Graduate Student Loans

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Graduate Student Loans

Post by wootwoot »

Hello,

I'm going to begin a graduate program in January and wanted some advice on student loans. The program costs a total of 35k for tuition, books, graduation, etc. and is a 16 month program. My work will put in 5000 a year so I'm going to take advantage of that and I have around 5k saved up but most of the money for my program will come from student loans. Currently I am saving around 1200 - 1500 a month which can also be put towards schooling and after graduation I should be able to parlay a higher paying job. My undergraduate degree is a bachelors in computer science and the masters program is a highly ranked MBA/IT degree. Anyways I'm not sure if I should go with federal loans or private loans. I have good credit and was thinking about getting a variable rate loan from Wells Fargo. Usually I would avoid a variable rate loan but the fed is going to keep rates low for a few years and at the rate I'm going I should be able to pay the loans off fairly aggressively, plus being a USAA member gives me extra discounts on the Wells Fargo loan. The other thing is that the Wells Fargo loan doesn't have an origination fee when the federal loan has a 2.5% origination fee. I don't have any prior student loan debt or a car payment so I'm just paying for rent, food, entertainment, etc. What are your thoughts?
NorCalDad
Posts: 774
Joined: Sun Mar 25, 2012 11:14 pm
Location: Northern California

Re: Graduate Student Loans

Post by NorCalDad »

I assume the federal rate is 6.8%. What's the private variable rate?

What are the terms - in particular, how often does the variable rate reset? How long do you think it will take you to pay off the loan after school?

This might be an instance where the private loan makes sense if we assume you will pay this off in a short period, the variable rate is far below 6.8% and you have no plans to work for an employer that does federal loan forgiveness.
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

The federal rate is 6.8% with a 2.5% origination fee. The private loan is as low as 4.20% variable and 7.13% fixed with no origination fees though I'm not sure where my credit rating will put me. With the discounts I get on these rates would both be dropped by .50% with another .25% drop after graduation. I'm not sure how often the variable rate resets but will definitely check into this. The other thing I'm looking into is whether or not the private loans are tax deductible but I may not know that until after the fiscal cliff talks so I'll skip it for now. The other part is that federal loans I can take out more each semester. I'm not sure if the private loan will require me to take the full program amount up front or if I can also take out what I need each semester.
mlipps
Posts: 1099
Joined: Thu Jun 21, 2012 9:35 am

Re: Graduate Student Loans

Post by mlipps »

wootwoot wrote:The federal rate is 6.8% with a 2.5% origination fee. The private loan is as low as 4.20% variable and 7.13% fixed with no origination fees though I'm not sure where my credit rating will put me. With the discounts I get on these rates would both be dropped by .50% with another .25% drop after graduation. I'm not sure how often the variable rate resets but will definitely check into this. The other thing I'm looking into is whether or not the private loans are tax deductible but I may not know that until after the fiscal cliff talks so I'll skip it for now. The other part is that federal loans I can take out more each semester. I'm not sure if the private loan will require me to take the full program amount up front or if I can also take out what I need each semester.
FYI, as of right now, private loan interest is deductible. Actually, interest on anything that is used only to fund educational expenses is deductible. My parents deduct their HELOC w/o itemizing and you could even do it w/a credit card (though obviously that's a terrible idea for other reasons). If you want to take out the private loan each semester, it will probably make you take out a unique loan for each one. It's not really that much work once you already have a loan w/someone though. I seem to remember when I did mine senior year w/WF that it all disbursed at once.

Don't forget they do another .25% drop for auto debit.
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: Graduate Student Loans

Post by Bob's not my name »

mlipps wrote:FYI, as of right now, private loan interest is deductible.
As of right now, the income limits are going to drop in 2013. There are also limits on total interest and time. The OP has this right. Even if the current rules are extended, if you get an MBA and your income is still low enough to deduct the interest, the MBA wasn't a good investment.
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: Graduate Student Loans

Post by Bob's not my name »

wootwoot wrote:I'm going to begin a graduate program in January and wanted some advice on student loans. The program costs a total of 35k for tuition, books, graduation, etc. and is a 16 month program. My work will put in 5000 a year so I'm going to take advantage of that and I have around 5k saved up but most of the money for my program will come from student loans. Currently I am saving around 1200 - 1500 a month which can also be put towards schooling
Is the following math right?

