Should I pay off my loans before applying for financial aid?

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
bogdanich
Posts: 5
Joined: Sun Aug 22, 2010 6:27 pm

Should I pay off my loans before applying for financial aid?

Postby bogdanich » Sun Aug 22, 2010 10:46 pm

Hi everyone! I don't know if this question has been asked before - a couldn't find it anywhere.

I know that usually an applicant's assets are taken into consideration when calculating need based financial aid. I have about $40K in student loans from my undergrad. I was thinking about working for a few years while getting my CPA before attending a law school and saving about 20-30K for future expenses. My question is: do they take into consideration the amount of loans I have when calculating my net worth? Am I better off paying off my debt and leave minimum cash on hand while applying for need based financial aid, or my assets and loans will be netted?

Thank you for your help!

Pip
Posts: 141
Joined: Wed Aug 04, 2010 5:30 pm

Re: Should I pay off my loans before applying for financial aid?

Postby Pip » Mon Aug 30, 2010 4:55 pm

bogdanich wrote:Hi everyone! I don't know if this question has been asked before - a couldn't find it anywhere.

I know that usually an applicant's assets are taken into consideration when calculating need based financial aid. I have about $40K in student loans from my undergrad. I was thinking about working for a few years while getting my CPA before attending a law school and saving about 20-30K for future expenses. My question is: do they take into consideration the amount of loans I have when calculating my net worth? Am I better off paying off my debt and leave minimum cash on hand while applying for need based financial aid, or my assets and loans will be netted?

Thank you for your help!


This is the way it works. The law school will have some figure of the maximum amount of debt that you the struggling student can have when you graduate. They will ensure that you have that maximum amount and this amount will include existing student loan debt (they ignore other debt like car loans).

So if you now have 40K of debt and the school's financial aid office believes that you are worthy of 120K of debt at graduation and the school costs 50K per year and you are expected to have 5K each year... the school would look at you the first year and say see that you could handle 80K of additional debt... they would get you into loans for the maximum amount the first year... say its 45K because of your expected 5K of money from you... Year 2 they will say you have 85K of debt and thus hit you with 35K of debt... your last year you will be maxed out on debt of 120K so they will then magically find all sorts of scholarships that you qualify for so that they can graduate your little debt ridden butt and insure you can get a job to pay them back the loans (the government loans will not be enough so you will likely have to take on some private loans from the school that are at even higher interest rates than the government loans).

So at the end of the day you will be 120K in debt.

Now lets assume you work like a dog and pay off all your debt before law school... that would just result in them socking you with 120K of debt from law school and no scholarships.... funny how the law schools have lots of scholarship money but it only shows up when you are tapped out on debt, but that's the way it seems to work.

So I would say don't pay off the debt now because it will only result in you getting less scholarship money and having to borrow that 40K again as the school pushes to their magical mystery number.

I would also suggest you slowly start putting money into a safety deposit box and not the bank. The schools will all want to deplete all of your assets first and if you have money in a checking or savings account it will show up.... money in a safety deposit box is left to your honor to report or not.

Anonymous Loser
Posts: 568
Joined: Fri Sep 11, 2009 11:17 am

Re: Should I pay off my loans before applying for financial aid?

Postby Anonymous Loser » Mon Aug 30, 2010 5:56 pm

I have no idea what the above poster is talking about, but his/her response suggests a lack of understanding about how financial need is determined under the federal educational lending program.

OP, as a first step, review the criteria in the document linked below to determine if your assets will be considered in determining your financial need for the purposes of federal financial aid. As a general rule, the assets of students earning less than $50,000 are not considered. If you will be earning more than $50,000, run through the appropriate worksheet in the attached document to determine what effect, if any, reducing your debt load will have on your EFC. Current debt is not a factor considered in establishing a borrower's EFC, although loan payments may affect that borrower's AGI, which forms the basis for the EFC calculation.

For the overwhelming majority of borrowers, the transaction and opportunity costs associated with reducing assets far outweigh any gains in aid benefit.

http://www.ifap.ed.gov/efcformulaguide/ ... te1011.pdf

revolution724
Posts: 255
Joined: Sat Mar 03, 2007 2:16 am

Re: Should I pay off my loans before applying for financial aid?

Postby revolution724 » Mon Aug 30, 2010 6:10 pm

I'm sorry, this truly IS miles off-topic... but did some genius actually name a federal agency IFAP?

bogdanich
Posts: 5
Joined: Sun Aug 22, 2010 6:27 pm

Re: Should I pay off my loans before applying for financial aid?

Postby bogdanich » Tue Aug 31, 2010 1:23 pm

I went through the EFC worksheet - it seems that the prior student debt is not taken into consideration when calculating net worth. Am I right?

Pip
Posts: 141
Joined: Wed Aug 04, 2010 5:30 pm

Re: Should I pay off my loans before applying for financial aid?

Postby Pip » Tue Aug 31, 2010 2:15 pm

bogdanich wrote:I went through the EFC worksheet - it seems that the prior student debt is not taken into consideration when calculating net worth. Am I right?


