1. Download free Tapatalk for iPhone or Tapatalk for Android for your phone and follow the SDN forums with push notifications.
    Dismiss Notice

Dumping Car and House

Discussion in 'Financial Aid' started by LoveDoc, Nov 12, 2002.

?

What should I do about a car while in school?

  1. Finance a $12K - $16K car

    0 vote(s)
    0.0%
  2. Buy a $10K-$12K car

    12 vote(s)
    80.0%
  3. Lease a $12K - $16K car

    0 vote(s)
    0.0%
  4. Refinance my $18K SUV

    3 vote(s)
    20.0%
  1. LoveDoc

    LoveDoc Respect the Rhesus Monkey
    7+ Year Member

    Joined:
    Aug 17, 2002
    Messages:
    555
    Likes Received:
    0
    I have 2 huge payments I want to get rid of or minimize before I enter a full-time Master's program next year. I plan to apply to med school within next 1-2 years.

    I need your advise.

    CAR:
    For those of you who had or did not have a car payment during med school, how stressful was that? Is it hard to make a car payment on the money you are given. Do you suggest buying a car for about 10K before starting school or holding on to that money for emergencies and living expenses? Did you lease or buy your car? I remember reading you can't get more loans to pay expenses such as a car, is this true? I used financial aid to pay for my first car in college and i'm still paying for it!!!

    HOUSE:
    I own a home that is very expensive and I am single. I have one of two decisions, get 1-2 roomates to split the mortgage or sell the house. I remember reading that houses does not adversely affect your ability to get finanical aid. What has been other's experiences? Is it hard to maintain a home (grass, utilities, etc) while attending grad/med school and not working.

    INVESTMENTS:
    I have about 25-30K in investments some tax deferred, some tax deductable. My finanicial advisor is not very keen about me touching those investments but it's my money. Did anyone withdraw their 401K or Roth IRA and what type of penalty did you have pay, percentage-wise?

    Appreciate your help.
     
  2. Note: SDN Members do not see this ad.

  3. maysqrd

    maysqrd Go A's!
    7+ Year Member

    Joined:
    Sep 27, 2002
    Messages:
    270
    Likes Received:
    0
    The financial aid that you get for living expenses is not enough to cover a mortgage payment. Essentially they will give you enough money to share an apartment (not a very good one at that). The value of your home is not considered in calculating your financial aid.

    So, if you don't mind roommates, I would keep the house and rent out rooms to subsidize your income and still be able to keep the tax deduction from your mortgage and if you are lucky enough to have good appreciation on your property, then you may be able to pay off all of your student loans after four years by selling your current house and using the equity you've earned over the years to pay off the debt.

    As for the car, we have a very expensive house as well and had about $120k in equity so we refinanced the house and paid off all debts and my car so that the only payment we need to be able to make is the morgage. My school said that they budget about $2000 a year in travel expenses. Depending on the car you own, that isn't enough to even cover the fuel and auto insurance. My advice: get an inexpensive car that you can pay for in full and make sure that it is new enough/nice enough that it won't break down and need expensive fixes in the next 8 years.

    Investments that are not in a qualified retirement account will be considered in your financial aid and the federal government expects you to spend it!! You may take a hardship withdrawl from most 401K, IRA's, etc. if you supply copied of the tuition bills for up to one year at a time. This will avoid the penalty for taking an early withdrawl. I think the penalty is usually ten percent plus appropriate taxes.
     
  4. mpp

    mpp SDN Moderator
    Moderator Emeritus 10+ Year Member

    Joined:
    Jan 17, 2001
    Messages:
    3,398
    Likes Received:
    16
    Status:
    Resident [Any Field]
    The amount they budget for housing ($780 per month) at my school is enough for a mortgage payment where I live (a decent house can be had for ~$100,000). To not deal with the car payment I live close enough to bike, walk, take a bus, etc. and I still have my all-paid-for and well-maintained 12-year old car (now I drive it about twice a month or so for shopping). A real problem now is being sure that you are not upside down on that car (do you owe more than its worth?). Because then you are losing on two fronts because you can't sell it without taking a hit and you if you wreck, you'll still take a hit even if its insured (not to mention wasting all that money on insurace that is not even can't even cover the car loan).

    I think that taking money out of a 401(k) or Roth IRA would be a terrible idea. The advantages of the tax-sheltered nature of those accounts (especially a Roth IRA...if you don't have one open one tomorrow) are too incredible too ignore. Because it is not really the tax free nature of the account that's great, it is the compounding of that free tax money that is too good an opportunity to pass up. Remember that earnings in a tax-free account are growing at the approximate rate at which those earnings would have been taxed if not in the account (i.e., a dollar not taxed is a dollar earned, therefore 28 percent of capital gains not taxed is 28 percent gained).

    Unfortunately it seems that medical school can force us to make financial sacrifices and standard-of-living sacrifices. Best of luck working it out and please, please, please, please do not withdraw from your 401(k) and IRA.
     
  5. mpp

    mpp SDN Moderator
    Moderator Emeritus 10+ Year Member

    Joined:
    Jan 17, 2001
    Messages:
    3,398
    Likes Received:
    16
    Status:
    Resident [Any Field]
    I forgot to add my vote although I would not vote for any of the options posted.

    My vote is:

    Sell the car you have and buy a $2,000 car for cash (a reliable 12-year old Toyota Camry or Honda Accord should do the trick nicely...if maintained well you can easily get 250,000 miles on those).

    Leave your retirement money where it is, sell the house, get a nice apartment a couple of blocks from school. Use the beautiful Stafford loans (3.46 percent now and will be less come June unless Greenspan and friends start upping the rates...this is practically free money and the cheapest money you will more than likely ever see in your entire lifetime and is certainly the cheapest money your parents have ever seen in their lifetimes) and max those to the gills ($38,500). Be sure to not sell your house until after Jan 1 so that you don't have to report any equity in that home for the 2003-2004 school year. Do something with that equity though (put it in another, cheaper house or gift it to your folks for safe keeping) so that you can still qualify for the practically free money the government is giving away these days to medical students.
     
  6. LoveDoc

    LoveDoc Respect the Rhesus Monkey
    7+ Year Member

    Joined:
    Aug 17, 2002
    Messages:
    555
    Likes Received:
    0
    wow!!!

    You all are so informative. Help me with the statement above...im a lil confused. How will selling it after 1/1 save me? Did you mean before 1/1? Please direct me .. im lost.

    I thought getting a cheap car was a good idea....too. Not withdrawing from my investment accounts will be hard....but I will try.
     
  7. mpp

    mpp SDN Moderator
    Moderator Emeritus 10+ Year Member

    Joined:
    Jan 17, 2001
    Messages:
    3,398
    Likes Received:
    16
    Status:
    Resident [Any Field]
    The not selling the house has to do with that fact that you do not have to report equity in a home to the federal government on your FAFSA but you do have to report cash/investments. So if tomorrow you sell your home that has $50,000 in equity that you'll receive in cash, that is $50,000 more that will have to be reported on your FAFSA. If you wait to sell until after you complete your FAFSA for the 2003-2004 school year (which you can do beginning in January) you will not have to report that $50,000 in equity and it won't show up in your expected contribution for school.
     

Share This Page