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Is anyone else freaking out about debt?

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Manager
Joined: 13 Sep 2006
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Is anyone else freaking out about debt? [#permalink]  10 Apr 2007, 05:06
It just hit me all of a sudden..I was elated about getting into a couple of schools..this has been a long and hard process. But where my primary focus had been just getting into schools, I know find myself contemplating the potential debt I will incurr. Its putting a damper on me right now. Anyone else feel the same way?
Current Student
Joined: 04 Dec 2006
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I am not freaking out that much about debt. It is an investment just like a house, except this one investment will pay far more dividends than purchasing a house. So don't worry, you are not alone when incurring debt for B-school! BTW, I am assuming you decided on GT over Vandy?
Director
Joined: 28 Jun 2006
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Think of your school debt as a mortgage. Don't think of it as like credit card debt. It's "smart" debt, a true investment, not just money that you blew on plasma TV's and cars.

And whenever you're having trouble getting motivated to study, or if you're thinking of blowing off a study session so you can go see Chris Robinson's solo show at the house of blues, think to yourself, "Oh dam, I'm paying a lot of money to do this business school thing, I better make the most of it."
Director
Joined: 07 Aug 2006
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I am freaking out about it a little. Thats a hefty monthly payment that commits you to having to work at a certain salary level for quite a long time. A former colleague of mine actually advised against business school for this very reason. He had come to view those monthly payments as a yoke that kept him from doing the kind of stuff he really wanted to do with his life.
Manager
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dukes wrote:
I am freaking out about it a little. Thats a hefty monthly payment that commits you to having to work at a certain salary level for quite a long time. A former colleague of mine actually advised against business school for this very reason. He had come to view those monthly payments as a yoke that kept him from doing the kind of stuff he really wanted to do with his life.

Bingo.. exactly what I'm worried about.

Squali83 - I'm definately leaning towards tech due to the cheaper tuition, plus I have free rent there. I'd love to got to Vandy, but the debt is scaring me off..I guess you can say I'm having cold feet right now.
VP
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dukes wrote:
I am freaking out about it a little. Thats a hefty monthly payment that commits you to having to work at a certain salary level for quite a long time. A former colleague of mine actually advised against business school for this very reason. He had come to view those monthly payments as a yoke that kept him from doing the kind of stuff he really wanted to do with his life.

Damn this scenario scares the hell out of me...

Motivation to do an MBA is to explore diverse careers or do what i truly wanna do but if the HUGE debt that i will incur might screw the whole plans

scary...real scary
Current Student
Joined: 04 Dec 2006
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Amorica,
Free rent def helps! That is really nice. As for being scared about debt, I have yet to meet a MBA that regrets making the move to pursue the degree. Almost everyone cherishes their time in school and says it was two of the most wonderful years of their life. Even though the debt is substantial, I would say it makes sense to worry but your worries should be eased.
Manager
Joined: 02 Apr 2007
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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.
VP
Joined: 20 Sep 2005
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Did you miss the lost wages in your calculation ?

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.
Manager
Joined: 02 Apr 2007
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The OP was worried about debt incurred, not the total cost of the MBA. Lost wages in this case will not significantly increase debt load assuming that debt covers your needs as well as tuition.
Current Student
Joined: 24 Aug 2005
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1
KUDOS
Here some info on the nuts and bolts of getting loans:
[color=darkblue]
Federal Loans

