Embarrassingly stupid question

[epsilonprodigy]

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This seems so silly that I don't know this by now, but has anyone entered med school with a fairly substantial amount in savings? How does this affect your financial aid/loan eligibilty? My husband and I have both been working for a few years and have been able to save up some money, but do they count your WHOLE savings balance toward your expected contribution and expect you to lay it down right then and there, for tuition? Seems like it would make more sense to allow people to retain a cushion, especially if they are married with kids....?

 

[mfrizzo3]

I'm pretty sure when I filled out the FAFSA that Roth IRA's, 401K, and savings to be used on educational expenses and such aren't counted toward your expected family contribution (EFC). But, don't qoute me on that.

 

[Slev]

x

 

[HollywoodUpstairs]

If you are applying for financial aid at any time during your medical education, you will be required to fill out the FAFSA form. FAFSA takes into account your household income as well as your assets (cash, savings and investments) when determining your Expected Family Contribution (EFC). So, yes, any savings you have will increase the amount of your medical education you are expected to cover. However, the fact that you have savings do not rule out your eligibility for aid. Check out the following resources to get a better idea of how your financial picture will impact your EFC:
-Federal Student Aid FAFSA4caster tool
-Federal Student Aid EFC Formula for 2012-2013

 

[HoltMD]

This seems so silly that I don't know this by now, but has anyone entered med school with a fairly substantial amount in savings? How does this affect your financial aid/loan eligibilty? My husband and I have both been working for a few years and have been able to save up some money, but do they count your WHOLE savings balance toward your expected contribution and expect you to lay it down right then and there, for tuition? Seems like it would make more sense to allow people to retain a cushion, especially if they are married with kids....?

Depends on how you define "substantial." 😀 However, as the above poster mentioned, it will be included in your assets.

 

[DrMidlife]

Your wealth only affects your ability to receive free money such as scholarships & grants.

Your wealth has no effect on your ability to get federal student loans (except that good credit helps with GradPlus).

I like finaid.org as a starting point for info on this stuff.

Best of luck to you.

 

[epsilonprodigy]

OK, thanks guys. Living off our savings (partially anyway) is one thing, but up and writing a check for the entire contents of your savings account on the first day of class is quite another! That expectation is what I was looking to rule out.

 

[Slev]

x

 

[MT Headed]

This seems so silly that I don't know this by now, but has anyone entered med school with a fairly substantial amount in savings? How does this affect your financial aid/loan eligibilty? My husband and I have both been working for a few years and have been able to save up some money, but do they count your WHOLE savings balance toward your expected contribution and expect you to lay it down right then and there, for tuition? Seems like it would make more sense to allow people to retain a cushion, especially if they are married with kids....?

I maxed out several fields in the FAFSA and had to be content just typing in a bunch of 9's to get the form to submit. As a result, my expected contribution is far and away above the Cost Of Attendance of my (rather expensive) school. While I am not getting any need based aid from the government I am still eligible for the usual ~40K of medical school federal stafford loans.

I can only assume I won't get any need based aid from my school either, but I'm hoping against hope to get either school loans on better terms than federal staffords, or maybe some merit based aid. A man's gotta dream, ya know?

In any event, just fill out the FAFSA and plan on getting a little high-interest $40,000 sugar from Obama.

 

[LingoLaine]

We are paying for school outright and I'm not even bothering to fill out a FAFSA form. If there were subsidized loans, I'd certainly take them to gain some liquidity, but at 6.8% interest accruing from day one, it's simply not worth it.

 

[MT Headed]

We are paying for school outright and I'm not even bothering to fill out a FAFSA form. If there were subsidized loans, I'd certainly take them to gain some liquidity, but at 6.8% interest accruing from day one, it's simply not worth it.

👍 No matter how I slice it, including taking into account loan repayment plans from the federal government, state governments, or private employers, those 6.8% stafford loans that start accumumlating interest on day 1 of medical school orientation are not worth it.

Avoid them it at all possible.

 

[ghostman]

We are paying for school outright and I'm not even bothering to fill out a FAFSA form. If there were subsidized loans, I'd certainly take them to gain some liquidity, but at 6.8% interest accruing from day one, it's simply not worth it.

I agree with this, except that many med schools will require you to fill out the FAFSA (including your parents' financial info) in order to be considered for institutional financial aid (including scholarships). So you might want to fill out FAFSA, even when you know you won't be taking out federal loans.

