reimburse you 10k every 12 months until it's paid off. In the meantime you pay for the servicing and interest on the loan.

If you lose your job you lose the benefit, but the cost to you has been roughly $500/year (1% origination fee plus 4.3% interest). I would definitely risk $500 to earn $10k unless I knew my job was about to disappear. And then I might do it anyway for cash flow reasons.

Now whether you want to take out 10k or 20k per year in loans depends a bit on how many years you will be in grad school and how long you plan to stay with your employer.
Thanks for all of the replies.

Yes, it's part of the total comp package and is only available for student loans.

NOT having a student loan would make me ineligible for the benefit, which is funny because people can take student loans and then buy all kinds of things with them (cars, for example) and then carry a student loan balance. The $10K/year is available to pay down a student loan balance, but not available to pay down a car loan or mortgage loan balance.

I don't want to spark a "prepay the mortgage" debate, but, arguably, instead of replacing the >10 year old Honda, I guess I could take the $20K at 4.3% and lump sum prepay my 3.1% mortgage.

If I take the $20K this fall, here's what I could do with it:

A. Park it in a 1% high-yield (haha) savings or CD
B. Buy new reasonable car to replace >10 year old Honda
C. Pay toward mortgage (currently in year 8 of 15 with ~$125K outstanding)
D. Invest in S&P500 taxable or kids' 529s

As long as I am in school, I pay interest only on the loan to avoid capitalization of the interest. When company cuts the $10K check at 12-month intervals to the loan servicer, that would pay down the loan balance.
sd323232 wrote:
Fri Jun 26, 2020 11:34 am
who pays for loan if you lose your job?
This risk is the argument for option A - keeping it liquid in case I needed to abort the plan and pay back the loan, forfeiting the interest I've already paid in the meantime.

But also: money is fungible - if I bought a car with the loan money, I wouldn't need to tap savings or have a car payment, so I could use that money to pay back the loan.

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gr7070
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by gr7070 » Fri Jun 26, 2020 4:29 pm

1. Yes
2. Maximize this benefit by borrowing a much as they'll repay.
3. I'd consider asking if they'll just pay you the 10k benefit instead of forcing you to go through the student loan.

MBB_Boy
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by MBB_Boy » Fri Jun 26, 2020 4:40 pm

tyrion wrote:
Fri Jun 26, 2020 12:19 pm
I would absolutely take advantage of this, it's part of the total compensation package they are providing you.

As I understand it you take out a loan (max 20k/year) and they reimburse you 10k every 12 months until it's paid off. In the meantime you pay for the servicing and interest on the loan.

If you lose your job you lose the benefit, but the cost to you has been roughly $500/year (1% origination fee plus 4.3% interest). I would definitely risk $500 to earn $10k unless I knew my job was about to disappear. And then I might do it anyway for cash flow reasons.

Now whether you want to take out 10k or 20k per year in loans depends a bit on how many years you will be in grad school and how long you plan to stay with your employer.
OP shouldn't have to pay servicing and interest actually - they usually let you defer payments while in school and just let the tab grow. OP can use the reimbursement to pay accrued interest and origination as well, if they take something less than 10K. Back the math out and take 10K - origination - expected interest

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Gray
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by Gray » Fri Jun 26, 2020 5:27 pm

I’m in a similar situation.

I’m applying for a work-relevant Masters Degree program where it’s likely that they will pay for courses here and there, perhaps one per semester. On the back-end, after I complete the program, I could see the loan repayment program pay for what remains. The interest rate is low. I don’t see any reasons why I shouldn’t do this. Since my daughter’s entering college, I have a more favorable FAFSA right now.

The repayment program won’t pay me anything I’ve already paid back,

FishTaco
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by FishTaco » Fri Jun 26, 2020 5:47 pm

I would probably go for it. If you want to be cautious, just put the money in a CD or savings account and cash flow the interest payments. That way, if your position at the company is compromised, you can just pay off the loan and be out only the interest.

fufgirl
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by fufgirl » Mon Jun 29, 2020 7:46 pm

Once you take the federal student loan you have some time before you HAVE to keep it(you don't even pay fees if you return within 120 days): https://studentloanhero.com/featured/re ... -too-much/ Its more irritating to return after the first month though as you can't just have your school do it. For your purposes, its worth looking into.

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badProgrammer
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Re: Should I take Fed direct unsubsidized loans expressly to have them repaid by company?

Post by badProgrammer » Mon Jul 06, 2020 1:23 pm

Thanks to all who replied - I appreciate the input. I am leaning toward going for it.

I did learn, however, that the repayment is taxed at my ordinary income tax rate, so it's not quite as sweet a deal.

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