One of you recently had a post on the money factor. I’m considering leaving my job, but I have $3000 mortgage payments. That’s probably what’s stopping me, for now. Somebody posted something about pre-meds like us living off of loans. What did you mean? What kinds of loans would help us pay our mortgages, for instance, while we pursue our dreams of becoming doctors? Please give me the 411.
Hi lhern,
I totally feel your pain. I was in the same situation and I couldn’t find a way to make the numbers work. Because I had income the previous year, I didn’t qualify for public loans, but I am sure there are private-loan companies who will lend you money. I also don’t know what the mortgage market is like now, but have you considered taking out a home equity loan? It would have to be a substantial amount if your payments are $3K/mo.
Is it possible for you to get a roommate or even to lease your place and for you to move someplace cheaper? I don’t know your situation (family, location, etc.), so this may be impossible.
I do highly recommend speaking with your target post-bacc school’s financial aid office. They will be able to tell you everything with much more authority than I can.
M
As a pre-med, it can be very difficult to “live off loans”. What you might be referring to is that most medical students live off loans. I can tell you that you will not be able to do med school with a $3000 a month mortgage payment. Right now you can borrow ~$50k a year from the federal government. At most schools, that barely covers tuition. The difference has to be taken out in private loans.
- lhern605 Said:
One of you recently had a post on the money factor. I'm considering leaving my job, but I have $3000 mortgage payments. That's probably what's stopping me, for now. Somebody posted something about pre-meds like us living off of loans. What did you mean? What kinds of loans would help us pay our mortgages, for instance, while we pursue our dreams of becoming doctors?
I did a lot of looking into the matter when I decided to go back to grad school. I'll give you an overview of the entire system first and then address your specific question.
Education loans are extremely political things. The government wants lending institutions- a game the government itself just got into- to be willing to give out lots of money in education loans with good rates. It also wants them to give the student protections for not needing to pay anything back while being a student as well as being able to hide behind forbearance or deferment if they get into trouble. So as you can see, this is a heavy sector of the loan market with many protections afforded the consumer (which adds risk to the lender). And of course, in any type of loan, a small percentage of people will default. So there's a huge and complicated system determining how much money you can take out. This minimizes the risk faced by lending institutions against students taking out loans for a degree in basket weaving that will drive them into poverty and which they'll never pay back.
Every school calculates something called CoA- cost of attendance. This is how much it costs to be a student at school X both in attendance costs (tuition, books, fees, etc) and living costs (room and board, transportation, etc). CoA is not determined differently from one student to the next, except for a small amount of variability when you specify your living arrangements (choices being on campus, off campus commuter, living with parents commuter). What you should see now is that a school will calculate the total annual cost to be a full-time student for you the same way it does so for a 25 year old guy living in a $600/month apartment a few blocks from campus. Now hold that thought.
When you apply for financial aid (FAFSA), your financial need is determined. What FAFSA does is look at your assets and income and determine an amount that you should be able to contribute to your educational expenses. And just for shits and giggles, while it takes into account your assets, it doesn't take into account your liabilities. Anyway, this figure is called your EFC- expected family contribution. This is reported by the Department of Education (which processes FAFSAs) to any school you want it reported to, which calculates something called "need" using this formula:
Cost of Attendance - Expected Family Contribution = Need
If considering your income in the last tax year and your assets, the skein of computer systems at the DoE determine an EFC greater than your CoA, your need is 0.
The amount of need your school determines you have isn't the amount that you'll qualify for in loans. It determines the amount of money that you're GUARANTEED BY LAW to qualify for in loans. The key is that these loans aren't credit based- if your credit rating is 400, you'll still get it. After you've received loans covering your need, you can apply for additional credit-based loans. Keep in mind that education debt is considered GOOD debt. Getting a $10,000 loan for your education is far easier than getting a $10,000 loan for a car, by way of example. But if does remain credit-based.
Here's where you're going to get into trouble. Consult the Student Loans page on any bank's website, and you'll find a page comparing their different loan products. Under "how much you can borrow," get used to seeing the phrase "$X up to your school's cost of attendance minus other aid." This refers to a process called certification. Say that Huge Bank of Big City approves an education loan for $10,000 for you. The next step is that they send some paperwork to your school to inquire about your CoA. It's a complex process, but is essentially a conversation like this.
Huge Bank of Big City: We've approved a loan of $10,000 for Mr. Stephens to attend your school. What does his CoA look like?
FinAid Office: Well, the CoA for his program is $50,000 per year, and we've already been informed that he's receiving $35,000 in loans from other sources [public, other private, etc]. So he can take another $15,000 for this academic year.
HBoBC: Great, we're offering him $10,000. Pencil it in, and we'll contact him to tell him the loan is approved. We'll tell you whether he accepts it or rejects it as soon as he decides.
So you still have room below your CoA, so you apply for another loan with First Bank of Small Town. They approve your for $20,000 in loans at this school and call up the Financial Aid office.
FBoST: Hi, we've approved a loan of $20,000 for Mr. Stephens to attend your school. What's his CoA looking like?
FAO: Well, we've received confirmation that he's accepted $45,000 in loans so far, and the CoA of his program is $50,000.
