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Savings and effect on aid


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#1 kennypowers

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Posted 04 January 2017 - 03:45 PM

I know I'm thinking way too far ahead (I haven't applied, let alone been accepted), but I am a planner to the extreme.

 

I have ~50k in my savings account, which will continue to grow if I stay in my current employment. Does this account have a significant/negative impact on my financial aid amount? In terms of debt, I have ~10k in undergrad loans (payments are small).

 

I was planning on taking out loans for tuition if I got in, then buying a house once I've obtained employment. For those of you who have graduated, your input here is more than welcome! Is this a dumb move? Would it make sense to drain most of my down payment fund for tuition and start saving again after graduating?

 

Another thing to note is, my partner and I are talking about marriage. However, his salary is well over 100k. I worry that his salary being associated to me would add additional impact to my loan opportunities. Is it better to postpone nuptials until after school? I'm simply talking courthouse official, so added money is not a concern. Quite frankly, I want this debt to be MY debt. I don't want him contributing to the tuition- he'd already be paying for rent, food, etc.

 

I know I am jumping the gun here, but I think it's important to think about these things, given my future pursuits. I appreciate you taking the time to read this.



#2 Boatswain2PA

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Posted 04 January 2017 - 06:39 PM

1. Pay off your student loans TODAY and be debt free.

2. Take up to the match in your 401K/403B, then fully fund your HSA, then fully fund your ROTH.  Put any other money you have and throw it into savings for graduate school.
3. Pell grants are the primary poverty-based GRANTS for education, but you can't get them for graduate education, so I don't think it will "hurt you" if you have $50K or more in savings.  You are going to have to take out loans, and I don't think they will care about how much you (or your spouse) makes, or how much wealth you have.

4. Apply to cheap schools. There is minimal difference between a $50K program in a low cost-of-living area and a $200K program in a high cost-of-living area....except for the $200K difference in cost.

5. Yes, I would "drain down" most of your savings to get through school.  No need to keep $50K in savings earning .5% interest while you're racking up graduate loans at 6.5% interest.  Keep a small amount ($2-$3K)  as an EMERGENCY savings.

6. Goal = Get through school with the absolute smallest amount of debt you can.  Then, when you graduate, keep living like you're poor and get the debts paid off.

 

7. Marriage:  I get the feeling that we have different definitions of marriage.  Marriage is a sacrament from God that joins one man and one woman.  As such, in union, her debt is his debt (and vice versa), his wealth is her wealth (and vice versa), and they work together to meet their goals in life.  It shouldn't matter if one spouse works to pay the bills (and tuition) while the other spouse goes to school.  The debt is marital debt, and the wealth is marital wealth.  

 

Best of luck to you!



#3 kennypowers

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Posted 04 January 2017 - 08:31 PM

1. Pay off your student loans TODAY and be debt free.

2. Take up to the match in your 401K/403B, then fully fund your HSA, then fully fund your ROTH.  Put any other money you have and throw it into savings for graduate school.
3. Pell grants are the primary poverty-based GRANTS for education, but you can't get them for graduate education, so I don't think it will "hurt you" if you have $50K or more in savings.  You are going to have to take out loans, and I don't think they will care about how much you (or your spouse) makes, or how much wealth you have.

4. Apply to cheap schools. There is minimal difference between a $50K program in a low cost-of-living area and a $200K program in a high cost-of-living area....except for the $200K difference in cost.

5. Yes, I would "drain down" most of your savings to get through school.  No need to keep $50K in savings earning .5% interest while you're racking up graduate loans at 6.5% interest.  Keep a small amount ($2-$3K)  as an EMERGENCY savings.

6. Goal = Get through school with the absolute smallest amount of debt you can.  Then, when you graduate, keep living like you're poor and get the debts paid off.

 

7. Marriage:  I get the feeling that we have different definitions of marriage.  Marriage is a sacrament from God that joins one man and one woman.  As such, in union, her debt is his debt (and vice versa), his wealth is her wealth (and vice versa), and they work together to meet their goals in life.  It shouldn't matter if one spouse works to pay the bills (and tuition) while the other spouse goes to school.  The debt is marital debt, and the wealth is marital wealth.  

 

Best of luck to you!

Thank you for the response! Since I'm only familiar with the undergrad process, I didn't think about how different it is when pursuing grad school. You're right, income/savings won't have much bearing on the loans I take out.