Prior student debt shows up in terms of how much you can borrow. Lenders have limits and the financial aid office is well aware of those limits on how much debt you will be allowed to take on.... you wont be able to borrow more than the maximum amount and that maximum amount will be a total of all your law school and other outstanding student debt.

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MrKappus
Posts: 1685
Joined: Tue Mar 31, 2009 2:46 am

Re: Should I pay off my loans before applying for financial aid?

Postby MrKappus » Tue Aug 31, 2010 2:24 pm

Pip wrote:
bogdanich wrote:Hi everyone! I don't know if this question has been asked before - a couldn't find it anywhere.

I know that usually an applicant's assets are taken into consideration when calculating need based financial aid. I have about $40K in student loans from my undergrad. I was thinking about working for a few years while getting my CPA before attending a law school and saving about 20-30K for future expenses. My question is: do they take into consideration the amount of loans I have when calculating my net worth? Am I better off paying off my debt and leave minimum cash on hand while applying for need based financial aid, or my assets and loans will be netted?

Thank you for your help!


This is the way it works. The law school will have some figure of the maximum amount of debt that you the struggling student can have when you graduate. They will ensure that you have that maximum amount and this amount will include existing student loan debt (they ignore other debt like car loans).

So if you now have 40K of debt and the school's financial aid office believes that you are worthy of 120K of debt at graduation and the school costs 50K per year and you are expected to have 5K each year... the school would look at you the first year and say see that you could handle 80K of additional debt... they would get you into loans for the maximum amount the first year... say its 45K because of your expected 5K of money from you... Year 2 they will say you have 85K of debt and thus hit you with 35K of debt... your last year you will be maxed out on debt of 120K so they will then magically find all sorts of scholarships that you qualify for so that they can graduate your little debt ridden butt and insure you can get a job to pay them back the loans (the government loans will not be enough so you will likely have to take on some private loans from the school that are at even higher interest rates than the government loans).

So at the end of the day you will be 120K in debt.

Now lets assume you work like a dog and pay off all your debt before law school... that would just result in them socking you with 120K of debt from law school and no scholarships.... funny how the law schools have lots of scholarship money but it only shows up when you are tapped out on debt, but that's the way it seems to work.

So I would say don't pay off the debt now because it will only result in you getting less scholarship money and having to borrow that 40K again as the school pushes to their magical mystery number.

I would also suggest you slowly start putting money into a safety deposit box and not the bank. The schools will all want to deplete all of your assets first and if you have money in a checking or savings account it will show up.... money in a safety deposit box is left to your honor to report or not.


Those first two paragraphs are unintelligible. And wrong.

bankcruptcypenn
Posts: 4
Joined: Thu Aug 26, 2010 10:20 pm

Re: Should I pay off my loans before applying for financial aid?

Postby bankcruptcypenn » Tue Aug 31, 2010 11:49 pm

No one can answer this question of yours properly. All you have to do is seek a lawyer advice to this problem so that you will know if you do the right thing regarding of our loans. That is money matter, you better pay attention to that in order to get rid out of debt.

Anonymous Loser
Posts: 568
Joined: Fri Sep 11, 2009 11:17 am

Re: Should I pay off my loans before applying for financial aid?

Postby Anonymous Loser » Wed Sep 01, 2010 1:05 am

bogdanich wrote:I went through the EFC worksheet - it seems that the prior student debt is not taken into consideration when calculating net worth. Am I right?


Yes, you are correct. I directed you to the worksheet rather than an online calculator so that you could see which variables were taken into account. Specifically, I wanted you to see that assets play a somewhat limited role in the EFC determination: assuming that a borrower is required to report assets, only a small portion of those assets are factored into the EFC determination.

Bear in mind that, at least under the federal financial aid program, need-based aid is quite limited. If you search through the TLS archives, a poster named sockpuppet provides a great breakdown of the savings realized by maxing out on need-based federal financial aid. Essentially, the difference between extreme financial need and no financial need whatsoever is ~$6,800 over the life of a borrower's loans under the average post-law school debt load.

bogdanich
Posts: 5
Joined: Sun Aug 22, 2010 6:27 pm

Re: Should I pay off my loans before applying for financial aid?

Postby bogdanich » Wed Sep 08, 2010 4:19 pm

Ok, I was trying to go through sockpuppet's prior posts, but he has 75 pages of them.... From reading this forum I understand that an applicant usually gets either need-based financial aid or merit-based financial aid, whichever is greater. Am I right? I also understand that with 3.9 GPA and a high LSAT score the average merit-based scholarship will be greater than need-based scholarship. That being said, I've read somewhere that HYS don't give out any merit-based scholarship, but only need-based. My parents have no money at all since we came to the US only 5 years ago, so the entire application would depend on how much money I have on hand. So, if I apply to any of these schools and get accepted, am I better off paying off my prior loans and have little cash on hand or saving cash for future expenses? I hope that this post clarified my situation. Correct me if I'm wrong at any point and thank you all for your help!




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