Whitney

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Wondering if you all could help withh this. Here's my deal: I have a rather substantial debt in previous student loans (like ~$70,000). My wife and I also have roughly that amount in a money market fund.

From what I've read on other threads, FAFSA will allow me to deduct my debt from my savings. But some school-specific forms just ask for my savings.

My question is this: would it be better to pay off these loans before applying for financial aid for med school (thus eliminating my savings and possibly helping out my EFC). Or, should I consolidate these loans at present low interest rates, defer repaying through med school, and use my savings for tuition?

Any help would be sooooo appreciated!!! Thanks!!!
 

DrB

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My first thought is that if you already have student loans in excess of 70k this may cause problems when trying to get federal money. They have a cap on how much you can have... not sure on the number, but I know it was posted in this forum several times.

The other thing is that you may have a high EFC if you have ~70k in savings, but I am not sure if they look at your money market account as liquid assets when deciding your EFC. One other option may be to "hide" the money in real estate because I don't think they use real estate to determine your EFC.

In my own oppinion I think it is better to be debt free, but I think a real financial advisor may want to do the math and find out which is more cost effective. With a large debt you may have to take more loan money from alt. lenders at a higher interest rate. If you could figure that number and compair it with your expected returns on your money market account then you would have a better answer.

Hope my blathering helped :barf:
 

uptoolate

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Whitney said:
Wondering if you all could help withh this. Here's my deal: I have a rather substantial debt in previous student loans (like ~$70,000). My wife and I also have roughly that amount in a money market fund.

From what I've read on other threads, FAFSA will allow me to deduct my debt from my savings. But some school-specific forms just ask for my savings.

My question is this: would it be better to pay off these loans before applying for financial aid for med school (thus eliminating my savings and possibly helping out my EFC). Or, should I consolidate these loans at present low interest rates, defer repaying through med school, and use my savings for tuition?

Any help would be sooooo appreciated!!! Thanks!!!
I was in a similar situation when I entered grad school and was counseled not to pay off all my loans with my savings. Talk to a financial advisor to get the full scoop. Also remember, in the unlikely but not impossible event of your death, your student loans are forgiven (and your wife would have 70K in savings). I think the federal student loan cap is somewhere around 185,000, which you might hit starting with 70 K in the hole.
 

JAMMAN

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There are a number of reasons that paying off your student loans would be a bad idea.

1. While assets will increase your expected contribution, you obviously have the money to cover it.

2. While in school, your all of your federal loans are deferred.

3. While in school, your subsidized loan interest is paid by the government.

4. Student loans rates are very low.

5. Your money market account is probably performing at a better rate than student loan interest.

6. Student loan debt is a great bargaining tool for savy residents looking for their first jobs.

All of this means that paying off your student loans with investment income is nothing more than a bad investment at this time.
 
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Whitney

Whitney

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Thanks Jamman, Uptoolate, and DrB....I'm thinking what I'll do is hedge my bet and pay of just the unsubsidized portion of my loans (about half of the outstanding loans). That way if I decide I'd like defer while in med school no interest will accrue during that time (on the subsidized loans). Keeping the loans because of their low interest doesn't really make sense to me, because my money market fund barely yielded 2% last year (perhaps I could invest it in a better fund, but.....). Also, and this probably doesn't translate into sound financial managing, but it would just make me feel better to get rid of at least SOME of the loans. I feel like they've been hanging over me for a while and I just don't like the way that feels, you know?

Any comments/thoughts/arguments, always welcome...