I do find it annoying that I spent my working years diligently saving, but will be expected drain it for school. Meanwhile, if I blew the money I earned during those years, I might qualify for "free" money for school.

 

[MT Headed]

I agree with this, except that many med schools will require you to fill out the FAFSA (including your parents' financial info) in order to be considered for institutional financial aid (including scholarships). So you might want to fill out FAFSA, even when you know you won't be taking out federal loans.

I do find it annoying that I spent my working years diligently saving, but will be expected drain it for school. Meanwhile, if I blew the money I earned during those years, I might qualify for "free" money for school.

If you own a home with less than 100% equity, you can hide your assets in there. Primary home equity doesn't count as an asset for aid purposes.

 

[pkwraith]

Go ahead and fill out your FAFSA.

It looks like your savings only cover one semester? so you need to fill it out regardless.

Use your savings as soon as possible to minimize the period of interest accruing. However, do leave some emergency money in case of unexpected expenses. I've had big ticket expenses come up, and I'm thankful I have a decent sized personal cushion.

Since you have a family, I understand having an emergency and highly liquid source of savings can be important, especially in the current economy.

Overall, I'd say the decision would be a wash, since the amount of money you're talking about only covers one semester (or a year?). If you favor peace of mind and insurance, keep the cushion. If you favor a smooth consumption curve and a long distance financial goal, use the savings as soon as possible. Or do a blend of both, but you need to figure out the budget yourself.

 

[AvidAvatar]

Yea the way the system works these days is bogus.

By being responsible, saving up, and waiting until my wife finished graduate school, I actually disqualified myself from so much. Now we have to take out MORE loans because she makes solid money. Now our previous student loans (as I like to call them - our mortgage) eat up a large portion of our income, and I don't qualify for enough federal loans to even cover tuition at most schools. I just got my financial aid package from my third choice school, and I would have to come up with an additional 10k a year just for tuition.

Now I know there are ways to still play the game, and I've very happy I even have the opportunity to go to school like we do in this country. I just wish there was some better way.

 

[LingoLaine]

I agree with this, except that many med schools will require you to fill out the FAFSA (including your parents' financial info) in order to be considered for institutional financial aid (including scholarships). So you might want to fill out FAFSA, even when you know you won't be taking out federal loans.

Yes, but since all of the institutional aid, including merit-based scholarships, also considers financial need, I wouldn't qualify anyway. I called the financial aid office at my future school and confirmed that there is no reason whatsoever for me to fill out the FAFSA.

 

[notbobtrustme]

so you're saying that I should write a check to my brother before applying for FAFSA and then get that money back later?

 

[montessori2md]

There is one good, not yet mentioned, reason to use loans. If you drop dead, your family pays nothing. If you spent your money on tuition, that is money your family does not have.
It's a minor point, but something to consider. If you have assets such that you can pay cash for school, you may also want to consider the fiscal risk of throwing down $$ on an investment (your education) rather than allowing the fed to take that risk for you until you graduate.

A second point: there is always the possibility that a future employer will pay your stafford loans for you. Any non-profit can use that as a tax write-off. If you have no intention of ever working for a non-profit, well, that doesn't affect you. But there are a lot of non-profit hospitals, and academic centers can repay loans too. Doesn't mean they will, but they can.

The financial planners I have worked with would have a fit if they heard of people taking equity out of their house or raiding retirement funds instead of student loans, but they are fiscal conservatives. Working on the assumption that savings includes neither of these things, which are NOT used to calculate your contribution.

Remember, you're accruing interest with UNsub Stafford, but it doesn't compound (you aren't paying interest on interest) until you go into repayment 6 mos after graduation. Subsidized stafford is still a good deal for anyone, IMHO, because there is no interest while you are in school, and that alone makes filling out a FAFSA worth the bother. It is nearly free money if you can pay it back in time.

Some (I would argue most) schools have non-need based awards and loans.

Filling out the paperwork will help you in the event that something very bad happens and you need emergency aid.

 

[MT Headed]

There is one good, not yet mentioned, reason to use loans. If you drop dead, your family pays nothing. If you spent your money on tuition, that is money your family does not have.
It's a minor point, but something to consider. If you have assets such that you can pay cash for school, you may also want to consider the fiscal risk of throwing down $$ on an investment (your education) rather than allowing the fed to take that risk for you until you graduate.

