Where to Squirrel Money Away for School?

[Moki]

Hi, there.

I am trying to figure out the best place to squirrel away money for a possible 2009 entrance to med school. My goal is to have a cushion to fall back on for living expenses for as long as possible, hopefully somewhere between $20,000 and $30,000. I'm very risk adverse with respect to this money because I have a specific use for it in the relative short term. As such, I thought a higher interest savings account would be the route to go. In light of recent events and our steady progression into a "recession," is this approach the best in your opinion? I just did a quick check on the current interest rates out there and E*Trade apparently has the best at 3.45%. (http://www.savingsaccounts.com/index.html?f9tc=GOOGHPSAVINGSACCOUNTS)

An alternative is to divert some of the $20,000 to $30,000 ($10,000 at the most) toward paying down my present student loan debt of approximately $90,000, which is at a fixed 3.75%. With my regular payments and this additional amount, I may be able to get it down to $75,000 at best. I'm contemplating this option, because it will allow me to take out a larger amount in Stafford loans as opposed to having to supplement with private loans in MS3 and MS4, as a result of the Stafford aggregate lifetime limit. I'm not sure this is wise, though, considering I'm at a fixed 3.75% on this amount.

Any advice would be greatly appreciated. Thank you in advance.

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[PreMD86]

Hi, there.

I am trying to figure out the best place to squirrel away money for a possible 2009 entrance to med school. My goal is to have a cushion to fall back on for living expenses for as long as possible, hopefully somewhere between $20,000 and $30,000. I'm very risk adverse with respect to this money because I have a specific use for it in the relative short term. As such, I thought a higher interest savings account would be the route to go. In light of recent events and our steady progression into a "recession," is this approach the best in your opinion? I just did a quick check on the current interest rates out there and E*Trade apparently has the best at 3.45%. (http://www.savingsaccounts.com/index.html?f9tc=GOOGHPSAVINGSACCOUNTS)

An alternative is to divert some of the $20,000 to $30,000 ($10,000 at the most) toward paying down my present student loan debt of approximately $90,000, which is at a fixed 3.75%. With my regular payments and this additional amount, I may be able to get it down to $75,000 at best. I'm contemplating this option, because it will allow me to take out a larger amount in Stafford loans as opposed to having to supplement with private loans in MS3 and MS4, as a result of the Stafford aggregate lifetime limit. I'm not sure this is wise, though, considering I'm at a fixed 3.75% on this amount.

Any advice would be greatly appreciated. Thank you in advance.

I'm by no means a finance expert, but from the reading I've done, I can offer the following advice:

Depending on where you live, local banks may offer savings account at much higher rates than 3.5%. I have a high-interest checking account at 6%, for example.

Second, I think it'd be a mistake to use that money to pay off your student loans. At 3.75%, your student loans are some of the cheapest money you can get. You say you need those 20-30k for living expenses in the next five years. Every dollar you don't have in med school, is a dollar you'll be borrowing at 6.8%- almost double your current loan, so it doesn't make sense to pay down your current loan to take out a more expensive loan.

Lastly, 20-30k in your bank account will have no effect on your stafford loans.

 

[TMP-SMX]

I'm by no means a finance expert, but from the reading I've done, I can offer the following advice:

Depending on where you live, local banks may offer savings account at much higher rates than 3.5%. I have a high-interest checking account at 6%, for example.

Second, I think it'd be a mistake to use that money to pay off your student loans. At 3.75%, your student loans are some of the cheapest money you can get. You say you need those 20-30k for living expenses in the next five years. Every dollar you don't have in med school, is a dollar you'll be borrowing at 6.8%- almost double your current loan, so it doesn't make sense to pay down your current loan to take out a more expensive loan.

Lastly, 20-30k in your bank account will have no effect on your stafford loans.

That 20-30k in your bank account will limit your eligibility for campus based and and subsidized stafford loans.

 

[Twitch]

It is true that there is an impact on FA esp subs stafford, perkins and the like, however cash (rather than income during that FA year), hurts much much less. Esp 20-30k cash at hand and $0 income during the FA year -> you'll probably still get the full sub loan amounts.

Some shelters you can use are to buy a house or if you made money this year, max out your ROTH IRA/IRA. Ideally, you'd have wanted to channel it through your 401k since you can get a lot more funds sheltered that way.