Federal Direct Loans
US citizens and US permanent residents may obtain funding for their education through the Federal Direct Loan Program â€“ up to $20,500 annually may be borrowed (minus a 3% origination fee). Students who demonstrate financial need, assessed through the FAFSA process, may borrow up to$8,500 in a subsidized loan (no interest is charged while the student is in school) and the remaining amount in an unsubsidized loan (interest is charged while the student is in school). Those who do not demonstrate financial need can borrow the full $20,500 in an unsubsidized loan. Interest is fixed at 6.8% for the life of the loan. Repayment begins after the grace period of six months following graduation or dropping below half-time enrollment. Repayment is made over a 10- to 25-year term, with no prepayment penalty. Further details are available with your online Direct Loan Master Promissory Note and online Entrance Loan Counseling. Federal Perkins Loans Federal Perkins Loans are awarded, as funding permits, to entering nonresident graduate students with exceptional financial need. You must be a US citizen or US permanent resident. The Perkins Loan is interest-free while you are a student. Repayment begins and interest accrues at 5% annually nine months after graduating or after dropping below six units. If you are a Perkins borrower, your loan servicer is Campus Partners (1-800-334-8609). Supplemental Loan Options As mentioned previously, the maximum Direct Loan available to business students is$20,500. Thus many students require supplemental educational loans to help cover tuition and other expenses related to the cost of attendance. Funds from the supplemental loan programs may be used to meet the budgeted cost of attendance, less any other financial aid received.

There are two types of supplemental loans available to students:

The Federal Grad PLUS is from the Direct Loan program and has a fixed interest rate of 7.9%, an origination fee of 2.5%, and no annual or aggregate borrowing limits (other than the cost of attendance less other financial aid received). A credit check is required for the Grad PLUS Loan, however, the credit criteria are much less stringent than those associated with traditional private student loans. Furthermore, if you do not meet the credit requirements for a Grad PLUS Loan, you may still obtain the loan with an endorser who does meet the credit requirements.

Unlike the Direct Subsidized & Unsubsidized Loans, the Grad PLUS Loan has no grace period, and enters into repayment after the loan has been fully disbursed. However, students can obtain an in-school deferment to postpone repayment until after graduation (or dropping below half-time status).

Private Educational Loans
There are three private supplemental loan options available at the Haas School. All three are credit- based and have variable interest rates, which are adjusted monthly or quarterlyâ€”depending on the lender. The interest rate structure and any fees are based on borrower credit; using a co-signer could result in a better interest rate structure and reduced, or no, fees. Read the list of lenders and the terms of the loans.

All supplemental loans are disbursed in two equal amounts: one-half in the fall semester and the remaining one-half in the spring semester.

If you borrow money for living expenses through one of the Supplemental Loan Programs, itâ€™s possible that you will not have access to those funds until the first or second week of September. Please be sure to budget accordingly, and ensure that you have enough funds to get you through the first month of the Fall semester, without needing to rely on the money from the loan disbursement.

Loan disbursements are made once per semester. If you are borrowing funds for living expenses, we recommend opening a separate savings account for these funds. One suggestion is to open an online savings account. Most of the online accounts have higher interest rates than standard â€œbrick & mortarâ€
SVP
Joined: 31 Jul 2006
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Good info natty light . The specifics for supplemental and private loans can vary by school. Some schools have preferred lenders that offer guaranteed loans in conjunction with the school. Some schools even guarantee loans for international students who wouldn't otherwise be able to borrow educational loans in the US.
Current Student
Joined: 24 Aug 2005
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Is anyone else thinking about taking a federal student loan even though you don't *need* it?

Federal student loans have pretty decent interest rates, and plus you get to deduct the interest if you itemize your taxes (I think).

So you keep your stocks and bonds invested in the market. You borrow to cover your tuition. If the market goes up by more than the loan rate, you win. If the market goes down, you're pretty screwed, especially if you work in an industry that's correlated with the market.

But as long as you can make the mininum payments without selling your assets, you can take a long-term view and (hopefully) come out ahead.

What does everyone think?
VP
Joined: 20 Sep 2005
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I think the federal loan interest rate is around 6.8%.Even if you put your money in an online savings account such as ING (~5% interest rate) the difference is marginal. Might as well take the federal loan. Private loans at prime plus rates is a different story.
GMAT Club Legend
Affiliations: HHonors Diamond, BGS Honor Society
Joined: 05 Apr 2006
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Schools: Chicago (Booth) - Class of 2009
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naturallight wrote:
Is anyone else thinking about taking a federal student loan even though you don't *need* it?