A second point: there is always the possibility that a future employer will pay your stafford loans for you. Any non-profit can use that as a tax write-off. If you have no intention of ever working for a non-profit, well, that doesn't affect you. But there are a lot of non-profit hospitals, and academic centers can repay loans too. Doesn't mean they will, but they can.

The financial planners I have worked with would have a fit if they heard of people taking equity out of their house or raiding retirement funds instead of student loans, but they are fiscal conservatives. Working on the assumption that savings includes neither of these things, which are NOT used to calculate your contribution.

Remember, you're accruing interest with UNsub Stafford, but it doesn't compound (you aren't paying interest on interest) until you go into repayment 6 mos after graduation. Subsidized stafford is still a good deal for anyone, IMHO, because there is no interest while you are in school, and that alone makes filling out a FAFSA worth the bother. It is nearly free money if you can pay it back in time.

Some (I would argue most) schools have non-need based awards and loans.

Filling out the paperwork will help you in the event that something very bad happens and you need emergency aid.

So you should buy a disability / life insurance policy if you decide to skip the loans... hmm. Good point.

I ran the numbers on several "I can afford to skip the loans but what if my future employer would have offered to pay them off" scenarios in the Financial Aid forum, and the conclusion was that in today's era unsubsidized high-interest era it still isn't worth it. The loan interest rates are too high, the loan payments are not guaranteed, and the loan repayments usually have a lifetime cap of $100K or so. Besides, you can always negotiate a hiring bonus in lieu of the loan payment you wouldn't receive.

The last time I saw a subsidized loan was in the Museum of American History, next to the horse-and-buggy exhibit.

 

[LingoLaine]

I strongly believe that if you can skip the loans, you should. The current interest rates for student loans are outrageous compared to, say, mortgage rates.

The other issues brought up, as MT Headed mentioned, can be solved with life/disability insurance and employment negotiations.

 

[Back 5]

I currently owe $200,000 with my Chiropractic loans. I only have a small sum remaining for any additional educational expenses, so I will have to get private loans or look into the military for my funding options.

Paying cash isn't in the cards for me unfortunately

 

[montessori2md]

If you have enough cash on hand to pay for med school out of pocket and you don't already have life and disability insurance, you need a financial planner, IMHO.

Subsidized stafford: http://www.finaid.org/loans/studentloan.phtml. They're real, they're not need based for medical students. No interest accrues till you go into repayment.

If an employer pays your loans, that can include the interest component. It doesn't have to be an organized loan repayment program, it can be any employer. In this case, your loss is not the interest. Your loss is whatever you paid on the loans before you took the job, plus whatever your employer didn't pay. With IBR as a resident, that would be 15% of your income or approx $7500/year.
In theory, you could do a surgical residency, then go work for an academic center, and your total med school cost would be 5*7500= $37,500. That's a lot less than you would have paid up front. And while you were a resident, you were getting a tax write off for every penny of interest you paid, because your income was low.

I agree the interest rates do suck. Complain to your congressman/woman.

 

[Slev]

x

 

[LingoLaine]

No interest accrues till you go into repayment.

No longer true. As of this year, there are no subsidized Stafford loans for medical school, so interest accrues starting day one.

 

[MT Headed]

If you have enough cash on hand to pay for med school out of pocket and you don't already have life and disability insurance, you need a financial planner, IMHO.

Subsidized stafford: http://www.finaid.org/loans/studentloan.phtml. They're real, they're not need based for medical students. No interest accrues till you go into repayment.

If an employer pays your loans, that can include the interest component. It doesn't have to be an organized loan repayment program, it can be any employer. In this case, your loss is not the interest. Your loss is whatever you paid on the loans before you took the job, plus whatever your employer didn't pay. With IBR as a resident, that would be 15% of your income or approx $7500/year.
In theory, you could do a surgical residency, then go work for an academic center, and your total med school cost would be 5*7500= $37,500. That's a lot less than you would have paid up front. And while you were a resident, you were getting a tax write off for every penny of interest you paid, because your income was low.

I agree the interest rates do suck. Complain to your congressman/woman.

Life insurance is taken out to replace one's income for one's dependents in the event of the death of the insured. Of course if one has no dependents, there is no point in taking out a life insurance policy on yourself. The same can go for disability insurance if one's income doesn't depend on one's ability.

There are no subsidized student loans available to medical students. They disappeared in the Budget Control Act of 2011.

