How to Pay Grad School Loans

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oct6454
Posts: 7
Joined: Wed Aug 12, 2015 5:12 pm

How to Pay Grad School Loans

Post by oct6454 » Mon Aug 14, 2017 2:51 pm

Hello Bogleheads,

I will be attending Gonzaga University full-time in two weeks, where I'll be pursuing my MBA. I have already completed 1/5 of my required classes by taking online/weekend intensive courses and getting my employer to pay for them. Gonzaga's program is not an online program, meaning I am going back full-time in order to finish the remaining 80% of my coursework.

Total outstanding costs look to be $21670 (I am only paying tuition). Currently I have 12K in savings.

Fall Semester Cost: $9935
Spring Semester Cost: $9935
Summer Cost: $1800

Loan Amount Available: $41,007

Given these numbers, I am faced with a decision on how I am going to pay off the student loans that I have. You may be asking why I would have taken student loans for more then the total cost of schooling. The reason I took student loans for an increased amount is because I want to ensure that I have a safety net should some unexpected costs arise. (Major Car Repair, etc.)
By taking additional money in the loan I also have the ability to deposit money into my ROTH. Should I not need the additional loaned money, I will simply pay it back immediately at the end of the semester, incurring minimal interest.

Thoughts?

jlcnuke
Posts: 434
Joined: Thu Mar 16, 2017 10:26 am

Re: How to Pay Grad School Loans

Post by jlcnuke » Mon Aug 14, 2017 4:37 pm

Have you considered working so that you can pay them off as you go? Lots of people attend school full-time and still work...

oct6454
Posts: 7
Joined: Wed Aug 12, 2015 5:12 pm

Re: How to Pay Grad School Loans

Post by oct6454 » Mon Aug 14, 2017 5:07 pm

Yes, I did consider working and was planning to do so until I decided to take the increased course load option. It essentially cuts 1/2 year off of my completion time. After meeting with the staff they strongly urged me not to work if I am going to take 5 classes in one semester.

A large number of students do work, but the school only advises 2 classes per semester if you are going to work as well. I will re-weigh my options come the second semester and make a judgement as far as taking a grad-assistant opportunity.

oct6454
Posts: 7
Joined: Wed Aug 12, 2015 5:12 pm

Re: How to Pay Grad School Loans

Post by oct6454 » Mon Aug 21, 2017 8:57 am

So here's what I've come up with.

Option A: Take full $40k loan (20K each semester), pay for school with 20K, take additional 20K @ 7% interest, invest in 50/50 international and S&P500 index Funds and gamble on making more then 7% return.

Option B: Take 6K loan for first semester, pay remaing 4K our of pocket. That would mean I would only be paying 7% interest on 6K which is quite reasonable, and it leaves me plenty of money.

Option C: Take 10K loan first semester and 10K loan second semester to pay for school completely.

I'm heavily leaning towards options A & B... Particularly A, but B is still enticing and is much more conservative.

Big Dog
Posts: 722
Joined: Mon Sep 07, 2015 4:12 pm

Re: How to Pay Grad School Loans

Post by Big Dog » Mon Aug 21, 2017 9:05 am

GradPlus loans come with an upfront fee, i.e., points, so if you don't need the $$ thru the quarter, send the cash back and the school will refund the 4.2%.

Personally, I don't see incurring loan fees to fund a Roth, but others may disagree.

https://studentaid.ed.gov/sa/types/loans/interest-rates

Elbowman
Posts: 476
Joined: Tue Apr 03, 2012 2:25 pm

Re: How to Pay Grad School Loans

Post by Elbowman » Mon Aug 21, 2017 9:30 am

oct6454 wrote:
Mon Aug 21, 2017 8:57 am
Option A: Take full $40k loan (20K each semester), pay for school with 20K, take additional 20K @ 7% interest, invest in 50/50 international and S&P500 index Funds and gamble on making more then 7% return.
I thought you were keeping a safety net, not gambling on a higher return. If you do take the additional loan, keep it in something safe. 7% is at the higher end of current predictions for stock returns, so I definitely would not borrow at 7% and invest in stocks.
Last edited by Elbowman on Mon Aug 21, 2017 9:56 am, edited 1 time in total.

DoTheMath
Posts: 222
Joined: Sat Jul 04, 2015 1:11 pm
Location: The Plains

Re: How to Pay Grad School Loans

Post by DoTheMath » Mon Aug 21, 2017 9:40 am

Elbowman wrote:
Mon Aug 21, 2017 9:30 am
oct6454 wrote:
Mon Aug 21, 2017 8:57 am
Option A: Take full $40k loan (20K each semester), pay for school with 20K, take additional 20K @ 7% interest, invest in 50/50 international and S&P500 index Funds and gamble on making more then 7% return.
I though you were keeping a safety net, not gambling on a higher return. If you do take the additional loan, keep it in something safe. 7% is at the higher end of current predictions for stock returns, so I definitely would not borrow at 7% and invest in stocks.
Agreed. This is a terrible idea. And with potential taxes and investment expenses, you need to be even further out on the bell curve to break even.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

Goal33
Posts: 569
Joined: Sun Apr 12, 2015 12:30 pm

Re: How to Pay Grad School Loans

Post by Goal33 » Mon Aug 21, 2017 10:11 am

If I read your post correctly, you need 22k and have 12k. (Not sure I understand how you're not paying living expenses, so lucky you).

Given this information I'd recommend that you pay the first semester cash and for the remaining 10k shortfall take a credit card loan with 1% balance transfer. An MBA graduate will be able to manage that debt. Transfer to another card if you still have some outstanding after a year.
A man with one watch always knows what time it is; a man with two watches is never sure.

CppCoder
Posts: 798
Joined: Sat Jan 23, 2016 9:16 pm

Re: How to Pay Grad School Loans

Post by CppCoder » Mon Aug 21, 2017 11:01 am

oct6454 wrote:
Mon Aug 21, 2017 8:57 am
So here's what I've come up with.

Option A: Take full $40k loan (20K each semester), pay for school with 20K, take additional 20K @ 7% interest, invest in 50/50 international and S&P500 index Funds and gamble on making more then 7% return.

Option B: Take 6K loan for first semester, pay remaing 4K our of pocket. That would mean I would only be paying 7% interest on 6K which is quite reasonable, and it leaves me plenty of money.

Option C: Take 10K loan first semester and 10K loan second semester to pay for school completely.

I'm heavily leaning towards options A & B... Particularly A, but B is still enticing and is much more conservative.
Option A is just crazy. Consider another way this pans out:
Option A': Take full $40k loan (20K each semester), pay for school with 20K, take additional 20K @ 7% interest, invest in 50/50 international and S&P500 index Funds. Market goes down 30% and your car breaks down. Not only are you short being able to pay back your loan, but you used your emergency fund (the reason you said you wanted to take the larger loan), which was borrowed, to gamble.

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