How to mangae the debt most of us will have after completing school?

ThinkingAboutIt · Nov 13, 2003

I have been reading posting about the financing of CRNA school, but I have never read anything about people using the money from thier 401K or IRAs. Especially, the people who are saving money for school. Why not save put money into your 401k or IRA with the intention of withdrawing the money during CRNA school? As I understand the current law you can withdraw without the standard 10% penalty if it is used for education, that includes housing, food, book, and tuition.

Also, when you put it in you will save the tax on it because it is tax deductable (probably around 28% depending on your income), and when you withdraw money you will be tax at your current rate which is probably very low or 0% as student, because your income is so low. Furthermore, why not use your ROTH IRA if you trying save over a long period of time because you have no taxes on your gains, and there is no penalty on the for educational withdraws either.

jdpete · Nov 13, 2003

I for one would never withdraw from an IRA, and I mean NEVER. That money is compounding and growing---look at the growth you had the last 3 years, then figure out how much you will lose with that money when it compounds for the next 3 years during school. Let that money stay invested and grow. I was scared to death about money before I started school, but you will make your money back EASILY. You can borrow money at low interest rates now---why would you want to pay 20-28% taxes on your money and then lose all the compounded interest at the same time? You make money by leaving it in long-term. Plus, there are $50,000 sign on bonuses in places, money will not be the issue you think it is. This is just like taxable income, I dont see how you will have 0% tax on it. If you withdraw $50,000 for school you will pay at least 28% because you take it out at one time. Plus you lose all the interest that $50,000 will be making at that time. Take out a 60-90,000 in loans, and let that money continue to grow, it would take you years to gain all of that back in compounded interest. Just my advice, but I wouldn't do that.

ThinkingAboutIt · Nov 13, 2003

I agree about taking out student loans. There is certianly no reason not to take out student loans if you are eligible. The interest is deferred on most of them and the interest is tax deductable on all of them. I can't understand someone waiting until they save the amount instead of just borrowing it. The low interest and tax deductable plus being able to double or triple your salary should be enough incentive for anyone, and would be sufficient for me if that was all the money they need.

I have read the student loan information and as I understand it, you can take out approximately 38K per year in loans.

But I could not get through 2-3 years of not working without more then 76K in loans. Because if you subtract the fees and tuition which are generally around 30K for most schools. That only leaves 46K for two years, or 23K per year. Not much to live on when you have a have a family.

athomas91 · Nov 13, 2003

stafford loans will cover graduate loans - for anyone - my household had a combined income of 130,000$ last year and 10,000/yr stafford is unsubsidized and 8,500$/year is unsubsidized for the next 3 years - they take into account of course that i will not be working and that graduate school is a high rate job!!

there are plenty of private alternative education loans for ex: citibank, bankone, sallie mae (just do a search and all of these will find you) - the only one i can find where money is sent directly to you and not filtered through the school is bank one - of course the interest rate is prime +0.50% - however most of them if you use auto deduction (after you are done school of course) takes 0.25% off of that and after 2 years if your payments are on time - another 0.25% - this of course takes you back down to prime -

Many groups offer to pay off your school loans as a benefit - from what i am told - and because of the shortage of CRNA's I am sure you could always attempt to negotiate this as part of your contract

All in all - even if you couldn't get the loans payed off by an employer - you will be making so much money - the loans will be a drop in the bucket!!

ThinkingAboutIt · Nov 13, 2003

Change that $8,500 subsidized (government pays the interest until you graduate) and $10,000 unsubsidized ( you pay all the interest from moment you get the check) Bank loans $2,000 - $20,000 per year, based on your credit worthiness.

That mean's you can borrow 76K in two years, assuming that the needs assessment form says you need that much. Subtract out 30K and your back to 46K for 2 years, which ain't much to live on.

Info About Loans From a School Website:

Subsidized Stafford Student Loan Program (formerly G.S.L.)

Through this program, you may borrow up to $8,500 per academic year from a bank, a savings and loan association, or other lenders who participate in the program. The loan will have a variable interest rate (not to exceed 8.25%). Repayment begins six months after you graduate or drop below half-time status. In order to qualify for the program, you must:

demonstrate financial need;

be enrolled or accepted for enrollment on at least a halftime basis;

show satisfactory academic progress; and

be a citizen or permanent resident of the United States.

Unsubsidized Stafford Student Loan Program

Under the Unsubsidized Stafford Student Loan Program, you do not have to demonstrate financial need to borrow funds. The interest for this loan is NOT subsidized by the federal government while you are in attendance. Consequently, you will have to make interest payments or allow the bank to capitalize the interest accrued during the period of enrollment. You may borrow up to $18,500, minus any approve Subsidized Stafford amount. The loan will have a variable interest rate (not to exceed 8.25%).

Alternative Loans

Alternative Loans may also be available to assist you. Creditworthy students may borrow from $2,000 to $20,000, depending on the cost of attendance. You must demonstrate financial need, be enrolled at least half time or better, and be making satisfactory progress. Interest rates on these loans are variable, not to exceed the 91-day treasury bill rates plus 3% at repayment. Interest accrued during periods of enrollment may be capitalized upon request.

Please note: You must apply for loans. Receipt of a financial award letter indicating eligibility for a loan does not constitute application.

u-r-sleeepy · Nov 14, 2003

Coming from someone who just graduated recently - YEEHAW!!! :))) The main issue I would encourage anyone doing this is:

DO WHATEVER YOU HAVE TO DO to get through the program!

