Should I Take on Student Loan Debt to Buy a New Prius?
Hey Penny!
To keep our Prius running smoothly, we need to have it serviced. The work done by our mechanic has our full confidence. This model has over 170,000 miles on it and doesn’t get nearly as good of gas mileage as newer ones. We have two cars, but we hardly ever drive them because we work from home. Because of our combined incomes, I thought we could buy a single, nicer Prius.
To my surprise, you can still pay close to $18,000 for a 2016 Prius. Customers who spend $28,500 on the base model of the Prius Prime can receive a tax credit of $7,500. A new Prius with electric capabilities will set you back $21,000; the car has barely been driven and is still covered by the manufacturer’s warranty; however, the difference in price between a new and used hybrid is minimal.
After factoring in the value of our trade-ins, the money we have saved, and the tax credit, we would still need a loan of around $3,500. (I know we won’t be able to get it back until we’ve submitted our tax paperwork.) I know it would be better to put off getting our Prius fixed in order to save money, but unfortunately, we can’t put it off any longer.
My education is being largely funded by grants and scholarships despite the fact that I am a distance student. Something caught my eye as I was logging into my financial aid account today to turn down the various student loan offers that had been made to me. Interest on federal student loans is covered by the government while you’re in school and for six months after you graduate. I still have two years left on my contract. Basically, we’d be able to get a loan with zero percent interest. This makes me optimistic that we can pay it off before interest kicks in.
While I can see the value in this, my thrifty side is starting to get nervous. Is there any good reason to ever get a loan? Even though we try to avoid borrowing money whenever possible, our impeccable credit history and track record of never missing a bill payment demonstrate that we are responsible, trustworthy people. Both my husband and I would rather not have any children, if that makes a difference.
Budget-Conscious Scholar
Respectfully, The Miserly,
The idea that any debt is morally repugnant is one that I do not share. The situation gets more complicated when you decide to use student loan funds to buy a Prius. The amount of a student loan you can receive is based on how much it will cost you to go to college in total.
Books, supplies, transportation, and other miscellaneous costs are subtracted from tuition in the formula used by the U.S. Department of Education to determine the true cost of attendance. However, the Federal Student Aid Handbook states that student loan funds cannot be used “for the purchase of a vehicle that is used to transport the student to and from school.” However, student loan funds can be used for “costs for operating and maintaining a vehicle that is used to transport the student to and from school.”
Using your student loan money for transportation is highly questionable. Since you’re taking classes online, I’m guessing you aren’t making the daily commute to and from campus.
Nonetheless, the issue can be easily fixed. You can apply for a student loan to cover the costs of things like tuition and books that your grants and scholarships won’t cover, as well as things like housing and food that your grants and scholarships won’t cover. For sure, the final tally will be more than $3,500, that’s how much I’m anticipating. There would be more room for the car payment in your budget.
Once the student loan funds have been deposited into your bank account, you will no longer be able to tell them apart from any other funds in your account unless you have opened a special account for the disbursement of student loan funds. You should not be in violation of any regulations if the sum of your student loans and grants and scholarships is less than the total amount you were awarded.
You can still consider applying for a personal loan in the amount of $3,000 even if grants and scholarships cover 100% of your educational costs. Interest won’t be sky-high because of your stellar credit and the modest loan amount.
It’s not a good idea to put off buying a Prius if you’re dead set on doing so. A manufacturer’s ability to claim the credit will start to decrease gradually once they have sold 200,000 electric vehicles. Now that Toyota has sold over 200,000 vehicles, the $7,500 tax credit it currently receives will be reduced to $3,750 on October 1 unless legislation is changed.
Keep in mind that the credit you receive for purchasing an electric vehicle cannot be refunded, and can only be applied to your tax liability. If you had a $2,000 tax bill and a $7,500 EV credit, you could pay off the $2,000 bill but you wouldn’t get a refund of the other $5,500.
However, tax breaks should not be the only consideration. You have done the math, and it all checks out, so it seems like a good idea to go ahead with the purchase. If you plan to sell your car soon, putting money into fixing it up is a waste of your money.
Borrowing money to fund an extravagant lifestyle that one cannot sustain is a waste of resources. Not so in this instance. As long as you don’t break any rules set forth by the Department of Education, I don’t see any issue with taking on this manageable amount of debt.