$5,000/year from employer x 2 years = $10,000
$5,000 from savings
$1,200/month for 17 months to degree = $20,400
------------------
$35,400 = enough to pay for school without loans (except to address cash flow challenge of tuition bills)

Or do you mean you'll stop work to go to school? If that's the case, will you be able to roll your 401k into an IRA? IRA withdrawals to pay for school are penalty-free, and you would withdraw in very low brackets (0% probably, especially considering the education credits you will get in three (?) tax years. Alternatively, can you borrow from your 401k? At what rate?

I'm assuming you are not quitting work, since your employer is contributing $5,000/year. But in that case I don't see why you need to borrow money.

This article may be helpful to you: http://thefinancebuff.com/how-to-save-4 ... taxes.html
bigred77
Posts: 2049
Joined: Sat Jun 11, 2011 4:53 pm

Re: Graduate Student Loans

Post by bigred77 »

Bob's not my name wrote:
wootwoot wrote:I'm going to begin a graduate program in January and wanted some advice on student loans. The program costs a total of 35k for tuition, books, graduation, etc. and is a 16 month program. My work will put in 5000 a year so I'm going to take advantage of that and I have around 5k saved up but most of the money for my program will come from student loans. Currently I am saving around 1200 - 1500 a month which can also be put towards schooling
Is the following math right?

$5,000/year from employer x 2 years = $10,000
$5,000 from savings
$1,200/month for 17 months to degree = $20,400
------------------
$35,400 = enough to pay for school without loans (except to address cash flow challenge of tuition bills)

Or do you mean you'll stop work to go to school? If that's the case, will you be able to roll your 401k into an IRA? IRA withdrawals to pay for school are penalty-free, and you would withdraw in very low brackets (0% probably, especially considering the education credits you will get in three (?) tax years. Alternatively, can you borrow from your 401k? At what rate?

I'm assuming you are not quitting work, since your employer is contributing $5,000/year. But in that case I don't see why you need to borrow money.

This article may be helpful to you: http://thefinancebuff.com/how-to-save-4 ... taxes.html
As a side note, if you are continuing to work and want to cashflow school like was suggested above, consider the federal loan as a bridge loan.

If you make a payment (at least with my federal loan servicer) within 6 months of a loan funds distribution it's considered a return of a principal and they will offset any accumulated interest on the amount of principal you just returned. In effect this can be a 0% short term loan. See if your work pays the money upfront or if they reimburse you after you show them proof of grades/completion. The origination fee for federal loans is a little high but i look at it as the cost of the protections and options federal loans give you over private loans. Even though you shouldn't need them, its nice to know you have them in case of emergency
Cuppy
Posts: 2
Joined: Fri Sep 28, 2012 7:34 pm

Re: Graduate Student Loans

Post by Cuppy »

I have been going through Alliant Credit Union for private graduate student loans. My tuition is due prior to the start of the semester, and I am reimbursed at the end of the semester based on my grades. I basically treat the loans as a low-interest credit card. I make the minimum payment to preserve my cash flow and pay the loan in full with the reimbursement. I also get to deduct the relatively small amount of student loan interest on taxes. ACU's rates are as low as 4.25%, and a new loan is needed for each semester. I have been pretty happy with their service.

I'm a USAA member as well, and I had no idea that USAA partnered with Wells Fargo for student loans. I will have to look into that.
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: Graduate Student Loans

Post by Bob's not my name »

Cuppy wrote:ACU's rates are as low as 4.25%
Buried in the fine print is that these are variable rate loans. That shouldn't be an issue for use as a short term loan, but would be scary (depending on the terms) for a long term loan.
campy2010
Posts: 1252
Joined: Sun Nov 28, 2010 4:01 pm

Re: Graduate Student Loans

Post by campy2010 »

I would try to pay as much as possible with cash flow, perhaps with the help of 0% credit cards. The variable-rate private loans would be my second choice. Avoid the federal loans with the 2.5% origination fee. These loans are definitely not competitive, given the amount you need and the short time frame in which you will likely be able to pay them off.

