Subsidized Stafford loan question

[Starcontrol]

After lurking here for nearly 2 years, I have a question that I hope someone can help me answer. I'm one of the lucky few who will be able to pay for med school in cash, without taking out student loans. However, it seems like a good idea to take out a subsidized loan as an interest free loan for 4 years, and then pay it back in one large sum at the end of med school. This way, I'll be able to invest the 8500 each year, and make some money off of investments. Is this even possible, and would lenders even allow it?

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[lestat]

Originally posted by Starcontrol:
•After lurking here for nearly 2 years, I have a question that I hope someone can help me answer. I'm one of the lucky few who will be able to pay for med school in cash, without taking out student loans. However, it seems like a good idea to take out a subsidized loan as an interest free loan for 4 years, and then pay it back in one large sum at the end of med school. This way, I'll be able to invest the 8500 each year, and make some money off of investments. Is this even possible, and would lenders even allow it?•

I you have the cash (well documented) to pay for medical school, you probably won't qualify for subsidized loans because you qualify for subsidized loans based only on need. You'll have to take out unsubsized stafford loans instead.

 

[Benzeno]

The payments are deferred, not the interest, which accrues during school.

 

[Cassidy61]

still the key fact is that ONLY if you show financial need will you get the sub stafford. and i do believe that there is somewhere in the promissary note that you sign that states that federal funds cannot be used for this, that and the other. although no one really follows that, it might look a little bad if you actually go out and invest it. if you want to be sneaky and invest money, look for alternate sources of aid. for instance, one person i know has a small assistance loan from his home town to help with med school @ 4%. they are even deferring the interest to make it like a sub staff! if you had enough money already, i guess you could invest it. however, this question makes me question why you are going into medicine and not investment banking??!!!

 

[pcl]

Originally posted by Benzeno:
•The payments are deferred, not the interest, which accrues during school.•

Interest only accrues on the unsub. The govt. pays the interest on the sub for the time you are in school.

 

[LaRa CRoFt]

I say why not if the school has approved a package of aid that includes a subsidized stafford loan. I did the same while I was in undergrad. The money from the subsidized will automatically go to paying off your tuition and anything left over will be electronically deposited into your bank account. So essentially you'll use the loan money for school and you can use your own money to invest. Essentially you're borrowing money interest free while in school so that you don't have to use your money on tuition and continue to make your money work for you. I support it because one of these days we'll not only have to be doctors but investors as well, why not start now? I am.

 

[electra]

star,
lestat is right.....you may only qualify for either a portion of sub or the unsub...check with yout FAO.

also, remember that you may pay a guarantee and origination fee on the loan, so that will reduce your amount...

otherwise, you certainly could borrow it and then be ready to pay it back 6 mos after graduation.

 

[Dreamer]

If you have documented amount of cash they can give you only unsub. what means you have an interst.

 

[LaRa CRoFt]

Originally posted by Dreamer:
•If you have documented amount of cash they can give you only unsub. what means you have an interst.•

I'm sorry but I have to say that this is not true. I have about 7,000 in my checking account and I was able to get the full 8,500 in subsidized loans in my financial aid package.

 

[lestat]

Originally posted by LaRa CRoFt:
•I'm sorry but I have to say that this is not true. I have about 7,000 in my checking account and I was able to get the full 8,500 in subsidized loans in my financial aid package.•

I think having around $7,000 is perhaps normal. But, does that translate to EFC (Expected family Contrib) of Zero? If not, you will have to use the $7,000 to fill the gap between the award and the total cost. Financial need usually is not based solely on your account, but parents' income/assets. One's qualification for subsidized stafford depends on how costly the school is and how much your/parents' resources are (=financial need). Not everyone qualifies for subsidzed loans. Also, eligibility for such loans in medical school is different from undgrd.

 

[Dreamer]

LaRa,
I meant that having documented amount of money what allows you to pay your way through the school yourself might get you only unsub. 7k is OK, at least as I know from my experience.
I am sorry if I misled you.

 

[kris]

I'm pretty sure this is flat-out illegal use of stafford money. I've had staffords years ago, and I recall (I hope I'm not inventing the past) that there are clauses that essentially explicitly say you cannot invest the money; it must be used for legitimate school expenses.

