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# Is anyone else freaking out about debt?

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Senior Manager
Joined: 02 May 2004
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Re: [#permalink]  25 Mar 2008, 22:30
piper41955 wrote:
Debt in this case isn't a horrible thing, lets do the math:

Say you spend 100-150k on an MBA, your prior salary was say 75k and your post is 110k, you have effectively increased your salary by 35k or around 1400 per month after tax. 150k at 6.5% over 15 years is $1300 a month, 100k at 6.5% over 15 years is$872 per month. So even on the high side, you are still technically ahead of the game. Worst case scenario, you put off buying a house for 5 years and agressively pay down debt first.

I think you are really underestimating the costs here. The interest rate for Stafford Loans is 6.8%. The Total allowed per year for Stafford is 20500. If you want to go Federal to make up the difference, your only other option is Plus Loans which come it at 8.5%. If you consolidate the loans, then the consolidated interest rate is the weighted average of loans at 8.5% and at 6.8%. If you have to take out a ton of money, you will be pretty close to the 8.5% rate..150k at 8.5% a month is around $1860 dollars a month.$1860 dollars a month for 10 years is nothing to sneeze at. At least according to federal guidelines, one would need to make over $230k a year in order to not have a hardship paying back this loan (hardship is defined as having to may more than 10% of your AGI towards loan servicing). Lots of things can happen which may prevent you from paying back the loan..unlike any other debt, there is no discharge of student loan debt for any reason. It would follow you to your grave. At least any other kind of loan..mortgage..car..gambling debts. etc..can be discharged via bankruptcy. Director Joined: 18 Dec 2007 Posts: 983 Location: Hong Kong Concentration: Entrepreneurship, Technology Schools: Hong Kong University of Science and Technology (HKUST) - Class of 2010 Followers: 13 Kudos [?]: 133 [0], given: 10 Re: Is anyone else freaking out about debt? [#permalink] 26 Mar 2008, 02:20 wow. A lot of you are fortunate that your SOs can carry on working. For me its completley different. If i was to go to the USA, my wife will be unable to work for 2 years, and with 2 kids, thats a lot of extra cash i need to be able to do it. I can get some income my switching my mortgage for my house in London, to an interest only (its rented out) . My post mba-goal is to return to Asia, so if I do get into a USA school, i have to calculate the ROI vs the probable lower income, and balance that figure vs the projected long term benefits. The difficulty is measuring some of the intangibles (alumni networks and potential opportunities) if i was to get into a good USA school. Retired Moderator Joined: 18 Jul 2008 Posts: 994 Followers: 10 Kudos [?]: 136 [0], given: 5 Re: Is anyone else freaking out about debt? [#permalink] 09 Feb 2009, 11:29 Has anyone considered taking a loan against the current mortgage to minimize the loans they need to take out in other places? For example, if you can refinance at fixed 5%, take some equity cash out, so you can reduce the amount you need to borrow from other sources (such private loans/stafford/ etc.) I'm at 6.25% right now on my condo, and I have to refinance anyway, so I'm wondering if this is a good idea. I can use the cash I take out on my mortgage to cover my expenses (rent, food) while I'm going to school FullTime. Any thoughts? SVP Joined: 05 Aug 2007 Posts: 1502 Schools: NYU Stern '11 Followers: 15 Kudos [?]: 210 [0], given: 22 Re: Is anyone else freaking out about debt? [#permalink] 09 Feb 2009, 13:37 bigfernhead, you should obviously refinance if you qualify for a fixed mortgate at 5%. However, I'd be very surprised if someone would extend a home equity line of credit to you at a rate that is considerably lesser than a private education loan. If you need to borrow additional funds to cover expenses beyond your estimated cost of attendance produced by your school's financial aid office then what you propose might be a decent idea, but beware that most HELOC's will most likely be variable rate and (like with private education loans) you will be taking on some interest risk there. Or do you know for sure that you can borrow against the equity in your home at 5% fixed? bigfernhead wrote: Has anyone considered taking a loan against the current mortgage to minimize the loans they need to take out in other places? For example, if you can refinance at fixed 5%, take some equity cash out, so you can reduce the amount you need to borrow from other sources (such private loans/stafford/ etc.) I'm at 6.25% right now on my condo, and I have to refinance anyway, so I'm wondering if this is a good idea. I can use the cash I take out on my mortgage to cover my expenses (rent, food) while I'm going to school FullTime. Any thoughts? Retired Moderator Joined: 18 Jul 2008 Posts: 994 Followers: 10 Kudos [?]: 136 [0], given: 5 Re: Is anyone else freaking out about debt? [#permalink] 11 Feb 2009, 06:07 That's what I'm counting on. Fixed at 5%, not the HELOC. Figure that'd be cheaper in the long run that at 6.8% fixed for student loans. Sound reasonable? solaris1 wrote: bigfernhead, you should obviously refinance if you qualify for a fixed mortgate at 5%. However, I'd be very surprised if someone would extend a home equity line of credit to you at a rate that is considerably lesser than a private education loan. If you need to borrow additional funds to cover expenses beyond your estimated cost of attendance produced by your school's financial aid office then what you propose might be a decent idea, but beware that most HELOC's will most likely be variable rate and (like with private education loans) you will be taking on some interest risk there. Or do you know for sure that you can borrow against the equity in your home at 5% fixed? bigfernhead wrote: Has anyone considered taking a loan against the current mortgage to minimize the loans they need to take out in other places? For example, if you can refinance at fixed 5%, take some equity cash out, so you can reduce the amount you need to borrow from other sources (such private loans/stafford/ etc.) I'm at 6.25% right now on my condo, and I have to refinance anyway, so I'm wondering if this is a good idea. I can use the cash I take out on my mortgage to cover my expenses (rent, food) while I'm going to school FullTime. Any thoughts? Director Joined: 20 Feb 2008 Posts: 797 Location: Texas Schools: Kellogg Class of 2011 Followers: 6 Kudos [?]: 146 [0], given: 9 Re: Is anyone else freaking out about debt? [#permalink] 11 Feb 2009, 06:11 Take a look at http://www.bankrate.com/,$30K home equity loans are at about 8.5% interest. HELOCs are about 5.5%.
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Re: Is anyone else freaking out about debt? [#permalink]  17 Feb 2009, 19:28
the mortgage interest deduction doesn't phase out at super-low levels like the student loan interest deduction does (http://www.irs.gov/publications/p17/ch29.html).

Something to think about, though - and here's the inner financial counselor coming out. You should realize that you are leveraging up your home - an important source of personal wealth and the place where you live.

If you fall into tough economic times, your house is the last thing you want to default on, and more leverage means a higher likelihood of default.

Obviously most of us will be fine, but it's always something I feel compelled to throw out there.
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Re: Is anyone else freaking out about debt? [#permalink]  18 Feb 2009, 03:46
Balance the phase out with the fact that you can defer payments on student loans until 6 months post graduation. For mortgages, HELOC, etc., the bank is going to want payments right away. And the payment on a \$30,000 HELOC would not be insubstantial if you have no income.

Also, if the past year has taught us anything, it should be that overleveraging your home is not a great idea. Like any other asset, the price of homes can fluctuate - having equity makes it less likely that you will find yourself in a position where your home is worth less than the loans you borrowed against it.
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Re: Is anyone else freaking out about debt?   [#permalink] 18 Feb 2009, 03:46

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