GradPLUS Loans with assets Forum

[Stringer Bell]

I am finally starting to research financial aid and am having some trouble finding the qualifications for Grad Plus loans other than filling out a FAFSA and having good credit. I made good money last year and have a good amount in liquid assets, so I'm sure that my EFC is going to be pretty high. Will this affect the amount of Grad Plus Loans I can borrow? Do liquid assets matter for these loans? I'm wondering if I should max out IRA's, my 401k and buy something non liquid like a piece of unimproved land or something before I fill out a FAFSA.

[geostuck]

I've moved some stocks and mutual funds into real estate. Sadly for others, they are at bargain basement prices. I think your land thing is a good idea, but I'd talk with a finacial advisor. Not sure if this is wise, but you can borrow against the 401K. I'd assume with perfect credit and assets, they'd love to loan you money. Similar to any bank loan taken against cash, low risk for them against a default. I just started the 2009 taxes a few hours ago, so I find out your answers shortly. Personally, I need liquidity in case anything went wrong.

[vanwinkle]

I'm pretty sure EFC is not considered when determining your eligibility for GradPLUS loans. I had a high-income job that I worked right up until the week before law school started. My EFC was like 20K, it was ridiculously high, and schools still gave me loans up to the full amount of tuition+COL. EFC is really only used to calculate need-based grants, which are rare for graduate programs anyway.

Also, I think Harvard factors in IRA/401(k) assets when determining financial aid. They're one of maybe a couple schools at most that do, but whether you do what you're considering depends on 1) whether you need access to that money anytime soon and 2) whether the school you're applying to factors in retirement funds.

While I was working I was dumping in enough money to my 401(k) to get the half-match, knowing I'd want to take that money back out when I was in law school. I'll end up paying some kind of penalty for it (I rolled it over into an IRA and can potentially do unpenalized withdrawals, but then I have to pay taxes on the withdrawn amount anyway) but it's worth it because the penalty is smaller than the 50% instant ROI that I got by getting the half-match.

[ShibaDan]

Lucky for me my networth is most definitely a negative number

[UCInfo]

EFC is used for subsidized Stafford considerations, not PLUS loans. Regardless of personal assets, you can take out PLUS loans up to the amount of the estimated cost of attendance (tuition/fees + cost of living) minus scholarships and other federal loans you take out.

There might be a different incentive for lowering your EFC, which is that you want to qualify for the full $8,500 of subsidized Staffords. I'm not sure how low you'd have to go in EFC to qualify for the full amount. You'd save about $5,000 in interest over the life of a 10-year loan if you max out subsidized Staffords. You can get up to $20,500 in unsubsidized Staffords even if you have a high EFC. You'll want to maximize those before even thinking about PLUS loans because Staffords are 6.8% and PLUS loans are 8.5%.

I'd say it's not worth the hassle of buying land or entering into any similarly complex transactions for the sole purpose of lowering your EFC, though. At the end of the day, you're only really talking about saving $5,000 over a 10-year repayment.

As for retirement accounts, I'd offer a different reason for putting money away there: tax savings. If you are paying taxes right now at the 25% marginal rate, you can reduce your tax liability now by putting money into IRAs (or 401k as long as you roll it over into an IRA before school) and then taking it out in a year or two when you are at the 15% marginal rate as a college student. Education withdrawals from IRAs are exempt from penalty.

[Anonymous Loser]

EFC is used for subsidized Stafford considerations, not PLUS loans. Regardless of personal assets, you can take out PLUS loans up to the amount of the estimated cost of attendance (tuition/fees + cost of living) minus scholarships and other federal loans you take out.

There might be a different incentive for lowering your EFC, which is that you want to qualify for the full $8,500 of subsidized Staffords. I'm not sure how low you'd have to go in EFC to qualify for the full amount. You'd save about $5,000 in interest over the life of a 10-year loan if you max out subsidized Staffords. You can get up to $20,500 in unsubsidized Staffords even if you have a high EFC. You'll want to maximize those before even thinking about PLUS loans because Staffords are 6.8% and PLUS loans are 8.5%.

I'd say it's not worth the hassle of buying land or entering into any similarly complex transactions for the sole purpose of lowering your EFC, though. At the end of the day, you're only really talking about saving $5,000 over a 10-year repayment.

As for retirement accounts, I'd offer a different reason for putting money away there: tax savings. If you are paying taxes right now at the 25% marginal rate, you can reduce your tax liability now by putting money into IRAs (or 401k as long as you roll it over into an IRA before school) and then taking it out in a year or two when you are at the 15% marginal rate as a college student. Education withdrawals from IRAs are exempt from penalty.

This is highly credited, and I am glad to see more posters making this point. Transaction costs and tax liability (not to mention depreciation or loss) could easily offset this potential savings, so posters seeking to lower their EFC in the hopes of reducing future educational debt should certainly think twice before getting too carried away with potentially risky financial schemes.

As an additional consideration, I was awarded the maximum possible amount of subsidized Stafford loans, as well as $2500 in Perkins loans, with not only an EFC of 25000, but a 3/4 tuition scholarship award. Make certain that you actually need to reduce your EFC before taking action.

[UCInfo]

As an additional consideration, I was awarded the maximum possible amount of subsidized Stafford loans, as well as $2500 in Perkins loans, with not only an EFC of 25000, but a 3/4 tuition scholarship award. Make certain that you actually need to reduce your EFC before taking action.

Sounds like a great situation that most of us would love to have. Do you know if your school's financial aid office is solely responsible for deciding whether you qualify for subsidized Stafford and Perkins, or do they follow a federal formula? I didn't realize you could get a Perkins with such a high EFC; it's encouraging to see that you did.

[Anonymous Loser]

Perkins are really different than the other loans - the institution functions as the lender, and determines eligibility, so you end up with a great deal of variation from school to school.

As far as I can tell, schools end up with a pool of money from which to allocate Perkins loans. Some schools try to award a little bit to everyone, while other schools try to give a bigger chunk to those students who demonstrate the most financial need. As an additional consideration, some schools may be set up in a way where Perkins loans are administered school-wide, as opposed to being administered individually for each separate program.

In my case, in addition to the FAFSA, a separate institutional form needed to be submitted in order to be considered for Perkins loan funding: no additional financial information was collected, you just had to fill in your name and check off a box that said you wished to be considered for Perkins loan funding. From what I gathered in conversations with the financial aid staff, a surprisingly low number of students bother filling this out. Also, it sounded like other programs with the institution were not allocating the full amount of Perkins funding available to them due to some internal institutional rule, so this excess was then sent back into the main pool, from which the law school was able to obtain additional funding. As a result, I got a much bigger chunk of my educational debt at the very favorable Perkins rate than I would have ever thought possible.

[Stringer Bell]

Education withdrawals from IRAs are exempt from penalty.

I was unaware of this. That's really good to know.

[vanwinkle]

Education withdrawals from IRAs are exempt from penalty.

I was unaware of this. That's really good to know.

You can withdraw from IRA for qualified education purposes without taking the 10% withdrawal penalty, but then you can't use an education credit or deduct your tuition as an expense on your taxes. They won't let you double-dip, you only get one form of education discount or the other.

[UCInfo]

You can withdraw from IRA for qualified education purposes without taking the 10% withdrawal penalty, but then you can't use an education credit or deduct your tuition as an expense on your taxes. They won't let you double-dip, you only get one form of education discount or the other.

That's an important point. It seems you would not derive greater benefit from the 10% waiver until you withdraw more than $20,000 from your retirement account. The maximum lifetime learning tax credit is $2,000, equal to 10% of $20,000.