Again, I hope I'm not inventing this, but I hardly think I could make it up.

--kris

 

[LaRa CRoFt]

Thanks for the info lestat. If this is true regarding EFC would that cause him to qualify for unsubsidized loans since he is able to cover the total with cash? I hope someone can answer this. If he could get unsubsidized loans I think it would still be beneficial to take out the loan even if interest did accrue. If Star were to pay the interest each month he could deduct this at the end of the year from his income tax if he is planning on investing otherwise he will have to pay more capital gains tax on his investments. I hope this is correct?

To Kris.. I meant to say that he could borrow for school so that he wouldn't have to touch a cent of his own money which he could use to invest.

 

[LaRa CRoFt]

Kris you're right that it is illegal to do that. There are ways to avoid this problem but I'm not saying you should do it. There are also ways to divert your money so that it is not shown as capital when you fill out your financial aid form (one example: currency and offshore accounts)

shh.. of course we all know I don't do the stuff I mentioned!

 

[freshity]

i do not mean to pick on your last statement, ms. croft, but if people are doing things like that, then how can we ever build an argument against some of the more heinous requirements we have to financial aid offices? you know? when people abuse the system such that they use governement issued loans to invest as they see fit, rather than fronting that money themselves to pay for school, then we as a group have little recourse for making other changes that actaully make sense. i think if a person has the wherewithall to shift their money into offshore accounts to mask the fact that they have it, that person shouldn't get a dime from the goverment to sponsor their education. how much money do you need? i suspect you were presenting that simply as a possibility (and perhaps flaunting the fact that you knew it could be done), but it's so annoying to hear it. i say this as someone who's independent of my financially strapped and estranged parents, who'll bend over backwards to provide these schools the verification they need of this fact. i can't stand the idea that you may get money you really don't even need, just so you can invest the money you have so it will grow these four years, while you educate yourself to make plenty of money in the future as a doctor. excuse me, but it sounds very greedy.

 

[Starcontrol]

Thanks to all the people that responded. I do have the financial aid elegibility statement in front of me that allow me to take out 8500 in sub stafford loans. One possible reason I got this is because I'm going to one of the more expensive private schools. I haven't hidden anything, or moved any money offshore, if that's what certain people are concerned about. My question was genuine. Thank you electra for your answer. I didn't need to take a loan out for undergrad (scholarship) so this loan stuff is new to me.

 

[LaRa CRoFt]

Fre****y. In the above reply I mentioned those as examples of things that actually happen. I never said that I practice it. The truth is the rich do it all the time and with their good accountants they find ways to pay less taxes than we do. That was my point. I am just as independent of my parents as you are but I choose to invest every cent I already have as an extra source of income now and while I am in medical school. I don't see how I'm being greedy. When I filled out my financial application I reported everything that I had including money invested in stocks. Does that mean I have to take this money out to pay for medical school? No. I can choose to take the money offered to me in sub/unsub loans to pay off my tuition while keeping the money in the stock accounts. The money I'm earning from these accounts each year will pay for my needs and expenses and interest later. Do you know that by the time we get out we will essentially be paying 2-3 times the amount we borrowed in return? I am sorry if I sound like I'm being greedy and annoyed you. I don't feel I'm stepping on anyone because I am only borrowing the money they offer me after they have calculated how much I will need.

 

[freshity]

ms. croft, i think what was so bothersome about your reply was the mocking tone (and icons) used to describe these things you would never do. it's hard to tell what's the truth--and it's senseless to devote energy towards that end. what you do is between you, your accountant, and your conscience. it's nice to see that you at least gave some thot to how what you're saying is phrased. i have about as little power over what you (or others who seem to be using money they don't really need) do as i have over anything else outside of me. best of luck!

 

[TheAce]

Some people should get the facts straight before confusing people. Subsidized Stafford loans have their interest paid by the government while you are in school and up to 6 months after graduation. Then after that, interest begins to accrue and you will either make payments or defer it based on hardship. With unsubsidized Stafford loans, you will interest will accumulate but will not be added onto the priciple until graduation. Also, no need to make payments until graduation.