 

I contribute 12% to my 401k, but I really need to start adding to my Roth. It's been on my radar for a while and there is no excuse for why I haven't. I have an HRA, not HSA, so that isn't as applicable.

 

All the schools I am applying to are in the 70-80k range, which seems typical. The few schools I've found outside of that range were quickly nixed. 

 

I suppose I just have trouble parting with the money I worked so hard to save for with only one vision in mind (a house), but I really do understand your POV and it would be best to pay for half the tuition in cash, if able. I'm no stranger to living frugally, so it would just be continuing the norm upon graduation.

 

​I understand your stance on marriage, and I partially agree, but being responsible for the loan is something I want to do for ME.



#4 Boatswain2PA

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Posted 04 January 2017 - 09:05 PM

Thank you for the response! Since I'm only familiar with the undergrad process, I didn't think about how different it is when pursuing grad school. You're right, income/savings won't have much bearing on the loans I take out.

 

I contribute 12% to my 401k, but I really need to start adding to my Roth. It's been on my radar for a while and there is no excuse for why I haven't. I have an HRA, not HSA, so that isn't as applicable.

 

All the schools I am applying to are in the 70-80k range, which seems typical. The few schools I've found outside of that range were quickly nixed. 

 

I suppose I just have trouble parting with the money I worked so hard to save for with only one vision in mind (a house), but I really do understand your POV and it would be best to pay for half the tuition in cash, if able. I'm no stranger to living frugally, so it would just be continuing the norm upon graduation.

 

​I understand your stance on marriage, and I partially agree, but being responsible for the loan is something I want to do for ME.

You're doing well putting 12% into retirement, but while putting it all into your 401K is easy, it usually isn't the best thing to do (unless you're lucky enough to get a 12% match).  

Take up to the match in your 401K.  This is free money.
Then fund your HSA (if you can have one) in an investment HSA (a HSA that allows you to invest it in the market).  An HSA gives you the benefit of pre-tax money AND tax-free growth.  Then fund a ROTH, which is post-tax investment, but is tax-free growth.  
It's important to do the HSA and ROTH early in your life because there are caps on how much per year can be added ($6750/family for HSA, $5500/year for ROTH).

If you have some short term financial goals (going to grad school, buying a house, saving for wedding, etc) then you can forego additional retirement savings for a few years (2-3) while you save up for these goals. 

 

You've done a great job saving money, but it's not invested right.  Sitting in a savings account gets you less than 1% return.  Putting it toward PA school (instead of taking out additional loans) gets you (probably) 6.5% return.  Then the payoff for PA school is even greater!

With your partner footing the expenses, you taking on $30K in student loans for PA school ($80K cost - $50K savings), you two will be GOLDEN.  With two $100K+ salaries you should be able to pay off the $30K in loans in 3 months, and then save at least $10K/MONTH toward the down payment on a house.  

Thank you for your understanding on our differences. All too frequently today people equate differences/disagreements with hate.  



#5 kennypowers

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Posted 05 January 2017 - 07:00 PM

You're doing well putting 12% into retirement, but while putting it all into your 401K is easy, it usually isn't the best thing to do (unless you're lucky enough to get a 12% match).  

Take up to the match in your 401K.  This is free money.
Then fund your HSA (if you can have one) in an investment HSA (a HSA that allows you to invest it in the market).  An HSA gives you the benefit of pre-tax money AND tax-free growth.  Then fund a ROTH, which is post-tax investment, but is tax-free growth.  
It's important to do the HSA and ROTH early in your life because there are caps on how much per year can be added ($6750/family for HSA, $5500/year for ROTH).

If you have some short term financial goals (going to grad school, buying a house, saving for wedding, etc) then you can forego additional retirement savings for a few years (2-3) while you save up for these goals. 

 

You've done a great job saving money, but it's not invested right.  Sitting in a savings account gets you less than 1% return.  Putting it toward PA school (instead of taking out additional loans) gets you (probably) 6.5% return.  Then the payoff for PA school is even greater!

With your partner footing the expenses, you taking on $30K in student loans for PA school ($80K cost - $50K savings), you two will be GOLDEN.  With two $100K+ salaries you should be able to pay off the $30K in loans in 3 months, and then save at least $10K/MONTH toward the down payment on a house.  

Thank you for your understanding on our differences. All too frequently today people equate differences/disagreements with hate.  