Federal student loans have pretty decent interest rates, and plus you get to deduct the interest if you itemize your taxes (I think).

So you keep your stocks and bonds invested in the market. You borrow to cover your tuition. If the market goes up by more than the loan rate, you win. If the market goes down, you're pretty screwed, especially if you work in an industry that's correlated with the market.

But as long as you can make the mininum payments without selling your assets, you can take a long-term view and (hopefully) come out ahead.

What does everyone think?

Yea I thought about it, but I just didnt see an upside... unless you can get it unsubsidized... youd have to make 10% or so to just break even...
SVP
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Both federal and private loans are only available up to the total cost of attending right?
GMAT Club Legend
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pelihu wrote:
Both federal and private loans are only available up to the total cost of attending right?

As far as I know, thats right.
Manager
Joined: 04 Jan 2007
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rhyme wrote:
naturallight wrote:
Is anyone else thinking about taking a federal student loan even though you don't *need* it?

Yea I thought about it, but I just didnt see an upside...

Federal student loans have deferred payments and are 0% interest while in school, right? So you can take out the loan and pay it all off after graduation. In the meantime, you can invest your money elsewhere.

Please correct me if that's wrong... in that case, I need to decline federal loans
Director
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pelihu wrote:
Both federal and private loans are only available up to the total cost of attending right?

Yes, but "total cost" is objective. You can take out quite a bit in "living expenses." I've heard of people paying for engagement rings with their student loans (not officially). I budgeted for all kinds of travel and extras when I submitted my loan application.

Also, your federal loan amount will probably only cover a fraction of your overall cost.
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brown wrote:
rhyme wrote:
naturallight wrote:
Is anyone else thinking about taking a federal student loan even though you don't *need* it?

Yea I thought about it, but I just didnt see an upside...

Federal student loans have deferred payments and are 0% interest while in school, right? So you can take out the loan and pay it all off after graduation. In the meantime, you can invest your money elsewhere.

Please correct me if that's wrong... in that case, I need to decline federal loans

I thought you could only borrow up to $8,500 at 0% interest while in school (the rest, up to$18K, is NOT interest free for two years), and ONLY if you qualify - that is, if your assets dont preclude you from qualifying. Otherwise.... you incur interest on all of it - from the moment you get it.

Presumably, if you don't NEED the money, you wont qualify for it on in a subsidized state (0% interest for 2 years) - in which case you'll pay 6.8%, which, while low, isnt risk free low - that is, to make that money earn at least 6.8% - post tax, you'd have to be making 8 or 9% minimum.

Namely:

A subsidized loan is awarded on the basis of financial need. You wont be charged any interest before you begin repayment or during deferment periods. The federal government subsidizes the interest during these periods.

# You must have submitted a FAFSA.
# For subsidized Stafford loans, you must have financial need as determined by your school.
# You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen.

So, if I've read things correctly, the BEST I can do is get $8,500 in interest free stuff for 2 years - assuming I qualify - but you still pay a fee... "You�ll pay a fee of up to 4 percent of the loan, deducted proportionately from each loan disbursement. (Part of the fee is for insurance used to pay off loan defaults; the rest reduces the cost of the loan to the government.) Because of this deduction, you'll receive slightly less than the amount you're borrowing." So I pay 4% on the 8500 - or$340 ... So I get to invest $8,160 for 2 years interest free - assuming I make 5% each year - I walk away with$8996, and owe $8500 - I make less than$500 - BEFORE taxes. If instead, I loose 5% each year - I loose about $1100. All that paperwork, hassle, fees and RISK - even with the interest free loan!! - to MAYBE make an extra$10 a month doesnt seem worthwhile.

Aaudetat, correct me if im wrong

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