Ought to I Tackle Scholar Mortgage Debt to Purchase a New Prius?

Expensive Penny,

Our Prius wants repairs. We belief our mechanic and the repairs are legit. It has 170K+ miles on it and the newer fashions get even higher fuel mileage. We presently have two automobiles, however since we principally make money working from home, we do not actually need each. I believed we may consolidate and get one nicer Prius. 

I used to be shocked to see that even a 2016 Prius goes for like $18K. The bottom mannequin for the Prius Prime is $28,500 and qualifies for a $7,500 tax credit score. So, $21K to purchase a brand new Prius with electrical capabilities, principally zero miles and is underneath guarantee, with a negligible distinction in worth from the used hybrids. 

The lengthy and wanting it’s, when you consider our trade-in values, financial savings and the tax credit score, we’d nonetheless want a mortgage of about $3,500. (I am conscious that we would have to attend to get it again till we file our taxes.) I do know it might be preferrred to attend and save, however our Prius wants repairs now. 

I am additionally a web based pupil however pay for my training with principally grants and scholarships. At this time I logged into my monetary support account to reject my pupil mortgage provides like I often do and one thing caught my eye. It says the federal government pays the curiosity when you’re at school and for six months after. I’ve two years left. Mainly, we may get an interest-free mortgage. I really feel assured we may pay it again earlier than any curiosity begins accruing.

It looks as if an incredible deal, however my interior frugality is antsy. Is taking a mortgage ever a good suggestion? For reference, we’re very accountable and have wonderful credit score as a result of we all the time pay our payments and have a 100% success charge paying loans off early, although we keep away from them after we can. If it helps, it is simply me and my husband, and we do not need youngsters. 

-Frugal Scholar 

Expensive Frugal,

I’m not a part of the all-debt-is-terrible college of considering. The place this will get difficult is that you simply need to use a pupil mortgage to pay for the Prius. Scholar loans are based mostly in your value of attendance for college.

The U.S. Division of Schooling’s value of attendance components contains an allowance for books, provides, transportation and miscellaneous private bills. However the Federal Scholar Assist Handbook explicitly states that pupil mortgage cash can be utilized for “prices for working and sustaining a automobile that’s used to move the scholar to and from college, however not for the acquisition of a automobile.”

In your case, utilizing pupil mortgage cash for transportation bills is particularly murky. You’re a web based pupil, so presumably, you aren’t commuting to and from campus.

There’s an apparent work-around, although. You possibly can take out a pupil mortgage and use it to pay for allowable bills, like tuition and provides that aren’t lined by your grants and scholarships, housing and groceries. I’m guessing these prices will add as much as greater than $3,500. You then’d unlock cash in your price range for the automobile fee.

Realistically talking, you’ll be able to’t decide whether or not you’re spending pupil mortgage funds or cash from different earnings sources as soon as the scholar mortgage will get deposited into your checking account — except, after all, you open a separate account for pupil mortgage disbursements. However the level is, so long as you don’t borrow greater than your value of attendance, minus grants and scholarships, you shouldn’t be breaking any guidelines.

Within the unlikely situation that your scholarships and grants cowl all of your prices of attendance, you can all the time get a private mortgage for $3,500. Since you have got sturdy credit score and it’s a small quantity, you wouldn’t pay an excessive amount of in curiosity.

When you’re assured about shopping for the Prius, don’t maintain off an excessive amount of longer. As soon as a producer sells 200,000 electrical automobiles, eligibility for the credit score begins to part out. Toyota not too long ago hit the 200,000-vehicle milestone, so barring legislative adjustments, that $7,500 tax credit score will likely be decreased to $3,750 on Oct. 1.

Additionally keep in mind that EV tax credit are non-refundable, that means the credit score solely applies to cash you owe at tax time. For instance, should you had a $7,500 EV credit score however solely owed $2,000, you’d wipe out the $2,000 tax invoice however wouldn’t get a $5,500 refund.

It’s not simply concerning the tax credit, although. You’ve clearly carried out the mathematics and decided that this buy is sensible. There’s no sense in sinking cash into repairs for a automobile you’re planning to do away with.

A mortgage is a foul thought once you use it to purchase a life-style you’ll be able to’t afford. However that’s not the case right here. So long as you don’t run afoul of Division of Schooling guidelines, I don’t see something fallacious with taking up this small quantity of debt.

Robin Hartill is a licensed monetary planner and a senior author at The Penny Hoarder. Ship your difficult cash inquiries to [email protected].






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