On another note, check into the benefits in your state of putting your tuition savings into a 529. In some states, there is a worthwhile tax benefit.
dgrdfd
Posts: 215
Joined: Sat Dec 29, 2007 6:53 am
Location: Boulder, CO

Re: Graduate Student Loans

Post by dgrdfd »

An alternative, why don't you drag the 16 month program into 36 months or so such that the employer 5k/year will cover it all? You would have to do the analysis to see if the potential raise by getting the degree early would would offset you paying out of pocket.
Rubiosa
Posts: 269
Joined: Mon May 19, 2008 9:58 am

Re: Graduate Student Loans

Post by Rubiosa »

I hope I'm wrong, but this sounds like a "for profit" school. Is it? What is the name of the school?
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

Bob's not my name wrote:
wootwoot wrote:I'm going to begin a graduate program in January and wanted some advice on student loans. The program costs a total of 35k for tuition, books, graduation, etc. and is a 16 month program. My work will put in 5000 a year so I'm going to take advantage of that and I have around 5k saved up but most of the money for my program will come from student loans. Currently I am saving around 1200 - 1500 a month which can also be put towards schooling
Is the following math right?

$5,000/year from employer x 2 years = $10,000
$5,000 from savings
$1,200/month for 17 months to degree = $20,400
------------------
$35,400 = enough to pay for school without loans (except to address cash flow challenge of tuition bills)

Or do you mean you'll stop work to go to school? If that's the case, will you be able to roll your 401k into an IRA? IRA withdrawals to pay for school are penalty-free, and you would withdraw in very low brackets (0% probably, especially considering the education credits you will get in three (?) tax years. Alternatively, can you borrow from your 401k? At what rate?

I'm assuming you are not quitting work, since your employer is contributing $5,000/year. But in that case I don't see why you need to borrow money.

This article may be helpful to you: http://thefinancebuff.com/how-to-save-4 ... taxes.html
I plan on working full time while going to school. If I could roll my 401k into an IRA I would go that route since I'm making pretty much nothing on my 401k. I have thought about borrowing from my 401k as a way to help with the cost but I'm not sure if I will stay with my employer long enough to pay it off and don't want to take an early withdrawal. The other issue is that my employer has a clause that requires you to pay back the tuition reimbursement if you leave within a year of taking it and I'm not sure what opportunities may come up. I could definitely stay for another year for 5000 but I'm not if I could be there for 2 more.
Last edited by wootwoot on Sun Dec 02, 2012 5:36 pm, edited 1 time in total.
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

Rubiosa wrote:I hope I'm wrong, but this sounds like a "for profit" school. Is it? What is the name of the school?
The school is a state university and not a for profit school.
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: Graduate Student Loans

Post by Bob's not my name »

So then it sounds like you don't need to borrow.
KDouglas
Posts: 6
Joined: Wed Nov 07, 2012 11:17 am

Re: Graduate Student Loans

Post by KDouglas »

dgrdfd wrote:An alternative, why don't you drag the 16 month program into 36 months or so such that the employer 5k/year will cover it all? You would have to do the analysis to see if the potential raise by getting the degree early would would offset you paying out of pocket.
Anyway you can stretch out your money would be the best investment at this time.
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

I agree that stretching it out would be the best policy but the program does not allow that since it is an accelerated Masters. Anyways for those interested I was able to get a 5.75% rate through Wells Fargo, variable. Once I graduate the rate drops .25% and if I setup automatic payments another .25%. The interest is still tax deductible like a federal loan and cheaper since federal loans are 6.8% with a 1.5% origination fee, I was incorrect earlier when I said 2.5%. Anyways I hope this is helpful to others out there.
campy2010
Posts: 1252
Joined: Sun Nov 28, 2010 4:01 pm