 

Thank you for this excellent advice; I really appreciate you taking the time to recommend a good plan. Now I just need to get in:)



#6 loliz

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Posted 06 January 2017 - 04:22 AM

I am curious to see the math on saving $10K/month with two incomes of $100K. 


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#7 Boatswain2PA

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Posted 06 January 2017 - 07:16 AM

$200k - $40k (taxes) - $120k (savings) = $40k to live on.

Lots of families live on $40k or less.

Although I wouldn't do that in this situation.  I would max out both ROTHs (11K/year) and the HSA if possible ($6750/year), so would try to save $8500/month toward down payment.

 



#8 PC2ED

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Posted 06 January 2017 - 03:31 PM

4. Apply to cheap schools. There is minimal difference between a $50K program in a low cost-of-living area and a $200K program in a high cost-of-living area....except for the $200K difference in cost.

5. Yes, I would "drain down" most of your savings to get through school.  No need to keep $50K in savings earning .5% interest while you're racking up graduate loans at 6.5% interest.  Keep a small amount ($2-$3K)  as an EMERGENCY savings.

6. Goal = Get through school with the absolute smallest amount of debt you can.  Then, when you graduate, keep living like you're poor and get the debts paid off.

 

 

Cementing some of his points.

 

#4: Applying to cheap school cannot be stressed enough. One thing people believe is that cheap schools have low quality of education/curriculum. Just like they think about brand names in clothing. All these people are victim of great marketing. 

 

I graduated from Sophie Davis/Harlem Hospital PA program in NYC. That school is a CUNY. Tuition at the time was less than 4k a semester.

As far I can remember, passing rate on first attempts has always been in high mid 90s. We've won multiple times (we are one of the top winners) in medical jeopardy at the New York State Society of PA (NYSSPA), We've also won the VERY first and Third AAPA challenge Bowl. 

 

 

#5:  Agreed with him 100%.

 

#6: Couldn't have said it better myself.

 

 

 

 

 

 

 

 

I know I'm thinking way too far ahead (I haven't applied, let alone been accepted), but I am a planner to the extreme.

 

I have ~50k in my savings account, which will continue to grow if I stay in my current employment. Does this account have a significant/negative impact on my financial aid amount? In terms of debt, I have ~10k in undergrad loans (payments are small).

 

Good that you are planning. My advice is to continue to work and save. Preferably in a CD type account. The reason is that you know debt is coming, so I would say to keep that money liquid (in cash). While I agree with Boatswain on contributing to your RETIREMENT (keyword: retirement) accounts, I feel like this is not the goal at this particular moment.  Most of your retirement accounts are money that are not readily available to pay off your school debts. 

 

I would rather start a PA career w/o debt or very low debts, than to have plenty in my retirement accounts with an insurmountable collection of interested debts!

 

 

Advice: 

 

1. I would pay off that 10k debt FULLY. Even though the payments are small, they there are STILL added interests. Why give more money to some rich banker than what he/she deserves?

 

2. Put the remaining 40k in a CD/money market account. The reason I say so is that you want it to be handy if you ever need to spend it on school related expenses (paying HALF of your tuition = less loan taken).

 

3. CONTINUE to save as much as you can. Keep in mind, you will not be able to work while in PA school. Whatever you save can all go toward tuition. If you haven't noticed, I am really big on paying your tuition to the max!!! Most of the PA students I see rotating in my job complain about how much they will owe after PA school. I fell bad for them because some have undergrad loan + grad school loan amounted to 150-250k!! 

 

if your school tuition is 80k/semester that's 4-6 times that amount when you graduate. If it is 80k/year, that's 2-3 times that amount.

 

If you save an extra 40k before you enter school, you'll either have full tuition money for a semester or a year. that's 80k (40k you had + 40k recently save) less in loan!

 

bottom line in #3 is that saving for retirement is not wise at this particular time. Saving for tuition in a CD/money market account is 100% wise.


From NYC with love


#9 Boatswain2PA

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Posted 06 January 2017 - 04:51 PM

Cementing some of his points.

 

#4: Applying to cheap school cannot be stressed enough. One thing people believe is that cheap schools have low quality of education/curriculum. Just like they think about brand names in clothing. All these people are victim of great marketing. 

 

I graduated from Sophie Davis/Harlem Hospital PA program in NYC. That school is a CUNY. Tuition at the time was less than 4k a semester.