I had $15k in the stocks/cash last year (which has declined due to the market) and I was able to get 100% of the Stafford subsidized ($8500) and about $20k in unsubsidized Stafford. Which was essentially the schools budget - 8500 - expected family contribution (due to MY assets and MY income). So, when they limit the amount you can borrow, they take it off of the unsubsidized, not the subsidized. Incidentally, my parents paid for most of my education and I have invested the $8500-3% (origination fee) subsidized Stafford. Some of my friends (parents paying for school)have taken out unsubsidized Staffords to invest, but I'm not playing that game, since interest will accrue during school on these.

 

[LaRa CRoFt]

I'm glad you finally understand that I am not robbing anybody and neither are others who choose to borrow the full amount that they are entitled to. Each person has a right to pull out as much as they feel they need. FYI, I am my own accountant and my part time job while studying will be day-trading. I am getting from your tone, however, that you have a negative disposition towards me. I hope that you do not take all my responses the wrong way.

 

[ckent]

If you are worried about getting into trouble for investing your stafford money, instead of relying on people on this board, I would recommend making an anonymous call to your financial aid couselor and asking him/her straight out.

 

[Djanaba]

A key point: many loan disbursements are made directly to the school, not to YOU. Therefore, you'll only see the money that is in excess of your tuition cost. Investing THAT is in no way illegal. I am liquidating an investment I made 3 mo. ago with Stafford surplus, which was happily accruing more money faster than any savings or mutual fund could have. Exciting.

Lots of folks bankroll their surplus, if they can. Once the money is yours, its yours. If you got it, you showed the government that you had enough need, and once they cut your school the check, and the school gives you the surplus, it's yours to invest, spend, or burn in your fireplace as you see fit.

 

[TheAce]

Djanaba: You should have read the master promisary note. It says specifically, "I must use the loan for authorized educational expenses... Authorized educational expenses include the following: 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." So investing, gambling, drugs, vacations, ... are not supposed to be paid for by loan money. Despite this, many students do use their "extra" loan money for these activities. The financial aid offices do not check up on exactly where every cent you have is coming from or going to. So don't worry about it.

Also, I KNOW that my total repayment amount will only be 133% of what I borrow, not the 200-300% someone stated. Meaning, for every dollar that I borrow, I will pay $1.33 at the max of 8.25% interest. Of course, I will be able to make my payments on time and within 10 years. Also, I should be able to repay it in less than 10 years after residency. You can also think of it as less than that in todays money due to inflation and interest write-offs on your income taxes.

You people should stop worry about your loans and how much in instituational aid you can get and whether or not the school is shafting you. You'll still get up to your schools budget in loans (not necessarily grants and scholarships) and once you are done you will not be starving on the streets.

 

[LaRa CRoFt]

The Ace, in your case it may only be 133% for others it may be more. I calculated how much I would owe according to how I would start repaying it and it comes out to 2X the amount that I will borrow. I would start paying unsubsidized loans while in residency and subsidized after my residency. It's not feasible for me to be repaying a thousand dollars per month towards loans while in residency. I don't know how it will be for others but it all depends on how much you intend to borrow and how you plan to repay it.

Now this is only my case. I know others that will go through forbearance to defer payments during residency. In this case the interest would accrue on both subsidized and unsubsidized. My friend's estimate came to about 2.5X. I might be over-exaggerating on the 3X but 2-2.5X is very realistic. How is everyone else calculating the amount they will owe? I have tried loan calculators but I have found that they are way off the mark. Try calculating it on Excel spreadsheet and you'll know what I mean.

 

[TheAce]

Take a look at the financial calculators at http://www.finaid.com. It lets you modify interest, rewards, years of repayment, ...

I can't imagine why they would be different. Also, on the back of one of my financial aid packets (FASFA???) it shows how much you will pay per month for every $10k you borrow. And I figured mine to be about 133% of what I borrow, so the only way I figure you'd pay 2-3x is if you were to defer and have a long residency and also extend the payments out over 10 years.

