Author Topic: Case Study/ Taking on Student Loans  (Read 7203 times)

kathryn1029

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Case Study/ Taking on Student Loans
« on: September 09, 2014, 10:48:52 AM »
Hi Mustacians!

I have a case study some of you might find interesting. My fiance and I currently live in NYC, both working full time. We are moving to Denver in mid-December, and I'll be going back to school. We're both 26. What I hope to takeaway is whether we need to have such a large cash pot and whether you would do anything differently. I'm going to list our projected financial situation for mid-December since thats' what we'll be working with when we go down to one income (his) and move to Denver. Here we go:

Joint assets:

Liquid savings: 44k
Index funds: 3k
401k: 30k

Joint debts (currently none, so the below are projected for my school program that begins Jan 2015, lasts 21 months):

12k in subsidized federal student loans @ 6.9%
17k in ubsubsidized federal student loans @ 6.9%
25k in private student loans @11% (this is a guess and I think it's conservative)

*We would pay these off as quickly as possible-- i.e. when I start working again, $3k per month and have them all paid off roughly 2 years after I graduate. Unless however we're making more interest on our investments than paying in student loans... then I guess we would pay them off more slowly? I hate this idea but know that it makes sense.

Joint projected expenses (montly):

1300 Rent
180   Utilities/cable
160   Groceries
160   Gas/public transportation
150   Restaurants/bars/wine
50     Pharmacy
30     Laundry
200   Medical insurance
200   Miscellaneous

2,430 total

*Some of the line items above may seem generous, but since we're moving to a new city we want to be very conservative in our estimates. I know the cable is antimustacian, and if our situation calls for it I might be able to convince fiance to cut it.

Now that we've decided we're going to go for it and move to Denver, fiance has started looking for jobs. We're hoping he can bring in 55-60k per year (he's currently paid 55 in NYC, but it's for a start up company that our good friends own, and I think he's underpaid). After taxes and 401K, 55k would bring us to $38,000 per year, or $3,166 per month.

So here's the deal: I think we should be using some, if not much, of our liquid savings toward my school program instead of taking as much out on the 11% loan. Fiance is very inclined toward having a large cash cushion with good reason: all of the pressure is on him to find a job in Denver. Ido think we'd be better in the long run if we had less of the 11% debt.

Finally, we will not be dipping into our savings at all to pay for living expenses. If fiance is not able to find a job in Denver, he'll keep working and living in NYC while I move to Denver, and I would live with a roommate. For reasons I don't need to get into, fiance's rent in NYC would be free until mid-2015, so we would still be able to swing my school program on just his income.

Thoughts? Any information I left out that you need to know?

BaldingStoic

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Re: Case Study/ Taking on Student Loans
« Reply #1 on: September 09, 2014, 11:25:24 AM »
First off congrats at being in such a solid starting financial position.  I absolutely think you should avoid private student loans and also minimize the unsubsidized loan.  Since you can't invest your "stash" in anything that guarantees a return in excess of 7% it's fare more efficient to put the money to work by minimizing the loans.  Assuming your fiance has marketable skills, you only need to set aside several month of cushion (say $7,500 for living expenses plus whatever you need to cover the move, rental deposit etc.).  Put the remainder of the 44K into tuition and if worse-comes-worth you still have the 6K in Index Funds and 401K to fall back on. Then simply calibrate your spending to fall in line with your fiance's income.  Best of luck!

Catbert

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Re: Case Study/ Taking on Student Loans
« Reply #2 on: September 09, 2014, 12:24:42 PM »
I would keep the cash stash until you 1/move to Denver 2/fiancé gets a job and 3/you confirm that the budget is realistic (or high) for the area.  This I would use the cash stash to avoid like the plague the private SLs.

Aphalite

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Re: Case Study/ Taking on Student Loans
« Reply #3 on: September 09, 2014, 12:54:25 PM »
Why are your loan rates so high? I thought going rate for student loans was 3-4% right now because of the recent developments/backlash

P.S. Groceries are only at 160? Are you sure about that?

charis

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Re: Case Study/ Taking on Student Loans
« Reply #4 on: September 09, 2014, 01:20:25 PM »
If she is 26, she graduated about 4ish years ago.  My student loans from 2008 are stuck at 5.875% (from 6.8 originally before autopay and timeliness rebates).  The lower rates apply to more recent borrowers, I believe.

Aphalite

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Re: Case Study/ Taking on Student Loans
« Reply #5 on: September 09, 2014, 01:37:57 PM »
If she is 26, she graduated about 4ish years ago.  My student loans from 2008 are stuck at 5.875% (from 6.8 originally before autopay and timeliness rebates).  The lower rates apply to more recent borrowers, I believe.