Re: Graduate Student Loans

Post by campy2010 »

wootwoot wrote:I agree that stretching it out would be the best policy but the program does not allow that since it is an accelerated Masters. Anyways for those interested I was able to get a 5.75% rate through Wells Fargo, variable. Once I graduate the rate drops .25% and if I setup automatic payments another .25%. The interest is still tax deductible like a federal loan and cheaper since federal loans are 6.8% with a 1.5% origination fee, I was incorrect earlier when I said 2.5%. Anyways I hope this is helpful to others out there.
Since the interest starts to accrue immediately, I would put off taking out the loans as long as you possibly can. Use your cash to pay the first half and loans to pay the second half. I'll say this again, a 0% credit card can be a great tool for float between when you have to pay tuition and when you get reimbursed. Even if you happen to need to do a balance transfer with a 2-3% fee at the end of 12 months that only costs $200-$300 on a $10,000 balance. Pretty good compared to 5.75% interest ongoing.

I transferred the remainder of my student loans to credit cards and don't regret the choice one bit. Good credit card offers (0% interest for 12-18 months, no fee) seem to come around semi-regularly and I'm saving 6.8% interest.
lavenchy
Posts: 8
Joined: Mon Apr 23, 2012 2:48 pm

Re: Graduate Student Loans

Post by lavenchy »

wootwoot wrote:I agree that stretching it out would be the best policy but the program does not allow that since it is an accelerated Masters. Anyways for those interested I was able to get a 5.75% rate through Wells Fargo, variable. Once I graduate the rate drops .25% and if I setup automatic payments another .25%. The interest is still tax deductible like a federal loan and cheaper since federal loans are 6.8% with a 1.5% origination fee, I was incorrect earlier when I said 2.5%. Anyways I hope this is helpful to others out there.
IMHO, the benefits of an MBA/IT degree do not justify taking a loan to complete unless the loan is at 0%. Trust me, your employer will not be happy once they hear you are pursuing the program full-time. Your work is most likely to suffer as a full-time student. Not to beat a dead horse here, I strongly suggest you look into other credible universities that offer similar programs on a part-time basis and make it available for distance students (check out similar program at Lehigh University - http://www4.lehigh.edu/business/academi ... .aspx#mbae). This would allow you to stretch out your study (over 3-1/2 years) and use the tuition reimbursement from your employer to pay for about 85% of the total cost.

As you will probably find out during or after your degree, the major benefits one can derive from a business degree have no direct correlation with the speed with which one completes it, rather they are a function of the quality of program as evident in the quality of enrolled students, network building, and relevance of program to your current/future work among others. It's not worth taking any debt for, especially if there is an opportunity to use OPM (other people's money) to earn the degree.
RobInCT
Posts: 396
Joined: Sun Dec 09, 2012 1:58 pm

Re: Graduate Student Loans

Post by RobInCT »

I chose federal student loans over private loans for graduate school, even though they were more expensive, and I am glad I did it. We are undergoing profound changes in educational financing in this country, and it is extremely hard to predict what the "rules" will be even 2-3 years down the road. 10 years ago because of a short-term government program that is now defunct, it was possible to graduate from graduate school, consolidate in a 30 year loan at 1.5% interest and forget about it.

There are many people with significant student loan problems and a political party in power for the next four years that is relatively receptive to arguments about student debt relief. To the extent that there are likely to be significant federal relief efforts extended to student loan borrowers in the next 4 years, they are disproportionately likely to be extended to federal loan holders rather than private loan holders (though of course they could always be extended to both). That's what happened with IBR.

My student loans will be paid off within the next 16 months, and in the end I would have been better off with private loans than federal loans, but I don't regret my decision. I would only go with private loans if you are SURE that you will be able to pay them back in the very short term following graduation (less than 12 months) and if the cost savings is fairly substantial.

