financial advantage to taking out subs'd stafford when family CAN afford med school?

[No Egrets]

I was offered the maximum amount of subsidized (and unsubsidized) Stafford loans, going into M1, since I'm technically an independent making very little money. However, my parents can comfortably afford to pay for my tuition & fees (and basically anything else) in cash, and are willing to do so. Clearly I won't accept the unsubsidized portion of the loan, but I'm wondering: how much of a benefit would it be to take the subsidized portion only, even though I could get along without it? In theory since the loan doesn't accrue interest, we could invest that money for 4 years, then pay off the loans immediately after graduation yet have earned whatever interest we made on the investment, right? Anyone else in a similar situation? Thoughts?

---

Members don't see this ad.

 

[mpp]

You can do that although it is against the rules in the promissory note that you sign. It is doubtful that anyone would ever find out. However, if your parents have enough money to pay cash for your medical school education, it is unlikely that the small amount of interest you will earn on that $8,500 each year will make much of an improvement in your standard of living.

 

[flighterdoc]

I was offered the maximum amount of subsidized (and unsubsidized) Stafford loans, going into M1, since I'm technically an independent making very little money. However, my parents can comfortably afford to pay for my tuition & fees (and basically anything else) in cash, and are willing to do so. Clearly I won't accept the unsubsidized portion of the loan, but I'm wondering: how much of a benefit would it be to take the subsidized portion only, even though I could get along without it? In theory since the loan doesn't accrue interest, we could invest that money for 4 years, then pay off the loans immediately after graduation yet have earned whatever interest we made on the investment, right? Anyone else in a similar situation? Thoughts?

It's a very low interest rate loan. Invest the money in something. BTW, there isn't any penalty to anyone (except you) if you take the loans, it's not like there is a finite pool of available funds.

 

[ItsNotATumor]

It's a very low interest rate loan. Invest the money in something. BTW, there isn't any penalty to anyone (except you) if you take the loans, it's not like there is a finite pool of available funds.

I agree, take the money and invest, you can beat the interest rate and while you're in school uncle sam picks up the accruing interest.

 

[Mutterkuchen]

I'm sorry, but this is fraudulant and illegal. Why is everyone out here saying, sure, break the law?

Will you get away with it? Probably, but that doesn't make it less illegal.

 

[flighterdoc]

I'm sorry, but this is fraudulant and illegal. Why is everyone out here saying, sure, break the law?

Will you get away with it? Probably, but that doesn't make it less illegal.

Why is it illegal? I don't recall anyting on my MPL that said I had to use the money loaned for any particular purpose. There were things there about repaying the loan, and of course if you aren't truthful on the FAFSA you could be in trouble for defrauding the government.

 

[mpp]

Then perhaps you didn't read the Master Promissory Note carefully enough. The MPN explicitly states that the funds are for authorized expenses which includes:


Tuition,

Room,

Board,

Institutional fees,

Books,

Supplies,

Equipment,

Dependent child care,

Transportation,

Commuting expenses,

Rental or purchase of a personal computer,

Origination fee and guarantee fee, and/or

Other documented, authorized costs.

Nothing more and nothing less. You are not allowed to use the money for investment. However, it is highly unlikely that anyone would ever find out....at least that's what Ken Lay thought.

 

[flighterdoc]

Then perhaps you didn't read the Master Promissory Note carefully enough. The MPN explicitly states that the funds are for authorized expenses which includes:


Tuition,

Room,

Board,

Institutional fees,

Books,

Supplies,

Equipment,

Dependent child care,

Transportation,

Commuting expenses,

Rental or purchase of a personal computer,

Origination fee and guarantee fee, and/or

Other documented, authorized costs.

Nothing more and nothing less. You are not allowed to use the money for investment. However, it is highly unlikely that anyone would ever find out....at least that's what Ken Lay thought.

Money is fungible. You get the check, you put it in your bank, and it's just money.

There is a penalty in the following years, since you will have assets that have to be declared, but as far as it goes, go for it.

 

[No Egrets]

Then perhaps you didn't read the Master Promissory Note carefully enough. The MPN explicitly states that the funds are for authorized expenses which includes:


Tuition,

Room,

Board,

Institutional fees,

Books,

Supplies,

Equipment,

Dependent child care,

Transportation,

Commuting expenses,

Rental or purchase of a personal computer,

Origination fee and guarantee fee, and/or

Other documented, authorized costs.

