Sudden Financial Predicament

[RjDarkness]

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So, I have been put in a financial predicament for my future medical education. My father was a physician and he was going to pay for my education like his father did. But my father passed away suddenly 🙁 . I do not think I will qualify for need based financial aid because my father left me a lot of money in my name through a UTMA account. But that money is not near enough to finance a medical education.

What ideas or suggestions do you guys have?

 

[Pons Asinorum]

So, I have been put in a financial predicament for my future medical education. My father was a physician and he was going to pay for my education like his father did. But my father passed away suddenly 🙁 . I do not think I will qualify for need based financial aid because my father left me a lot of money in my name through a UTMA account. But that money is not near enough to finance a medical education.

What ideas or suggestions do you guys have?

Loans, perhaps?

 

[avatarftw]

I may be mistaken, but I thought that you are still eligible for the Stafford subsidized and unsubsidized loans. Also, I think (also may be wrong on this) that you are able to withdraw money from your UTMA for educational purposes without incurring a tax penalty. However, you will most likely be accruing money at a higher rate in the stock market than the 6.8% that the Stafford loans cost-i.e, it makes more financial sense to keep the money invested.

Isn't "need-based" just referring to the Graduate Plus (7.9, 8.5%) loans and perkins loans? (5%)

Also, what is a "lot of money"? Are we talking 10,000, 30,000, 100,000, 2 million dollars, 100 million dollars? I'm sorry he passed away suddenly, but you are fortunate that he cared about you to help secure your financial future. Good luck!

So, I have been put in a financial predicament for my future medical education. My father was a physician and he was going to pay for my education like his father did. But my father passed away suddenly 🙁 . I do not think I will qualify for need based financial aid because my father left me a lot of money in my name through a UTMA account. But that money is not near enough to finance a medical education.

What ideas or suggestions do you guys have?

 

[RjDarkness]

Have you heard of financial aid for people with dramatic income changes? My premed advisor mentioned this to me, but didn't know much about it.
My father just passed away late this summer and we're still adjusting. We have to pay of his loan when he started his own practice.
I just want to reduce my unavoidable debt as much as possible.

 

[RjDarkness]

I may be mistaken, but I thought that you are still eligible for the Stafford subsidized and unsubsidized loans. Also, I think (also may be wrong on this) that you are able to withdraw money from your UTMA for educational purposes without incurring a tax penalty. However, you will most likely be accruing money at a higher rate in the stock market than the 6.8% that the Stafford loans cost-i.e, it makes more financial sense to keep the money invested.

Isn't "need-based" just referring to the Graduate Plus (7.9, 8.5%) loans and perkins loans? (5%)

Also, what is a "lot of money"? Are we talking 10,000, 30,000, 100,000, 2 million dollars, 100 million dollars? I'm sorry he passed away suddenly, but you are fortunate that he cared about you to help secure your financial future. Good luck!

He didn't leave 100million lol. I wouldn't be worried if i had that much. My utma account has roughly xxxxx. Like u said i'm thinking it's a better idea to keep the money invested. I haven't looked much into loans yet, so i don't know that much about them. With need-based loans I was thinking of students loans with the lowest interest rate. But since my net worth is xxxxx, i was thinking i won't qualify. My mother was thinking that I could transfer the utma money to her, to make my net worth 0, but the banker said we would get in trouble with IRS if we did that, heh. Thanks for the loan info. i'll look into the Stafford loans.
I'm hopin to get into my in state school to save me money.

 

[odieoh]

He didn't leave 100million lol. I wouldn't be worried if i had that much. My utma account has roughly 90,000. Like u said i'm thinking it's a better idea to keep the money invested. I haven't looked much into loans yet, so i don't know that much about them. With need-based loans I was thinking of students loans with the lowest interest rate. But since my net worth is ~100k, i was thinking i won't qualify. My mother was thinking that I could transfer the utma money to her, to make my net worth 0, but the banker said we would get in trouble with IRS if we did that, heh. Thanks for the loan info. i'll look into the Stafford loans.
I'm hopin to get into my in state school to save me money.

Depending on your school 90k should be enough to pay for ~2 years of school. Take out student loans for the rest like the vast majority have to for the full 4, and thank your lucky stars you will be graduating with less debt than most.

Personally I wouldn't leave it invested. Most likely student loans would be at 7% or so. So to come ahead by investing you would have to beat that %, and there is always the risk that you don't beat it or even lose money. The above poster's assertion that you will "most likely" make better than 7% is wishful thinking- its definitely possible but there is significant risk. Not to mention the fact that if you pay for your first 2 years you have that many years less for loan interest to accrue. To me its a no brainer-pay now and avoid debt as much as possible.

 

[TMP-SMX]

No guarantee of interest above 6.8%. Just take out your stafford loans after spending your money. That way your EFC is back down to 0 and will be eligible for the 8500 in subsidized loans plus the other need-based aid.