That is THE "bottom line" here. My spouse is "gifted" at investments and we were going to fund the whole CRNA program from investments but after those "Peace-loving moslems" paid us a visit on 9/11 - we were in a tough spot. Rather than sell investments at a significant loss, we chose to just be patient - and take out LOTS of loans!

We kept our costs low and did without lots of "things" - but we made it through! Yeah, I owe some money - probably around $80k or so now. Does anyone stop to realize the current rate of interest is like 3.42%? That I have up to 10 years to pay it off? That it can drop to 1.55% fixed over 10 years (or more if I choose!) if I consolidate the loans? Do you know what my payment is on $80k @ 1.55% interest over 10 years? About $720/month! Let's see here - I'm now making "well over $10k/mo" - do you think I can afford that $720/mo pymt???

I am no fan of going into debt, but for this pursuit?!? I think it's a no-brainer! Don't be foolish and borrow extra $$ to buy a Maseratti, but really, all that matters is getting through the program!

Sleeepy

PS - I almost did take $$$ out of my IRA - and I SHOULD HAVE! I (and my investor spouse) couldn't DISSAGREE more with the earlier post against that. If you do it - you simply do it in a year where you're already in school and your income is low (or non-existent) and if (I believe) you've had it in there for 5 years - and use the $$$ for an "approved school program" (via the IRS definition) there are NO PENALTIES!!! NADA! If ya gotz it - ya uses it! Doubt me? Talk to a CPA/EA/TAX Attorney. That's something else I encourage you to get aquainted with during your last year in school. It can make a HUGE difference in not only how much $$$ you make - but how much $$$ you KEEP! :)

ThinkingAboutIt · Nov 14, 2003

Thanks for the reply sleepy. I am currently trying to pack away money in my 401K and IRA to pay for this expensive undertaking.

Your post says that you think it has to be in the 401K or IRA for 5 years before you can withdraw it without a penalty. That is true if you want to use for a house down payment. I can't find any requirements stating that it has that has to be there for five years.

Oh yea, A BIG CONGRATS on your graduation sleeepy!!!

Here's some stuff from the IRS about it if your interested.

Notice 97-60 Using IRA Withdrawals To Pay Higher Education Expenses

Beginning January 1, 1998, a taxpayer may make withdrawals from an individual retirement account (IRA) to pay the qualified higher education expenses for the taxpayer, the taxpayer's spouse, or the child or grandchild of the taxpayer or taxpayer's spouse at an eligible educational institution. The taxpayer will owe federal income tax on the amount withdrawn, but will not be subject to the 10 percent early withdrawal tax that applies when amounts are withdrawn from an individual retirement account before the account holder reaches age 59½.

ThinkingAboutIt · Nov 14, 2003

Actually, with more research I think its even a better plan since you can take the Lifetime Learning Credit BEFORE and DURING but probably not after you graduate (you'll make too much).

It looks like you should get about $1,000-$2,000 tax break each year for your tuition payments.

If your schools starts in JAN, FEB, or MAR you pay early and take it off you current year's taxes.

This seems like a sound strategy. Shifting income from high years to low years and saving tax money.

Notice 97-60 Lifetime Learning Credit

Beginning on July 1, 1998, taxpayers may be eligible to claim a nonrefundable Lifetime Learning Credit against their federal income taxes. The Lifetime Learning Credit may be claimed for the qualified tuition and related expenses of the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who are enrolled in eligible educational institutions. Through 2002, the amount that may be claimed as a credit is equal to 20 percent of the taxpayer's first $5,000 of out-of-pocket qualified tuition and related expenses for all the students in the family. After 2002, the credit amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $1,000 through 2002 and $2,000 thereafter. These amounts are not indexed for inflation.

If the taxpayer is claiming a Hope Scholarship Credit for a particular student, none of that student's expenses for that year may be applied toward the Lifetime Learning Credit. The amount a taxpayer may claim as a Lifetime Learning Credit is gradually reduced for taxpayers who have modified adjusted gross income between $40,000 ($80,000 for married taxpayers filing jointly) and $50,000 ($100,000 for married taxpayers filing jointly). Taxpayers with modified adjusted gross income over $50,000 ($100,000 for married taxpayers filing jointly) may not claim a Lifetime Learning Credit. The modified adjusted gross income limitation will be indexed for inflation in 2002 and years thereafter. The definition of modified adjusted gross income is the same as it is for purposes of the Hope Scholarship Credit.

The Lifetime Learning Credit may be claimed for payments of qualified tuition and related expenses made on or after July 1, 1998, for academic periods beginning on or after July 1, 1998. Therefore, the first time taxpayers will be able to claim the credit will be when they file their 1998 tax returns in 1999. The Lifetime Learning Credit is not available for any amount paid in 1997.

u-r-sleeepy · Nov 14, 2003

Hey ThinkingAboutIt - good reply! I welcome the update on the timeline for usage of IRA/401k $$$. That is GOOD NEWS for lots of folks who could really use that money during the "thin" times while in school.

I also want to encourage students to look into the School Tax Credits while in school - Credits are HUGE compared with "mere deductions"! :) Do your homework folks with regard to the financing and taxes & loans to see you through CRNA school - it really pays off. I know it did for me!

Sleeepy

cannoli · Nov 14, 2003

What does TIA mean?

cannoli · Nov 14, 2003

Thanks in advance. I figured it out. Thanks anyway.

athomas91 · Nov 14, 2003

sorry about that - always get subsidized/unsubsidized mixed.....oh well ---

however, bank one actually offers up to 30,000$ (that was the most I could find.)