Financial Aid Question

Question

Hey everyone!

We currently have a thread set up to help the 08'ers with financial aid applications, but it seems that not many of us know what we're doing (myself included) and I wanted to see if any of you have tips for us other than the FAFSA application and private loan finders.

Questions I currently have include:

1. How much money can we have in our savings account if we still want to get the Federal Subsidized Loan (max $8500/year)? The Unsubsidized loan? ($20,500 max/yr)

2. Which schools look at our 401K, Roth/Traditional IRA, and Retirement savings to determine need-based awards? Just from your experience?

3. Do you know your school(s)' scholarship (merit/need-based) stats (top 10% get it? top 25%?)? IF so, how much do people typically get?

4. What is the best way to maximize the amount of low interest loans you can get (other than have a great credit history and no debt)?

5. Any other lessons learned or tips?

Since people might still be on break or just starting school, hopefully you'll have some time to help us newbies out. This information will eventually be compiled into a wiki for all future GMATClubbers too, from this thread:

103-t57289?

I can post any answers here back in the thread to save you time too. Thanks in advance!!!

ishcabibble · Answer

Thanks for starting this thread, kryzak! Although I already filled out the FAFSA and am currently waiting to hear back (supposedly today) on any aid or Stafford loans I'm eligible for, I'm more curious about "gap" loans just in case the federal loans don't cover everything.

Unfortunately I can't really answer any of the questions since this is all a new process for me too!

Unfortunately I can't really answer any of the questions since this is all a new process for me too!

kryzak · Answer

you get info about the FAFSA that quickly? When did you fill it out? 1/1?

that's pretty fast. I plan on filling it out after I file my taxes at the end of this month. And it gives me time to lower my bank savings by paying off credit card bills.

ishcabibble · Answer

I filled it out on 1/3 because then I could truthfully say that I have next to nothing in savings since I used it to pay the first half of this quarter's tuition. I would have filled it out sooner, but there was a snafu with not being able to find my 2006 tax return (ends up, I never got the copy from our tax preparer). However, I filled it out online and the very next day I received an e-mail that it was processed and sent to my school. I called my school financial aid office today and they said that they would get aid package info. to me either today or tomorrow.

So, if you fill it out online, it gets to your school  very  quickly. However, the amount of time that it takes the school to do something with it depends on them. I was just worried that I'd have to start begging family members for money to pay the second half of this quarter's tuition!

However, I am in kind of a strange circumstance since I only had about a month between acceptance and start date.

kryzak · Answer

ahh, I guess I'm in a different situation, since I haven't decided which school I'm going to yet. Does that make a difference? Can I put in multiple schools like the GMAT scores?

solaris1 · Answer

Your eligibility for subsidized (i.e. no interest while in school) Stafford loans depends on your EFC (expected family contribution) number, which the FAFSA calculates based on a lot of variables. As such, I'm not sure if it's possible to predict how much cash you can have in your savings account and still be eligible for subsidized Stafford loans. Unsubsidized Stafford loans (6.8% fixed rate, but most lenders offer 1.0 % to 1.25% less in discounts) are not based on financial need and can be (and should be, if I'm not mistaken) taken by everyone before applying for Federal PLUS loans or private education loans, which charge higher/variable interests.

However, some schools have their own loan programs that charge only around 5% interest, but these are offered on the basis of financial need.

And you can send your FAFSA to multiple schools.

disclaimer: This is all based on my experience with the FAFSA and financial aid in general while a college student. It obviously applies only to US applicants.

However, some schools have their own loan programs that charge only around 5% interest, but these are offered on the basis of financial need.

And you can send your FAFSA to multiple schools.

disclaimer: This is all based on my experience with the FAFSA and financial aid in general while a college student. It obviously applies only to US applicants.

kryzak · Answer

thank you so much solaris!

One more question, if you have some money in the bank that could potentially cover all of your tuition and living expenses for the 2 years, does it make sense to get any unsubsidized loans (even the Stafford ones) at all, since savings rates are lower than even the 6.8% fixed loan interest rate?

solaris1 · Answer

I'd say in most cases it doesn't make sense to do so. There's a tax deduction for student loan interest but even after accounting for that your annual borrowing costs for a Stafford loan would be much higher than the 3% - 4% you would be able to make on cash in lying a savings account or a CD.

However, this assumes you're not going to do something drastic like break open an IRA or a 401(k) to fund your MBA. 
Also, if you have investments in stocks, then keep in mind that as a student you'd be in a very low income tax bracket so selling them to fund your MBA while you're a student is very good move tax-wise, because you minimize capital gains taxes.

togafoot · Answer

Any tips for International students? FAFSA not applicable to non-residents.