As far I can remember, passing rate on first attempts has always been in high mid 90s. We've won multiple times (we are one of the top winners) in medical jeopardy at the New York State Society of PA (NYSSPA), We've also won the VERY first and Third AAPA challenge Bowl. 

 

 

#5:  Agreed with him 100%.

 

#6: Couldn't have said it better myself.

 

 

 

 

 

 

 

 

 

Good that you are planning. My advice is to continue to work and save. Preferably in a CD type account. The reason is that you know debt is coming, so I would say to keep that money liquid (in cash). While I agree with Boatswain on contributing to your RETIREMENT (keyword: retirement) accounts, I feel like this is not the goal at this particular moment.  Most of your retirement accounts are money that are not readily available to pay off your school debts. 

 

I would rather start a PA career w/o debt or very low debts, than to have plenty in my retirement accounts with an insurmountable collection of interested debts!

 

 

Advice: 

 

1. I would pay off that 10k debt FULLY. Even though the payments are small, they there are STILL added interests. Why give more money to some rich banker than what he/she deserves?

 

2. Put the remaining 40k in a CD/money market account. The reason I say so is that you want it to be handy if you ever need to spend it on school related expenses (paying HALF of your tuition = less loan taken).

 

3. CONTINUE to save as much as you can. Keep in mind, you will not be able to work while in PA school. Whatever you save can all go toward tuition. If you haven't noticed, I am really big on paying your tuition to the max!!! Most of the PA students I see rotating in my job complain about how much they will owe after PA school. I fell bad for them because some have undergrad loan + grad school loan amounted to 150-250k!! 

 

if your school tuition is 80k/semester that's 4-6 times that amount when you graduate. If it is 80k/year, that's 2-3 times that amount.

 

If you save an extra 40k before you enter school, you'll either have full tuition money for a semester or a year. that's 80k (40k you had + 40k recently save) less in loan!

 

bottom line in #3 is that saving for retirement is not wise at this particular time. Saving for tuition in a CD/money market account is 100% wise.

 

Agree with everything, however I don't think it's wrong to fund up to the employer match in a 401K (free money), and then funding HSA/ROTH due to the annual caps.  In 5 years, if everything goes as planned, he will have PLENTY of money to throw at mortgage and retirement, but will still only be able to fund the HSA/ROTH up to the limit.



#10 AliB

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Posted 06 January 2017 - 07:14 PM

And another pro to putting money into a 401(k) now ... it reduces taxable income "today".  

 

AND, if appropriate for your situation/age, you CAN take money back out of the 401(k) or IRA to pay for education expenses, including COL ... you'll just have to claim it as income ... which will presumably be at a much lower tax rate (even if you work, which is not recommended, during PA school, it won't be much).  


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#11 Boatswain2PA

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Posted 06 January 2017 - 08:10 PM

And another pro to putting money into a 401(k) now ... it reduces taxable income "today".  

 

AND, if appropriate for your situation/age, you CAN take money back out of the 401(k) or IRA to pay for education expenses, including COL ... you'll just have to claim it as income ... which will presumably be at a much lower tax rate (even if you work, which is not recommended, during PA school, it won't be much).  

I am not sure this is accurate.  I know of the early withdrawal (ie: pay tax but no penalty) for extreme medical expenses, or for total and permanent disability....but never read anything about early withdrawal for education expenses.  I just did a quick search and didn't find anything saying that was allowed.

Do you have a source for this??



#12 loliz

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Posted 07 January 2017 - 12:43 AM

I am curious to see the math on saving $10K/month with two incomes of $100K. 

 

 

$200k - $40k (taxes) - $120k (savings) = $40k to live on.

Lots of families live on $40k or less.

Although I wouldn't do that in this situation.  I would max out both ROTHs (11K/year) and the HSA if possible ($6750/year), so would try to save $8500/month toward down payment.

 

 

Exactly... so by your own estimates, it is not fair to give a Pre-Pa student the expectation that they can pay off $30K debt in 3 months or that they will be saving $10K towards a down payment. 

 

It is also important to have some quality of life and I don't think it should be considered excessive to have a dog, go on a vacation, have an extra bedroom or office, go out to dinner or live in a safe community with good schools. On a $40K budget, you will be giving up these things in many (not all!) communities. 



#13 Boatswain2PA

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Posted 07 January 2017 - 04:15 AM

If I were in his shoes in that scenario I would have it paid off in 3 months, THEN put $1500/month toward HSA/ROTH, and $8500/month toward saving for a house. 