Unless if I'm comprehending it wrong, she's talking about student loan debt she's ABOUT to take on because she's starting school when she moves. Am I just sucking at reading today? (totally possible)

kathryn1029

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Re: Case Study/ Taking on Student Loans
« Reply #6 on: September 09, 2014, 01:58:50 PM »
Thanks for all the replies. I'm pretty sure federal student loan rates are at a fixed 6.8% right now. For the private loan, I'm hoping I'm very much overestimating the interest rate I'll get. However, although my credit score is excellent, I don't have a long history so I'm worried about the rate on the private loan.

I currently pay about $160/month for groceries for fiance and myself and that's in NYC, so I figure I can do that or better in Denver.

Aphalite, you're right, they are loans I'll be taking on in January 2015.

4alpacas

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Re: Case Study/ Taking on Student Loans
« Reply #7 on: September 09, 2014, 02:00:02 PM »
If she is 26, she graduated about 4ish years ago.  My student loans from 2008 are stuck at 5.875% (from 6.8 originally before autopay and timeliness rebates).  The lower rates apply to more recent borrowers, I believe.

Unless if I'm comprehending it wrong, she's talking about student loan debt she's ABOUT to take on because she's starting school when she moves. Am I just sucking at reading today? (totally possible)
That's how I read it too, aphalite. 

charis

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Re: Case Study/ Taking on Student Loans
« Reply #8 on: September 09, 2014, 02:04:30 PM »
True - sorry about misreading that.

kathryn1029

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Re: Case Study/ Taking on Student Loans
« Reply #9 on: September 09, 2014, 02:06:10 PM »
Now I'm seeing that the federal loan rates are 4.66%. Obviously good news, not sure where I got the first number.

Aphalite

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Re: Case Study/ Taking on Student Loans
« Reply #10 on: September 09, 2014, 02:07:47 PM »
Thanks for all the replies. I'm pretty sure federal student loan rates are at a fixed 6.8% right now. For the private loan, I'm hoping I'm very much overestimating the interest rate I'll get. However, although my credit score is excellent, I don't have a long history so I'm worried about the rate on the private loan.

I currently pay about $160/month for groceries for fiance and myself and that's in NYC, so I figure I can do that or better in Denver.

Aphalite, you're right, they are loans I'll be taking on in January 2015.

You have some options if private lenders don't give you the time of day. Credit unions are usually lower, upon first search this one gives you 8% for student loan: https://www.cuofco.org/loanrates/higher-education-tuition-loan-program

It looks like this one will give you CD rate+3% which would be about 4% in most cases if you put up your cash as collateral:
https://www.ccu.org/colorado-credit-union-rates.htm

Stafford (subsidized interest) loans are 6.21%:
http://www.staffordloan.com/stafford-loan-info/graduate-stafford-loan.php

Have you looked into grants/scholarships? There should be lots of free grant money floating around (some require you to maintain a certain grade point average) - Texas has this for example http://www.hhloans.com/index.cfm?objectid=B00C090D-E45D-4F4B-89DA195959930185, maybe CO has something similar?

Overall I would just avoid private loans like the plague, pay tuition with cash if you need to since you have lots of liquid savings

Aphalite

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Re: Case Study/ Taking on Student Loans
« Reply #11 on: September 09, 2014, 02:08:32 PM »
Now I'm seeing that the federal loan rates are 4.66%. Obviously good news, not sure where I got the first number.

I think that's for undergrad - are you getting a post secondary degree or?

Also forgot to mention, but look into variable rates (LIBOR +1, etc.) - rates should stay low for a while longer, and if you aggressively pay the balance down once you graduate and get a new shiny job, that should be a benefit

Mod: Discover has some decent rates too: https://www.discover.com/student-loans/graduate-student-loans.html
« Last Edit: September 09, 2014, 02:14:03 PM by aphalite »

kathryn1029

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Re: Case Study/ Taking on Student Loans
« Reply #12 on: September 09, 2014, 02:13:59 PM »
Aphalite-- thanks for the great suggestions. I will definitely look at credit unions and have already started looking into grants/scholarships. And good tip on variable rates.

Technically, yes-- it is an undergrad degree. I am switching careers to nursing, this is a program for those who have a previous BS. I would have a BS in nursing after this program. I'll eventually probably want a masters as well but haven't started thinking about those financial implications yet :)

Aphalite

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Re: Case Study/ Taking on Student Loans
« Reply #13 on: September 09, 2014, 02:15:01 PM »
No problem, good luck! I have a lot of nursing friends - hard but rewarding career field from what I gather!