Reducing unsub. Stafford w/ savings

[PacoX]

I have some money that I and my parents have saved for med school. I have enough to eliminate all of my unsubsidized Stafford loan for M1 year, and then for part of M2 year. To me it makes the most sense to delay taking out unsubsidized Staffords until the last possible time, rather than paying equal amounts from my savings each year and having loans from each year accruing interest. Is this the best course of action, using my savings first and then taking out unsub. Staffords?
Thanks

Edit: I realized that doing this would probably take me over the limit for total annual Stafford loans in later years, possibly screwing me over and forcing me to take out private loans at high rates, unless I'm offered more grant money through the school, Perkins, and other need-based aid for which I don't currently qualify. Thoughts?

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[Zetterberg07]

Sorry, I completely misread the question.

 

[dpmd]

You have to consider your current rate of return on the money (if you are making more than the current loan interest rates, the rest of this might not matter, since it might be better to just keep the money where it is). One other thing to factor in is that if the money is in your name, once it is gone that might open up the possibility of perkins and other need based funds. Maybe you can figure out exactly how much you would need for each year (not just the school's budget, but something tailored to your living situation and habits). It sounds like its a pretty big chunk of change that you have saved. Figure out what you would have left over if you did just staffords (no private loans or grad plus-I figure this means dipping into savings some). Is it a ton, or is it about what you will need to pay for residency applications and interviews plus a comfortable cushion for moving (in case you have to)? After factoring in those expenses, you will have a better idea of how much you can reduce your loans this year and next.

 

[It'sElectric]

Edit: I realized that doing this would probably take me over the limit for total annual Stafford loans in later years, possibly screwing me over and forcing me to take out private loans at high rates, unless I'm offered more grant money through the school, Perkins, and other need-based aid for which I don't currently qualify. Thoughts?

Why would your initial plan result in you going over the limit for total annual Stafford loans in later years???

You will only be using subsidized Staffords for the first 2 years or so. Thus, there will be plenty of stafford loan money available to you the final 2 years (up to your school's budget, of course).

 

[PacoX]

The money is in CDs, so its not making great returns. About 1/4 of it is mine, the rest is my parents'. If I just do Staffords, I'll end up with somewhat less than half of it left over, and the annual Stafford amounts maxed out.

Why would I only be using subsidized Staffords for the first 2 years? I thought the max was $8500 per year on those with a cumulative max way above that.

I'm sorry if some of these questions are really basic. I was fortunate to get an amazing scholarship for undergrad so I've never had to deal with financial aid offices at all. Coming from a firmly middle class family, I knew that would change eventually. It was sweet while it lasted though

 

[dpmd]

I think Itselectric is a little confused. The most you could get in subsidized staffords is 8500 (have you gotten your financial award offer and found out if you are eligible for the full amount?). Even though there is a cumulative maximum, it doesn't mean that you can take out more than the maximum ANNUAL amount (38500 last time I checked, but there was talk of increasing it to 40K) one year if you take out less than the full amount the year prior.

Since you said about half of it would be left over if you just used staffords to pay for school, I think it might be good to take that amount and subtract about 5K or so (depending on what specialty you end up going for, how competetive you are, how many interviews you go on, and where you end up matching this amount could be more or less-just giving you a starting point). Then take the amount that is left over and apply that to reducing your unsubsidized loan amount for first year (and second year if you have any left). It is probably better to use your money first, then use your parents' in case that helps you get other stuff like perkins loans. I think you have the right instinct in maxing out your subsidized stafford.

Just one thought on how to do things. Someone else might advise you to keep more money reserved and do more fun stuff with it since you will end up in a financial position that will allow you to pay your loans later on. It just depends on the kind of person you are and what will make you happy. If you are the frugal type who enjoys saving money this might work for you.

 

[PacoX]

That's pretty much what I'm going to do. Thanks for the advice. I called the fin. aid office and they confirmed that this is a good idea. I'd rather not take out more loans and use the money for fun stuff because I'll just end up paying more in the end from interest, and its not worth it to me. Besides, all I did in college was spend all the money I earned working on fun stuff (car, other hobbies). Time to get serious

 

[Miami_med]

Consider your total costs over the four years. On rare occasions, it might make sense to borrow all of your money now and avoid taking private loans or Grad Plus in a year or two. Over the cost of payback (especially if you take a residency forebearance for a >3 year program), the extra 1.7+% can make you worse off compared to the extra year of 6.8%.

My point, apply your savings to the loan that will cost you the most money in the end, regardless of where it is in the 4 years. If you don't take Grad Plus or Private, then early unsubsidized loans is probably the thing to avoid. In that case, your plan sounds pretty good to me.