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Extra Money - What To Do?

Discussion in 'Pre-Dental' started by Safado, Apr 23, 2007.

  1. Safado

    Safado 5+ Year Member

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    Nov 14, 2006
    This may be a stupid question, but I figure all y'all might have some input on this. I keep hearing that the interest rates on loans for school are so low that it seems that everyone just takes their time paying them back.

    My question is, if I had a fair amount of money saved up, what should I do with it? Should I use it all on tuition and living expenses? Or should I take out all the loans I can, and save what little I have for a rainy day or an emergency? Or should I try to wisely invest it and live off loans?

    It may be a dumb question, but I'm not much of a financial guru. Keep in mind I am married and will be having a child in June. My wife is also diabetic, if that would change your answer. Any suggestions would be appreciated (other than giving the money away).
     
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  3. BirkChick

    BirkChick 5+ Year Member

    172
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    Jan 24, 2006
    How much money are we talking about? $10k? $100k?

    Your situation sounds much different than mine... but I'll tell you what I plan to do with my savings. I plan to take out the maximum in federal stafford loans ($38.5K per year) and use my savings to cover any additional expenses.

    Once you get into PLUS and private lenders, the interest rates aren't very desirable. So, my advice to you is to limit yourself to only the federal stafford loans, if possible.

    An emergency fund (or rainy day fund) is a wise thing to have, especially if kids are involved. This money should be kept either completely liquid (i.e. savings account) or in a CD ladder. ING Direct has some good interest rates for both CDs and Savings Accounts. Your emergency fund should contain 3 to 6 months of living expenses.

    Regarding investing: Are you thinking of putting the money in a retirement account, such as a Roth IRA?
     
  4. Safado

    Safado 5+ Year Member

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    0
    Nov 14, 2006
    It depends on a lot of things, but to simplify it, let's say $50,000.

    Is the $38,500 Stafford Loans subsidized?

    How much more than that can you get from private lenders. I am going to NYU, so I know I will need a lot more than $38,500 obviously.

    I feel pretty naive about all of this, so I appreciate any comments.
     
  5. Cymbidium

    Cymbidium Awesome. 2+ Year Member

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    Nov 11, 2006
    SoCal
    I would say that if your saved money is in an account with a higher interest rate than the interest rate on your loan, then take the loans.


    It's the same answer to the question: "Should I pay off my credit card debt with my savings?"
     
  6. dentofalltrades

    dentofalltrades USC C/O 2009 2+ Year Member

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    Apr 2, 2007
    Check out ING and UBS. They both have saving plans that get you about 5% or 6% depending on what you choose to do.
     
  7. Ex_EE

    Ex_EE 2+ Year Member

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    Sep 23, 2006
    Houston
    I am in a similar situation and I will use the money for savings. I would hate to use it up paying for tuition and not have taken the student loan money and then get into a bind. There is something to be said about having it in savings. Even if you can't make the same interest if the delta is less than 3% I wouldn't worry about it. I think that would be a small price to pay for a little security.
     
  8. BirkChick

    BirkChick 5+ Year Member

    172
    0
    Jan 24, 2006
    Ah, NYU... Yeah, you're not going to be able to cover everything over the Stafford limit with only $50k saved.

    Of the $38,500 Stafford Loan, $8,500 will be subsidized if you qualify (don't ask me what your financial situation must be to qualify -- I have no idea.)

    You should be able to get loans from private lenders up to the total cost of education (including housing and living expenses).

    With what little I know about your situation, I can't give you very detailed advice. But, if I were in your shoes, I'd definitely look into opening a Roth IRA for both you and your wife and contributing the max for 2007. I would invest the money in an index fund such as VTSMX or VFINX. They are relatively safe investments and have nice and low cost ratios.

    With the balance of the money, I would open a savings account or buy a ladder of CDs at ING Direct. This money will be a nice cushion for unexpected, "emergency"-type expenses that you may incur.

    If you'd like to give me more detailed info on your financial situation, PM me and I'd be happy to review it and provide you with a better advice. :)
     
  9. dentalman

    dentalman Senior Member 7+ Year Member

    441
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    Jul 10, 2004
    I agree with the above. Put in the max amount into a Roth IRA each year (about $4000), and then try to max out your IRA ( $5000?.) The simple fact that you are asking on a message board says you don't know much about finances, hence why you should invest in an index fund.

    Although short term, this is the least extravagant, it will pay off in the long term 10 fold.
     
  10. dentalman

    dentalman Senior Member 7+ Year Member

    441
    1
    Jul 10, 2004
    Although, most of the people claiming such low interest rates graduated in the last few years, when it was around 2-3.5% Now that it is at 6.8%, it's not as amazing.
     
  11. Furmanallergist

    Furmanallergist

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    Feb 9, 2016
     
  12. Furmanallergist

    Furmanallergist

    2
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    Feb 9, 2016

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