 

[RjDarkness]

thanks for the help everyone.

 

[avatarftw]

I'm sorry but the S and P 500 has a historical return of around 10-11% per year. That INCLUDES the great depression, recessions, etc. If you spend the 90K on school then you trying to time the market; you're assuming that the rate of return for the next few years will be dismal. See what Buffet and other successful investors think about short term investing, timing the market, and incurring severe capital gains taxes.

The odds are heavily in your favor that you will beat that meager ~7% return that you need to make the stock investment worthwhile. This type of logic is what leads people to put thousands of dollars into CD's and other paltry-yielding investment vehicles that they otherwise could have invested in bonds, stocks, etc. I'm referring to people that already have a 6 month cushion in case of emergency and have a long time (20+ years) to invest the money; money that they CAN afford to lose.

By being too conservative the odds are against you of securing your financial independence in a timely manner.

Depending on your school 90k should be enough to pay for ~2 years of school. Take out student loans for the rest like the vast majority have to for the full 4, and thank your lucky stars you will be graduating with less debt than most.

Personally I wouldn't leave it invested. Most likely student loans would be at 7% or so. So to come ahead by investing you would have to beat that %, and there is always the risk that you don't beat it or even lose money. The above poster's assertion that you will "most likely" make better than 7% is wishful thinking- its definitely possible but there is significant risk. Not to mention the fact that if you pay for your first 2 years you have that many years less for loan interest to accrue. To me its a no brainer-pay now and avoid debt as much as possible.

 

[odieoh]

I'm sorry but the S and P 500 has a historical return of around 10-11% per year. That INCLUDES the great depression, recessions, etc. If you spend the 90K on school then you trying to time the market; you're assuming that the rate of return for the next few years will be dismal. See what Buffet and other successful investors think about short term investing, timing the market, and incurring severe capital gains taxes.

The odds are heavily in your favor that you will beat that meager ~7% return that you need to make the stock investment worthwhile. This type of logic is what leads people to put thousands of dollars into CD's and other paltry-yielding investment vehicles that they otherwise could have invested in bonds, stocks, etc. I'm referring to people that already have a 6 month cushion in case of emergency and have a long time (20+ years) to invest the money; money that they CAN afford to lose.

By being too conservative the odds are against you of securing your financial independence in a timely manner.

Past results are no guarantee of future returns. Yes I realize that the average 10% returns include some very rocky stretches and that long term those stretches are made up for by periods of great returns. But that doesn't take away the fact that there is inherent risk in the stock market and the definite possibility of losing your shirt. Even people who invested long term can be burned if they happen to come into one of the bear market periods at the wrong point in life (ie people who were about to retire around the time of the internet bubble burst etc etc.)

Not to mention that we are at a time of unprecedented financial difficulty. You mention the S&P, which is commonly used as the benchmark of our economic health. We just had the first ever decade where the S&P averaged a loss over the decade. There aren't a whole lot of indications that the economy is improving. If I had to choose a guaranteed 7% win over the giant black question mark that is the stock market, I'd take the 7% in a heartbeat. Not sure how you feel that the odds are "heavily" in favor of beating 7% when, as you pointed out, the average return is 10-11%, only slightly better than the 7%.

You did mention that investing is for money that you can afford to lose and I agree, if I had 100k sitting around and no debt, it would go to the market. But in the OP's case with the debt load he is facing, I wouldn't put him in the category of being able to afford losing 90k.

 

[babel]

I agree with most of the above (i.e. use it to decrease your debt load up front so you could get the $8500/yr in subsidized loans). I would encourage you to sock away a little bit (~$5000) for an emergency fund. I've had that much around for awhile and it has never limited my ability to get subsidized loans. You'll be happy you have it when your financial aid is a month late (as mine is right now!), your car breaks down, or you are figuring out how to pay for residency interviews.

 

[avatarftw]

Indeed, past results are no guarantee of future returns. However, if the past includes 80 years of results then the odds are heavily in your favor.

Its interesting how people like to think that they can time the market; you mention that the last decade wasn't very lucrative. If you feel that you can forecast the future of the stock market, go ahead and try.

Past results are no guarantee of future returns. Yes I realize that the average 10% returns include some very rocky stretches and that long term those stretches are made up for by periods of great returns. But that doesn't take away the fact that there is inherent risk in the stock market and the definite possibility of losing your shirt. Even people who invested long term can be burned if they happen to come into one of the bear market periods at the wrong point in life (ie people who were about to retire around the time of the internet bubble burst etc etc.)