In terms of selling stocks, would an international student be eligble to pay USA capital gains tax?

togafoot · Answer

Not sure about US residents tax implications about this, but a possibility is to use the funds in the FX market, therefore you can gain the benefits of a carry trade. (The main reason the JPY went weak last year). Of course you would have to ride the currency fluctuations.

The alernative is to set up an offshore account and stash the money there in a tax free haven, or in an alternative currency which pays out higher interest rates (e.g. Australia/New Zealand).
In fact one good potential source is the INR (Indian Rupee). Interest rates are up, economy is strong, US economy is weakening, and the currency is weakening against the rupee. This means converting your money to rupees, garner the interest rate for a short while, wait for the medium term trend to continue and convert back to dollars and you have made a profit of the extra % interest, PLUS the extra dollars from it downward trend.

Of course, that depends on the current economic situation remaining, and in fact , it would be beneficial (in terms of this trade), if the Indian economy did better than expected and the USA worse.

(I trade in currencies in my spare time and researched off shore banking when i moved abroad)

solaris1 · Answer

Togafoot, it's a lot more complicated for international students. Depending upon where you're from you may be able to borrow cheaper education loans in your local currency, but i doubt they'd be fixed rate and you'll take on a lot of currency risk.

The best case scenario for you would be to qualify for a b-school's own institutional loan program, which are generally need-based, but a lot of times are cheaper than other private loans available. One example is the Tuck 5% Loan Program.

Do you actually own stock in the US in a taxable account? I mentioned the capital gains issue because most in the 15% federal income tax bracket in the US (a category that would likely include most full-time students), could sell appreciated stock at a capital gains tax rate of 0% betwen 2008 and 2010. This is however a bit complicated and relevant only if you have a substantial amount of stock investments (outside retirement accounts) that you intend to sell in the short term anyway.

solaris1 · Answer

I, respectfully, think attempting to arbitrage currencies should be left only to sophisticated investors, especially if pursuing an MBA is at stake! :shock:

Moreover, current tax laws do not allow ordinary US investors to invest in offshore accounts of any kind.

togafoot · Answer

Slightly more complicated for me, UK citizen but non-resident. Resident in Japan, and their financial system is not favourable towards non domiciled residents. UK banking system will probably be unable to provide me with a loan as i have been out of the country so long, and its hard enough to get a Credit card, never mind a loan, in Japan if you are not Japanese. (Banking system does not trust foreigners much, afraid that you will leave the country and not pay back the debt)

As for my stocks, its in an account in a tax free haven. However with govts. reeling in potential tax loopholes, I'm unclear on what the US govt. views are when it comes to the arrangements i have.

kryzak · Answer

great tip on the 0% capital gain taxes. I'll probably be doing that (realizing all my gains while I"m a student, and then rebuying those stocks again if they're good, tax free).

the currency thing made my head hurt

togafoot · Answer

It hurt my head too when i first started researching it. ( I used it in some of my essays to 'beef up' my quant capabilities :-D

)

ishcabibble · Answer

So I got the call yesterday from financial aid and I am eligible for unsubsidized Stafford loans for the full amount for tuition, books, my new laptop, etc. And it will all be processed and done within 3-5 days. Yay! Huuuuge load off of my mind now! Granted, I would have preferred that at least some of it be subsidized loans, but I'll take what I can get so that I can now put my full attention to my schoolwork and not have to worry about paying for it. :-D

Unfortunately, Mr. ishcabibble and I are in that strange no-man's-land of income where we make too much to get free money or subsidized loans, but not nearly enough to pay much of anything out of pocket. At least I'll be able to start paying it back while I'm in school since I'm in the PT program.

kryzak · Answer

congrats! That's good news!

Praetorian · Answer

This looks like aaudetat territory. Did you guys already review these set of links?

Credit Scores and Business School Loan Qualification
https://gmatclub.com/phpbb/viewtopic.php?t=43370

Financing FT MBA
https://gmatclub.com/phpbb/viewtopic.php?t=43035

Financing your MBA
https://gmatclub.com/phpbb/viewtopic.php?t=41568

What are you going to do with your 401K?
https://gmatclub.com/phpbb/viewtopic.php?t=38272

Tuition and Taxes
https://gmatclub.com/phpbb/viewtopic.php?t=41533

Is anyone else freaking out about debt?
https://gmatclub.com/phpbb/viewtopic.php?t=44347

kryzak · Answer

yeah, I went through some of them and posted it on the Comprehensive Financial Aid link. Will add these there too!

Thanks Praet!

togafoot · Answer

Hmmm, most of those thread give advice to USA residents or USA nationals. I think the threads should indicate if the advice
is applicable for International students or not.

Not that much info for internationals.

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