Some people want the dog, go on vacations, have the office/spare bedroom, go out to dinner, and live in a gated community NOW.

 

Others are willing to live WAYYYY below their means TODAY so that TOMORROW they can have 2 dogs roaming their 80 acre ranch, go on four vacations a year, and live in a McMansion....all without any debt payments. 

I've gotta check out from this convo, gotta get up at 0430 to leave for the airport.  Wife and I are taking 7 family members to Belize for a week of sailing, scuba diving, climbing Mayan ruins, etc.  Likely going to New Orleans in 3 months, then planning a big trip to Yellowstone.  Don't know where we are going in the fall, but looking at Utilla or Roatan for next winter. Starting to plan our first European vacation, but I think we may have to take multiple trips there to explore it all.

Debt sucks.  Kill it with EVERYTHING YOU'VE GOT!  If you're a PA making $100K a year with a house payment, Stu loan payment, car payment, CC payment, boat payment....you're broke.

If you're a PA making $100K with just a house payment, you're doing very well.

If you're a PA making $100K without a debt in the world....you can live like a king.  



#14 PAtoB

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Posted 07 January 2017 - 04:26 AM

secret about rich people - they lived well below their means on the way to getting rich, and when they are rich, they don't spend extravagantly like what you see in the media with athletes and certain celebrities - they buy the same number of cars and fridge and appliances as you and I, they just happen to spend a bit more for higher-end models. And they tend not to brag about it. the braggers in the media, it's amazing how many go broke or were exaggerating all along.


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DoTheEvolution


#15 Boatswain2PA

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Posted 07 January 2017 - 04:34 AM

secret about rich people - they lived well below their means on the way to getting rich, and when they are rich, they don't spend extravagantly like what you see in the media with athletes and certain celebrities - they buy the same number of cars and fridge and appliances as you and I, they just happen to spend a bit more for higher-end models.

 

Correct.  I drive a Hyundai accent with >120K miles on it.  Wife drives a 10 year old Hyundai Vera Cruz.  I own a 15 year old truck.  We will have current house (nice house, terrible neighborhood) paid for in about 60 days because we are throwing >$10K a month at it.

 

Current net worth is about $600K.  Looking for the 80 acres to build our McMansion on.  We are just now beginning to vacation like described above.  
 

Will have McMansion paid off in 5 years, and at that point expect to have net worth of over $1M.

Debt sucks.  Kill it with intensity.  Then you can enjoy the fruits of your labors instead of paying bankers.

Then I cut back to part time.



#16 AliB

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Posted 07 January 2017 - 03:35 PM

I am not sure this is accurate.  I know of the early withdrawal (ie: pay tax but no penalty) for extreme medical expenses, or for total and permanent disability....but never read anything about early withdrawal for education expenses.  I just did a quick search and didn't find anything saying that was allowed.

Do you have a source for this??

 

I partially misspoke.  To be accurate, I don't think you can withdraw directly from the 401(k) (without penalty in addition to the taxes).  You can however, withdraw from a Rollover IRA -- for qualified education expenses -- after you move the 401(k) to it.  (and it's usually advisable to do so since the mgmt fees are typically less)

 

I'm doing it now.  I seem to recall Rev did similarly.  

 

See IRS Publication 970.  

https://www.irs.gov/.../p970/ch09.html


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#17 kennypowers

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Posted 09 January 2017 - 04:44 PM

Thank you all so much for your input. I really appreciate it and can't stress it enough. You've given me a lot to think about and look into.



#18 PAtoB

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Posted 14 January 2017 - 06:36 PM

you can withdraw and borrow against your 401(k) for hardship reasons (debt included) but if you don't pay back within a - usually - very short timeframe, the taxes and fees/penalties can be pretty massive and not worth it at all.


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#19 Boatswain2PA

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Posted 19 January 2017 - 05:41 PM

It is very risky to borrow against your 401(k).  If you quit the job or are terminated you have 30 days to repay the 401(k) loan (at a time that you no longer have a JOB!).  If you can't repay, then you not only have to pay full taxes on the loan amount, but also the 10% penalty.

Suggest no-one EVER borrow against their 401(k).  



#20 PAtoB

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Posted 20 January 2017 - 02:32 AM

i was responding to someone saying you couldn't borrow against 401(k). I wasn't speaking to the wisdom of doing so.


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