Not to mention that we are at a time of unprecedented financial difficulty. You mention the S&P, which is commonly used as the benchmark of our economic health. We just had the first ever decade where the S&P averaged a loss over the decade. There aren't a whole lot of indications that the economy is improving. If I had to choose a guaranteed 7% win over the giant black question mark that is the stock market, I'd take the 7% in a heartbeat. Not sure how you feel that the odds are "heavily" in favor of beating 7% when, as you pointed out, the average return is 10-11%, only slightly better than the 7%.

You did mention that investing is for money that you can afford to lose and I agree, if I had 100k sitting around and no debt, it would go to the market. But in the OP's case with the debt load he is facing, I wouldn't put him in the category of being able to afford losing 90k.

 

[UserNameNeeded]

To paraphrase that old saying, stocks do better in the long run, but in the long run we're all dead.

 

[odieoh]

Indeed, past results are no guarantee of future returns. However, if the past includes 80 years of results then the odds are heavily in your favor.

Its interesting how people like to think that they can time the market; you mention that the last decade wasn't very lucrative. If you feel that you can forecast the future of the stock market, go ahead and try.

Using your logic it makes perfect financial sense for any of us to go to the bank, take out an unsecured loan for 90k at 7% and invest it in the stock market because "the odds are heavily in our favor" that the market will beat the 7%. Is that what you are saying? Because thats essentially the advice you are giving the OP.

Also interesting that you keep trying to equate paying for school rather than investing as "timing the market." Its not about that, its about common sense. Regarding the performance of the last decade, I wasn't speaking about market timing, although in a way that is relevant. Anyone who invests in the market is timing the market in the sense that you only have a limited number of years that you are going to be around and able to invest. For most people that will be 30-40 years. So each person is subject to the timing of what happens in "their" 30 years or so. And some people are gonna get screwed. Basically that is what the person above is getting at with "in the long run you are dead" comment.

 

[avatarftw]

I'm not saying go 100% into stocks, but use a mix of bonds, stocks, etc.

Also, it is foolish to be so stock-heavy as you approach retirement; it makes sense to change your asset allocation mix as you reach retirement age and cannot afford to lose as much money.

Yes, I was pretty much saying that if somebody gives you money at 7% interest and you have, say, 20+ years to pay it off, then it is a good deal. However, I can't recall if the capital gains taxes have gone up recently....

...I understand how you are saying that anybody that invests is "timing the market." However, you have a much greater chance of doing well in investing if you don't trade every 10 days, incurring commissions and capital gains taxes.

I always smirk when people put all their money into CD's that yield 1.5% and say, "stocks are evil, you will never make money that way." At 1.5%, you are pretty much guaranteed a loss in your CD investment.

However, I like a lot of your posts and you should be much more experienced than me, as an attending physician.

Using your logic it makes perfect financial sense for any of us to go to the bank, take out an unsecured loan for 90k at 7% and invest it in the stock market because "the odds are heavily in our favor" that the market will beat the 7%. Is that what you are saying? Because thats essentially the advice you are giving the OP.

Also interesting that you keep trying to equate paying for school rather than investing as "timing the market." Its not about that, its about common sense. Regarding the performance of the last decade, I wasn't speaking about market timing, although in a way that is relevant. Anyone who invests in the market is timing the market in the sense that you only have a limited number of years that you are going to be around and able to invest. For most people that will be 30-40 years. So each person is subject to the timing of what happens in "their" 30 years or so. And some people are gonna get screwed. Basically that is what the person above is getting at with "in the long run you are dead" comment.

 

[odieoh]

I'm not saying go 100% into stocks, but use a mix of bonds, stocks, etc.

Also, it is foolish to be so stock-heavy as you approach retirement; it makes sense to change your asset allocation mix as you reach retirement age and cannot afford to lose as much money.

Yes, I was pretty much saying that if somebody gives you money at 7% interest and you have, say, 20+ years to pay it off, then it is a good deal. However, I can't recall if the capital gains taxes have gone up recently....

...I understand how you are saying that anybody that invests is "timing the market." However, you have a much greater chance of doing well in investing if you don't trade every 10 days, incurring commissions and capital gains taxes.

I always smirk when people put all their money into CD's that yield 1.5% and say, "stocks are evil, you will never make money that way." At 1.5%, you are pretty much guaranteed a loss in your CD investment.

However, I like a lot of your posts and you should be much more experienced than me, as an attending physician.

Well I definitely agree that diversifying is important if you are going to invest, although right now bonds are getting kind of a bad rap in that people are worrying that there may be a big "bond bubble" of defaults, including in municipal bonds which in the past have been very very secure. We live in crazy times we do.

Also agree that CD's are not the answer for anyone right now, a good online savings account can give you the same yield. (I like ING but at this point I think there are better ones out there.)

Anyhow Chinocho thanks for your comments and I like reading your posts too, you bring up some important points about long term investment and for the most part I agree with what you say, just in the case of the OP with looming school debt, I still think the smart move is paying now and investing later.