<p>If the total amount of loan is 35K a year (esp. for the first year), say, 8500 subsidized Stafford plus 26500 unsubsidized Stafford and no other loan, is it too much?</p>
<p>One of our family members thinks we (I should say, “the student”) should get no more than 25K loan for the first year. That is, we should get 8500 subsidized Stafford and only 16500 (instead of 26500) unsubsidized Stafford so that the student will not be over-burdened by the debt in the future. But another family member thinks, with the interest rate of < 7 percents, the additional 10K would be good for managing cash flow while paying not too much interests.</p>
<p>One if her thoughts is to get a cash-out refinance on our house (say, get 10K+) and pay mortgage points/interest instead. because the mortgage interest is lower. (Luckily, our mortgage is not “under-water.”)</p>
<p>Take the least she can to pay tuition and living expenses. I am not sure I would pay all the costs associated with a refi, MAYBE tap a HELOC if you feel comfortable.</p>
<p>Also, she can take less loans in the first term and decide by the end of the 2nd term whether or not she needs more after all.</p>
<p>Minimze the outstanding debt. Though no one plans on it sometimes life happens and you cna’t finish school. Then all the debt becomes payable right away, and student loan debts are not bankruptable. Try to avoid being the average $150,000 debtor. Now it all seems like monoploy money, but when the debt stops you from buying a house or car, or going into the lower paying field that you love…</p>
<p>It all depends on your specific family situation. BTW, did you see a loan fee? I do not know if it depends on loand amount (must be!), but loan fee was listed as $900+/year. </p>
<p>Well, after I did extansive research not only into loan situation, but also into 401K situation in connection to our age and other personal considerations, we have decided to take one year at a time, since you must to re-apply/decline loans every year. So, it is clear to me what we will do next year in our situaition, which might change later.</p>
<p>IMO, you should do your own financial evaluation. I would not trust anybody, including financial professionals in this. Nobody knows exactly where you are and what are your plans in regard to job, 401K, age, health conditions and detailed plan of your medical student. I agree with one phylosophy “Minimze the outstanding debt”. We do not have any as of now and are planning to stay this way as much as possible.</p>
<p>I am fully aware that my question is not a proper one, that is, its answer depends on too many variables specific to my family’s situation so it is almost impossible for anyone else to answer.</p>
<p>As of today, the only debt we have is our mortgage. We could raid our retirement account like IRA but we are concerned it may increase our income as (deductible) IRA distribution is considered as taxable income. If our income becomes higher, it is less likely for us to get some need-based grant managed by the school next year. After all, the higher the income, the (free) money distributed by the school will less likely go to us. Also, after the income exceeds some threshold (100k for a joint return, I think), we may not get the free money from the federal government, that is, the lifetime education credit or the education-related tax deducible. It may be better to raid this kind of account after the first 3 base years.</p>
<p>There is a chance that borrowing against 401k may be slightly better because it is not considered as income. The key is to have a lower EFC for the first 3 years, just like in college.</p>
<p>It is a good idea to tap HELOC. We set up HELOC many years ago but we have never tapped it. Hopefully it is still there. The online account still shows it, but who knows whether it is still there for us to access it, or the computer account is just not “well-maintained” by them. A friend of mine once told me that if we do not use HELOC once in a while, the bank may cancel it (even not informing you of the cancellation) because we do not give them any opportunity to earn some money.</p>
<p>We as parents really like to help pay for some cost (like 10K-15K a year.) But we still expect DS to be responsible for most of the expenses – in loans which he will pay back in the future.</p>
<p>Because he may not go into a high-paying field, we really do not want him to carry too much debt – if we could help a little bit.</p>
<p>Borrowing against 401K is the best deal. In many cases, the interest you pay will be credited back to your account. The interest rate is usually around 3%. It is very hard to find any such deals around. We have paid off the mortgage last year this way.</p>
<p>ace550, Borrowing against 401K is the best deal (and you pay the interests to youself too), if your job is reasonably stable. If you are not sure about this, there is a potential risk: When you leave your company, most likely your company will ask you to pay back all the loans. Of course, you can then cash out your 401K after leaving the company – The early distribution from most retirement accounts is generally not a good idea because of the additional 10 percents penalty. However, there will be a repercussion because your income will be very high in that year.</p>
<p>It is well known that the borrowing cost of the rich is much lower. In recent years, people start to realize that the borrowing cost of those who have a relatively stable job could be much lower (e.g., borrowing against your own 401K.)</p>
<p>mcat2,
"Also, after the income exceeds some threshold (100k for a joint return, I think), we may not get the free money from the federal government, "
-Not correct. Well above still get loans. But I do not know what the limit and if there is one. Also, depending on your age. look at the fact that at certain age (70, I believe) you need to start minimum withdrawls from 401K / IRA. This together with SS payments and possible continued employment might put some people into very high tax situation. Well, again, it depends on age, plans for retirement…Again, maybe I am looking too far ahead, but I tend to consider current tactical decisions along with long term strategy (although I am not financial professional in any sense, just have had lots of business education).
Again, consider that gov. loans (even interest free ) are not exactly free because of Loan Fees, However, I am not sure about details. Wish you the best decision in your family situation!</p>