 

[Djanaba]

Ace, you're right. And in the end, that money will go to tuition expenses -- investing it until you need it is not considered an "expense." Since I can only get so much per year of subsidized, it makes sense to take as much subsidized as I can now, bankroll it, and refuse unsubsidized later (as my savings dwindle). In the end, all is fine.

 

[JasonBentow]

I agree with TheAcylase. But remember -- most people are in debt. Most of us will be able to pay it off.

 

[codeguy]

I have undegraduate debt of $30k(stafford sub/unsub loans). How much above that total will I be able to take out for Medical school?

In other words, if the max stafford sub/unsub is $138k does that mean I can take out up to $108k additional or $138k more than what I already owe?

Thanks in advance.

 

[FSUMED]

This is kind of off the subject those of you that mentioned how much money you have in you account, stocks, etc. It DOES NOT matter, at least not in undergrad. Assuming that you use the FAFSA in med school. I was told by an advisor who knows financial aid process inside and out that all those slots on the FAFSA for personal savings and stocks and stuff cant be verified, so if you put anything besides 0$ on them it can only hurt you. Yeah it is lying, but I dont think that the government really ways them all that heavily since they dont verify them. Basically what matters is how much money you make.

 

[Fermi]

Originally posted by FSUMED:
•I was told by an advisor who knows financial aid process inside and out that all those slots on the FAFSA for personal savings and stocks and stuff cant be verified, so if you put anything besides 0$ on them it can only hurt you. Yeah it is lying, but I dont think that the government really ways them all that heavily since they dont verify them. Basically what matters is how much money you make.•

Whoa. Maybe your advisor knows something I don't, but I really wouldn't recommend this. Sometimes they do select applications for verification, which includes providing copies of your tax returns, bank statements, and so forth. They may even have some sort of formula that flags people with high income and no savings for verification. And how can you say they don't weigh them all that heavily? They take a specific fraction, I think 35%, or your listed liquid assets.

You have a decent chance of getting away with it, I guess, which may be why your "advisor" unscrupulously tells students to lie on the form. It would be unethical to say you have *zero* savings when you actually do, especially for med/grad school. You're responsible for your own finances now and it's best to start out honestly and responsibly. Not that I agree with their whole calculation, but I still abide by the rules. If there are extenuating circumstances, your school can personally adjust things for you, but I don't think they would be too accomodating to a person who lists a very good salary and no savings to show for it.

 

[freshity]

this may open a can of worms, but it strikes me as an interesting consideration. what would those of you who have several thousand in savings do if the stafford (or a similar low interest loan) program didn't exist? some of you might spend that $$ to pay for school. if i had money to spare and could get away with not using it, i might consider it as well. but here's the question: do you all support programs like welfare and other social service programs that give large amounts of money to people for them to do with it as they wish? i mean, conceivably no one will know really what you do with this money you get back in refund, since you won't have to use for living expenses. i know not everyone who's posted here with savings will be in a position to do what i've described, but i sure hope those that do heavily support others doing the same for themselves in this country (for the record, i support social services, but i think we could be more innovative in truly helping people). unfortunately, i suspect many people are less likely to trust the less-educated, less-resourced to make these types of choices for themselves than they would be to trust a med student. but government-subsidized cash is government-subsidized cash, so is it different? just a thot.

 

[electra]

drfermin is correct about verification of value of investments, etc. the FAFSA is set up with certain blocks that act as verification "checks," one reason that one of every three apps is selected.

 

[RockOn]

Codeguy,

I'm in the same situation as you. I have an undergrad debt of about $20K right now. I know that my last yr of school I'll be taking a lot of alternative loans (my school cost per yr starts at $42K and goes up) because undergrad and med school debt is combined. Your total borrowing capacity left is $108K. Hope your not like me, going in without 1 cent of savings (but with no consumer debt).

As for all that question the legality of borrowing what you don't "need" it is NOT permitted. Maybe all of you investing all of your "extra" money and having had your school paid for have never read a promisary note but I have a stack of them and they all say that the funds are to be used for approved educational expenses. What's worse, for some of us who went to a mainly commuter school housing wasn't even considered an expense and wasn't part of your financial aid package.