Nothing more and nothing less. You are not allowed to use the money for investment. However, it is highly unlikely that anyone would ever find out....at least that's what Ken Lay thought.

yeah, i would use the loan money for the above things. but then i would just take the equivalent in cash that i "already had" and would have used for the above things, but invest it. then in four years i have (equivalent of loan cost invested + interest) out of which i take the loan equivalent to pay back the loan in full. interest i keep.

new question: is it possible to pay back the whole loan at once right after you graduate? (too lazy to look up answer)

 

[Pinkertinkle]

yeah, i would use the loan money for the above things. but then i would just take the equivalent in cash that i "already had" and would have used for the above things, but invest it. then in four years i have (equivalent of loan cost invested + interest) out of which i take the loan equivalent to pay back the loan in full. interest i keep.

new question: is it possible to pay back the whole loan at once right after you graduate? (too lazy to look up answer)

If your parents are giving you 40k a year as an independent, you'd have to declare that as a source of income, and or a gift. As a source of income, you'd have to pay taxes, as a gift, it would count towards the current 1 million, or future 3 million, that your parents are allowed to leave to you as inheritance without paying an inheritance tax of the oh so joyous 40%.

 

[mpp]

Or your parents could pay the gift taxes on it.

Yes, you can pay back a loan at anytime. There is no penalty to pay it back early.

 

[mpp]

And there is no tax on a money paid directly to the school for tuition by someone else. That is to say someone can gift you the cost of tution tax-free as long as they pay the school directly.

 

[flighterdoc]

yeah, i would use the loan money for the above things. but then i would just take the equivalent in cash that i "already had" and would have used for the above things, but invest it. then in four years i have (equivalent of loan cost invested + interest) out of which i take the loan equivalent to pay back the loan in full. interest i keep.

new question: is it possible to pay back the whole loan at once right after you graduate? (too lazy to look up answer)

yes, no pre-payment penalties on any federal loans

 

[Cuteasaurus]

Wait, are you saying to take the Loan money and invest it? Or, are you using that money for school and investing what your parents would have given you?

In other words, could your parents give you the money they had intended to, invest it, and then pay off your loans?

 

[mpp]

Yes, you can do that. However, your parents giving you money is a taxable event and someone must pay taxes on that money (it is a gift and there is a tax on any gift over $11,000). The only part that is non-taxable is the first $11,000 each year and whatever is paid directly to the school for school expenses. The tax is likely to be much higher than the interest earned. Also, the extra money may make you ineligible for some of the need based aid either directly from the school or in the form of subsidized federal loans which may also detract from an investment earnings.

 

[No Egrets]

Yes, you can do that. However, your parents giving you money is a taxable event and someone must pay taxes on that money (it is a gift and there is a tax on any gift over $11,000). The only part that is non-taxable is the first $11,000 each year and whatever is paid directly to the school for school expenses. The tax is likely to be much higher than the interest earned. Also, the extra money may make you ineligible for some of the need based aid either directly from the school or in the form of subsidized federal loans which may also detract from an investment earnings.

interesting, i didn't know that about the tax on gifts over $11,000...

 

[flighterdoc]

interesting, i didn't know that about the tax on gifts over $11,000...

Mom and dad can create a Ross IRA for your education, then it's tax free to you I think (tax is paid by them, up front).

BTW, each of them (Mom AND Dad) can give you the $11K tax free. Have them give it to you each year AFTER you fill out the FAFSA, since they ask for cash on hand.

 

[mpp]

The Education IRA (which is a misnomer since it isn't for retirement) allows parents to put $500 each year into an account for each dependent child under age 18. Unless you are under age 18 this would not apply to you.

The $11,000 can be from each parent.

 

[Mutterkuchen]

I still think that it is probably illegal. If not illegal, certainly unethical. While you're at it, why don't you apply for welfare, food stamps, and Medicaid. Finding an off-shore bank isn't the worst idea, either.

 

[SanDiegoSOD]

I still think that it is probably illegal. If not illegal, certainly unethical. While you're at it, why don't you apply for welfare, food stamps, and Medicaid. Finding an off-shore bank isn't the worst idea, either.

Wow, a sucker really is born every day. If you want to follow every law, go ahead, but I'll do what I can to get ahead in this world.

 

[flighterdoc]

I still think that it is probably illegal. If not illegal, certainly unethical. While you're at it, why don't you apply for welfare, food stamps, and Medicaid. Finding an off-shore bank isn't the worst idea, either.

Most med students probably can qualify for food stamps. Welfare usually requires you to be available to work so that might be out. Medicaid is a possibility as well.

It may be unethical but it would be stupid to not take advantage of the opportunities. If you don't like the welfare structure, then elect a president and congress that will change it.

 

[gaf]

I still think that it is probably illegal. If not illegal, certainly unethical. While you're at it, why don't you apply for welfare, food stamps, and Medicaid. Finding an off-shore bank isn't the worst idea, either.

I have $100 dollars in my pocket.
You lend me $10 for lunch.
I spend $10 on lunch and $100 on booze, gambling, and mutual funds.

There isn't any foul there. You can't distinguish the $10 from the $100.

If you're spending as much on school as they are lending, you're doing the right things. Now, how you managed to get subsidized loans with all this cash lying around is interesting.