I would hate to be in private loans and to miss out on IBR, low-rate consolidation or any of the other similar program that might come along. The fairly meager savings are not worth it, to me.
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

campy2010 wrote:
wootwoot wrote:I agree that stretching it out would be the best policy but the program does not allow that since it is an accelerated Masters. Anyways for those interested I was able to get a 5.75% rate through Wells Fargo, variable. Once I graduate the rate drops .25% and if I setup automatic payments another .25%. The interest is still tax deductible like a federal loan and cheaper since federal loans are 6.8% with a 1.5% origination fee, I was incorrect earlier when I said 2.5%. Anyways I hope this is helpful to others out there.
Since the interest starts to accrue immediately, I would put off taking out the loans as long as you possibly can. Use your cash to pay the first half and loans to pay the second half. I'll say this again, a 0% credit card can be a great tool for float between when you have to pay tuition and when you get reimbursed. Even if you happen to need to do a balance transfer with a 2-3% fee at the end of 12 months that only costs $200-$300 on a $10,000 balance. Pretty good compared to 5.75% interest ongoing.

I transferred the remainder of my student loans to credit cards and don't regret the choice one bit. Good credit card offers (0% interest for 12-18 months, no fee) seem to come around semi-regularly and I'm saving 6.8% interest.
Those are pretty good ideas. I'll have to look around for some 0% credit cards and see what I can find. What would your strategy be if you couldn't pay the full bill when the 0% is up? Also would my credit take much of a hit opening and later closing these 0% cards?
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

lavenchy wrote:
wootwoot wrote:I agree that stretching it out would be the best policy but the program does not allow that since it is an accelerated Masters. Anyways for those interested I was able to get a 5.75% rate through Wells Fargo, variable. Once I graduate the rate drops .25% and if I setup automatic payments another .25%. The interest is still tax deductible like a federal loan and cheaper since federal loans are 6.8% with a 1.5% origination fee, I was incorrect earlier when I said 2.5%. Anyways I hope this is helpful to others out there.
IMHO, the benefits of an MBA/IT degree do not justify taking a loan to complete unless the loan is at 0%.
Why not? With my work experience and the program I am entering the opportunities that arise should be plentiful.
Trust me, your employer will not be happy once they hear you are pursuing the program full-time. Your work is most likely to suffer as a full-time student. Not to beat a dead horse here, I strongly suggest you look into other credible universities that offer similar programs on a part-time basis and make it available for distance students (check out similar program at Lehigh University - http://www4.lehigh.edu/business/academi ... .aspx#mbae). This would allow you to stretch out your study (over 3-1/2 years) and use the tuition reimbursement from your employer to pay for about 85% of the total cost.
Trust you? You only have 3 posts on this forum and are implying that the program I am entering is not credible. You make a lot of assumptions and there is no need to talk down about the program I am going into when you are unfamiliar with it. I also work in higher education and my company is very supportive of people getting graduate degrees.
As you will probably find out during or after your degree, the major benefits one can derive from a business degree have no direct correlation with the speed with which one completes it, rather they are a function of the quality of program as evident in the quality of enrolled students, network building, and relevance of program to your current/future work among others.
Another assumption... If I could extend the time to gain this degree I would. I am all for an employer paying for it but that is not the case for this program, it is just not possible.
It's not worth taking any debt for, especially if there is an opportunity to use OPM (other people's money) to earn the degree.
Agreed.
Topic Author
wootwoot
Posts: 670
Joined: Tue Jan 27, 2009 6:37 pm

Re: Graduate Student Loans

Post by wootwoot »