You also mention 15% of the above-poverty-income rate for IBR, that changed too in 2011. It's 10% now. I think your information is a little out of date.

It also sounds like you are counting on the PSLF program to exist in the future for doctors. Now THAT'S something worth purchasing insurance against, if such insurance existed. Whitepapers are already appearing (http://www.fastweb.com/nfs/fastweb/static/PDFs/Med_school_loan_forgiveness_loophole.pdf) (ironically, from finaid.org!) that recommend closing the PSLF loophole for doctors before it ever pays out its first dime (which won't occur until 2017).

 

[montessori2md]

Sorry about the outdated info : ( loss of substafford stinks. I think it will be interesting to see what happens to interest rates and GME in the future. And with IBR, 10%, 15%, who knows what it will be in 4-10 years when current M1s finish school, residency, fellowship. Fed support for students can get worse or better, and I thought it was bad for us. If GME disappears, what will residency funding look like? I know with my residency, we're safely in the black without GME, but certainly there are many programs that can't say that.

PSLF struck me as a fairy tale from the day it was introduced. I'm referring to direct loan repayment offered by employers outside of any federal program other than a tax write off for the employer. In my experience it is very common, and I believe it is one reason increasing numbers of new physicians are choosing to be employees vs independent practice.

I realize the investment market sucks, the real estate market sucks, and the student loan interest rates suck, but as a fiscal conservative and someone who has seen a fair percentage of my classmates go through major financial crises, it's still hard for me to wrap my brain around the idea of paying cash for school vs taking the loans and investing that $150-250k so you have a nest egg waiting for you. I think I'd have to crunch the numbers for the individual situation and see the math in black and white to make that choice.

To be fair, if you have that much cash lying around outside a retirement fund, it probably makes very little difference what you do, you'll be fine either way, and are probably going to self-select for a specialty where you'll be pulling $400k+/year anyhow. Your tuition is chump change.

 

[MT Headed]

I realize the investment market sucks, the real estate market sucks, and the student loan interest rates suck, but as a fiscal conservative and someone who has seen a fair percentage of my classmates go through major financial crises, it's still hard for me to wrap my brain around the idea of paying cash for school vs taking the loans and investing that $150-250k so you have a nest egg waiting for you. I think I'd have to crunch the numbers for the individual situation and see the math in black and white to make that choice.

To be fair, if you have that much cash lying around outside a retirement fund, it probably makes very little difference what you do, you'll be fine either way, and are probably going to self-select for a specialty where you'll be pulling $400k+/year anyhow. Your tuition is chump change.

An investment needs to be analyzed in terms of both return and risk. The return on not taking a student loan is 6.8%, which is high, and the risk is zero, which is low. Most zero risk investments are paying ~1-2% right now, and any investment that pays 7% or more would be extremely risky in the current climate. Sure people should keep 3-6 months of savings as a buffer, and pay off their credit cards, but beyond that there is no investment available that has the high rate low risk equivalent of not taking out a student loan in the first place.

I think your second point is an interesting one, and it would be very cool to get some empirical data on it. I was always under the impression that graduating with no student loans gave the student the freedom to choose any specialty (including primary care), whereas a student with $300K in student loans would be stuck in a less desirable high paying specialty just to service the debt.

From my personal view, I'm much more conscious of my time than my money, so any specialty that gets me in and out of residency in a hurry is attractive, no matter what it pays. But these are just the musings of an inexperienced premed. We'll see what I say four years from now.

 

[LingoLaine]

An investment needs to be analyzed in terms of both return and risk. The return on not taking a student loan is 6.8%, which is high, and the risk is zero, which is low. Most zero risk investments are paying ~1-2% right now, and any investment that pays 7% or more would be extremely risky in the current climate. Sure people should keep 3-6 months of savings as a buffer, and pay off their credit cards, but beyond that there is no investment available that has the high rate low risk equivalent of not taking out a student loan in the first place.

Exactly. I can't make more than 6.8% on this money by investing it instead of paying for school with it, certainly not without significant risk. Again, if there were subsidized loans, I would definitely take them, but at 6.8% interest, it's just not worth it for us.

I'm hoping to do an OB/GYN residency. My med school dreams have nothing to do with the money so I'm not really interested in what the various specialties pay. I've had no income personally the last 10 years (husband supports our family) so I just need to break even, and residency salary should cover the cost of medical school. Anything after that will be gravy.