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I'm a student in the middle of their first year. I came into some money (about $20k), and was trying to figure out if I would be better off if I paid off the majority of my current student loans, which total about $24k or if I should use it to pay for next year so that I don't have to borrow as much when that time comes. At first, it would seem like an obvious choice to pay off current loans to reduce the interest charges. However, the Fed recently started to raise interest rates and this would probably continue enough where a future loan might be significantly more expensive than my current ones. My current government loans are are at a little over 4% with no payment due for the in-school period. My bank loan is at 5.4% with only interest payments being required while in school. Thoughts?
Do you think you have a chance to qualify for government grants? I always thought that the more broke you are as a student the more likely your chance of getting government assistance. Assuming your parents don't disqualify you perhaps you'd want to pay down those loans today in the off chance your savings won't count against you when you fill out the FAFSA for next years loans.
I spent all of my money in savings and ended up getting government grants because I was broke so I fully recommend you spend it before the next FAFSA. What you said does make sense though so I am not really sure I have an opinion one way or the other in your case.
I've already filled out this year's FAFSA before I even got the $20k. I even reported a different number for my savings than what was true. I wouldn't call it lying, since I had literally just received my spring semester disbursement, making my savings artificially high. It wouldn't be following the principle of financial aid if I got less aid based on having current aid.
Despite all this, I experienced the same problem as last year (when I actually did have no money). My EFC was high enough, that I had no grants and only about $12k in federal loans, most of which were unsubsidized. It was only after I submitted a review of special circumstances that I was able to get a $2970 grant, which is still basically nothing. I don't know what it is, but somehow the formula doesn't see 1 deceased parent, a second unemployed parent with lots of debt, and my independent self at 28yo. All it sees is college-educated parents (and probably my whiteness and maleness). So yea, that $24k of debt I have from the first year alone is with the help of a grant.
This year's FAFSA was no different. I have yet to submit my review for special circumstances, and I'm hoping my current negative net worth that I didn't have last year will get me more grants. In the meantime, I have an extra $20k that the FAFSA doesn't know about (unless my reported numbers make no difference because they look it up anyways).
I'm a student in the middle of their first year.
I came into some money (about $20k), and was trying to figure out if I would be better off if I...
Thoughts?
I'd suggest that you tuck it away somewhere safe and continue to live and finance your life
just the same as you've been doing and had planned to continue doing ... and to do all of that
as though the inheritance or whatever it is didn't exist at all.
Tuck it away somewhere productive that will have it grow and probably reinvesting dividends too.
Then treat yourself to something nice or some travel at years end using whatever dividends it pays.
Upon graduation? Cross that bridge once you're there.
I'd suggest that you tuck it away somewhere safe and continue to live and finance your life
just the same as you've been doing and had planned to continue doing ... and to do all of that
as though the inheritance or whatever it is didn't exist at all.
Tuck it away somewhere productive that will have it grow and probably reinvesting dividends too.
Then treat yourself to something nice or some travel at years end using whatever dividends it pays.
Upon graduation? Cross that bridge once you're there.
This is terrible advice, at least if you're thinking strictly financial. You want to be as poor as possible when submitting the FAFSA for financial aid. $2,400 is still FREE money and well worth the effort.
You say you're 28 years old, why don't you just file independent of your parents? Does your mom still claim you on her tax return? If you file independently you should get much more in grant money assuming what you're saying is true.
Since this years FAFSA was already filed it might be a moot point but it sounds like you have another copule of years to go. I recommend you pay off any and all unsubsidized (leave subsidized alone) loans with that money to make yourself as poor as possible. Then come back as independent on next years FAFSA. Make sure your mother doesn't claim you on her taxes.
Number 1 piece of advice I can provide is go into a major that will offer a return on your investment! DO NOT FAIL and keep your priorities in check! It doesn't matter how much money or what type of loans you have if you don't actually complete your degree. Best of luck to you and sorry to hear about your father!
I was intentionally vague by how I have this money just so I could avoid critique, but to counter the investment suggestions, I'll admit that the $20k is sourced from my investments. If you think it was stupid of me to sell everything, consider the following.
A little over $10k was in one account that I have due to inheritance. The total dividends I received last year from that account are about $300. My last interest payment to the private student loan was about $32. This will only increase since the total balance slowly goes up due to a slight discrepancy between payment due and accumulated interest, thereby increasing the loan balance. With these monthly payments, I'm losing money relative to the dividends in the first account.
The second account was one that I set up myself back when my finances were in much better shape. I invested in strong companies that have guaranteed growth (health insurance, Intel, and ETFs were the biggest growers). I held that account for nearly 6 years. I initially put in about $6k which grew to around $7.5k up until Trump took office. So I'm looking at about 25% gain over 5 years, which is pathetic, especially considering that part of the value increase was from automatic dividend reinvestment. It keeps up with inflation, sure. But now I have interest charges I have to worry about. It would not have kept up with those two factors combined. Since Trump took office, the account gained about $2.5k, about $500 was after the tax cut. I'm not giving him credit for it, but I'm not going to say no to more money. When last week's market correction occurred, I didn't sell out of panic, but I predicted that the rapidly rising market was at an end. I was probably going to return to my pre-Trump growth rate, so I figured I would save money if I sold and offset my debt.
That's the story behind my $20k, so WITHOUT putting it back into the market, the way to make it productive for me is to have less student debt, whether that means now or later.
To ChiGuy2.5: I did file last years FAFSA as an independent. Everything else I said was true (why would I lie?). It's my mom who's dead and I know my father doesn't claim me on his taxes, mainly because he hasn't filed taxes for the last two years. Government just hates me, I guess. It is my choice of major that even made me willing to take on this much debt (petroleum engineering). Finding a job even as an engineer is harder than what news articles make it out to be, which is what worries me. But it does blow my mind that there are people trying for non-STEM degrees when they could have just gone to a trade school.
To EastwardBound: As said above, I'm in engineering. I already work 20 hour/week and had 18 credits last semester. I barely made it out alive. I cut back to 13 credits this semester, but my classes are even more engineering focused, so it balanced out. Long story short, I have no time to spare towards more work hours. Refinancing is also not something a student can qualify for. I would need my degree for that.
It seems that the suggestion of paying back all but the subsidized loans is something I overlooked. My online account doesn't allow me to specify which government loan the payment goes to, but nothing a phone call can't take care of I'm sure. I think this is going to be the best option for me.
My apologies for confusing your mom and dad. I reviewed your posts again and I guess my mind just assumed, I apologize for that. I'm not suggesting you're lying, just clarifying that if the whole story you're presenting is true then I don't see why you wouldn't qualify. It sounds like the story you portrayed isn't accurate though. I'm not saying you're deceiving us but if you have had these investments for 5 years as mentioned in your last post that is a big difference from "coming into money" which would imply a recent windfall.
Anything in savings or investment accounts count against you when qualifying you for government loans or assistance. Every dollar of that money counts towards your EFC, as you are likely aware. You're better off clearing out the loans and being broke for next years FAFSA. Worst case you will have fewer loans and less interest accrued when you're about to graduate.
This advice does assume you have a fallback option if some emergency happens, such as moving back home, etc. If you need an emergency fund then this might complicate things.
Slowly put it into a traditional IRA and take the tax breaks. I'm not sure if you work, but if you can take the full deduction each year while in school, I feel like you'll come out ahead. I think long term though. I'd rather skimp on wasteful spending and save for when I need to pay outrageous medical bills.
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