RobInCT wrote:I chose federal student loans over private loans for graduate school, even though they were more expensive, and I am glad I did it. We are undergoing profound changes in educational financing in this country, and it is extremely hard to predict what the "rules" will be even 2-3 years down the road. 10 years ago because of a short-term government program that is now defunct, it was possible to graduate from graduate school, consolidate in a 30 year loan at 1.5% interest and forget about it.
1.5% is damn sweet.
There are many people with significant student loan problems and a political party in power for the next four years that is relatively receptive to arguments about student debt relief. To the extent that there are likely to be significant federal relief efforts extended to student loan borrowers in the next 4 years, they are disproportionately likely to be extended to federal loan holders rather than private loan holders (though of course they could always be extended to both). That's what happened with IBR.
I agree but so far all of the debt relief has been for people who can't pay back the debt. People who plan on quickly paying the loans down quickly are not usually targeted for relief unfortunately :(
My student loans will be paid off within the next 16 months, and in the end I would have been better off with private loans than federal loans, but I don't regret my decision. I would only go with private loans if you are SURE that you will be able to pay them back in the very short term following graduation (less than 12 months) and if the cost savings is fairly substantial.

I would hate to be in private loans and to miss out on IBR, low-rate consolidation or any of the other similar program that might come along. The fairly meager savings are not worth it, to me.
I'm glad to hear how well it worked out for you. I appreciate your and everyone else's feedback in this forum, it has given me some good ideas on how to proceed.
RobInCT
Posts: 396
Joined: Sun Dec 09, 2012 1:58 pm

Re: Graduate Student Loans

Post by RobInCT »

I agree but so far all of the debt relief has been for people who can't pay back the debt. People who plan on quickly paying the loans down quickly are not usually targeted for relief unfortunately :(
Right, which is why I suggested that if you are SURE that you will be able to pay off the loans and pay them relatively quickly, that's one circumstance in which private loans might make sense. It's an unfortunate fact of our economy that many people plan on paying the loans down quickly but in the end are not able to for any number of reasons. I don't know the specifics of your situation--how secure your job is, how likely you are to have unexpected expenses pop up in the next 2-3 years, etc.--and you're obviously the one in the best position to judge. I just wanted to flag the issue for you because unfortunately it's happened to so many people in recent history.

If there's any chance repayment is going to be or even just might temporarily become a struggle for whatever reason, I prefer the security of federal loans.
campy2010
Posts: 1252
Joined: Sun Nov 28, 2010 4:01 pm

Re: Graduate Student Loans

Post by campy2010 »

wootwoot wrote:
campy2010 wrote:
wootwoot wrote:I agree that stretching it out would be the best policy but the program does not allow that since it is an accelerated Masters. Anyways for those interested I was able to get a 5.75% rate through Wells Fargo, variable. Once I graduate the rate drops .25% and if I setup automatic payments another .25%. The interest is still tax deductible like a federal loan and cheaper since federal loans are 6.8% with a 1.5% origination fee, I was incorrect earlier when I said 2.5%. Anyways I hope this is helpful to others out there.
Since the interest starts to accrue immediately, I would put off taking out the loans as long as you possibly can. Use your cash to pay the first half and loans to pay the second half. I'll say this again, a 0% credit card can be a great tool for float between when you have to pay tuition and when you get reimbursed. Even if you happen to need to do a balance transfer with a 2-3% fee at the end of 12 months that only costs $200-$300 on a $10,000 balance. Pretty good compared to 5.75% interest ongoing.

I transferred the remainder of my student loans to credit cards and don't regret the choice one bit. Good credit card offers (0% interest for 12-18 months, no fee) seem to come around semi-regularly and I'm saving 6.8% interest.
Those are pretty good ideas. I'll have to look around for some 0% credit cards and see what I can find. What would your strategy be if you couldn't pay the full bill when the 0% is up? Also would my credit take much of a hit opening and later closing these 0% cards?
The strategy if you can't pay in full is to balance transfer the debt to the next 0% credit card. This year, I've seen at least 3 companies offering 0% interest with no balance transfer fee or there are tons of offers for 0% interest with a 2-3% fee. A one time fee of 2-3% beats a compounded 5.75% interest rate any day of the week since you only have to pay the fee for a single month and then the money is given to you at 0%. Or you get a 0% 18-month credit card and put as many of your living expenses on the credit card as possible, and use your cash for tuition.

For me, keeping a few 0% cards with balances doesn't seem to affect my credit score - its in the mid-700s. You just have to make sure you have enough credit cards open so your % utilization is not too high.
Post Reply