FBoST: Hmm, ok. We'll offer him $5,000 and let you know what he says.
This is how it works. The system also can't be gamed, as all the money will get to your school via the Financial Aid Office. If your CoA is $50,000, they'll send back the first penny they receive more than that.
There are two ways around this, neither of them likely to happen.
The first is that you can go to whoever serves as the director of the office of financial aid at your school, and beg and plead for them to raise your CoA (they're typically empowered to do so entirely at their discretion). However, this is rare. I once read an anecdote on a different message board about someone who got a flat no when he presented the case that he was a single parent and needed money for his daughter's leukemia medication.
The other way around it is to look for things called non-certified loans. Remember I used the word certification in the loan acceptance process? There USED TO be a ton of loans on the market called non-certified loans. These were loans for education which bypassed the entire certification process. However, remember I said at the start that the way liability to the lender on student loans is limited by capping how much any one student can borrow? Students who took out non-certified loans had already hit their CoA (there's no reason to take out a non-certified loan before hitting CoA, as the rates are terrible). When the recession hit, students who took out non-certified loans were the first to default, and in large numbers. Banks that gave out these loans got hosed when the wheels fell off the economy. Bank of America gave out a lot of these and no longer does (the loan was called Education Maximizer or something). Wells Fargo was the last major bank to do so that I was aware of, and they stopped a year ago. While that particular loan does still exist (it's called the Education Connection loan), it now needs school certification. I'm not sure if any exist anymore. If they do, they're probably going to be from websites run by your friendly neighborhood loan shark. If you can find one (and you'll soon feel like you're looking for a unicorn), be extremely wary.
I do suggest at least going through the motions of googling "non-certified student loans" to see if anything's changed since I looked a year ago. Most of the hits will be other message boards or Yahoo Answers pages where people are asking where they can find non-certified student loans. The answers will usually be divided between people pondering about whether the Bank of America or Wells Fargo loans are still out there, and people who tell you to skip them and stick to a budget and you'll be fine (which I find completely unhelpful, and rather insulting).
I hope that information helps you understand the system better. These probably aren't the answers you hoped to get, but I do hope that a clearer picture of how things work can help you make decisions going forward.
I’m going to disagree that there isn’t a way to get loan funds to pay for school irrespective of your COA.
It’s called a personal loan and as long as you don’t mention anything about needing it for tuition expenses and have decent credit, I know for a fact a credit union (Navy Federal) will give you a personal loan.
There’s also this little “pedigree” thing that goes on with who gets loans to attend certain schools. Attending a school like Georgetown seems to ease the minds of lenders (like Wells Fargo) because Georgetown grads tend to enter careers that pay well? Or because a G’town grad sits on the banks board? Not sure why this seems to be the case, I just know of Harvard and Hopkins students that have seen the same thing.
OTOH, the public schools I’ve attended didn’t have anywhere close to the financial options I’ve seen and heard of being available to students at “prestigious” private schools.
So it seems to me that if you attend the “right” schools and study the “right” subject, the money to pay for it will be available to you if you use all available resources.
Having said all that, having a 3K mortgage isn’t anywhere close to realistic as a med student unless the non student spouse can cover it. Otherwise the key word here should be downsize.
- pathdr2b Said:
I'm going to disagree that there isn't a way to get loan funds to pay for school irrespective of your COA.
It's called a personal loan and as long as you don't mention anything about needing it for tuition expenses and have decent credit, I know for a fact a credit union (Navy Federal) will give you a personal loan.
It's called a personal loan and as long as you don't mention anything about needing it for tuition expenses and have decent credit, I know for a fact a credit union (Navy Federal) will give you a personal loan.
I thought of this as well, but I'm also a bit leary of it. A personal loan is something he'll need to begin repayment of immediately, or if there's a grace period, within a short amount of time (say, a year). If he's still working on undergraduate coursework, it could still be 5-6 years easily until he has any ability to begin repayment... not to mention, he's going to be looking at taking several personal loans in that time period to cover all expenses. Moreover, personal loans usually have short repayment terms (I took one from Wachovia a few years ago, and the maximum repayment term was 5 years).
If he has a need that's one time (say, computer went to hell), that's one thing. But that doesn't sound like it's the case. Using personal loans over a period of 5-6 years for day-to-day financial needs is effectively turning his household budget into a Ponzi scheme. Considering that a personal loan he takes out tomorrow will likely need to be paid back in full plus interest before he gets to his earning years, and that he doesn't project having sufficient money to pay his regular expenses without these additional loan payments, he'll need to take out additional loans during his education just to make payments on the initial loans.
I'm not saying it's impossible. But it's very risky, especially with so many years between now and when he starts his internship. If he needed 10k to cover his last year or two of med school, I'd say go for it. But he's a far way from that.
The other thought I had was equity. How many years have you been making those $3,000 monthly payments for? If you have good credit and a sizable chunk of the house paid off, you might be able to access that equity and feed it into your monthly budget.
Of course, this is another personal finance Ponzi scheme. But considering the terms for home equity loans are usually more generous than those for personal loans, it’s a significantly safer way to go. The only risk I can think of specific to this plan of action would be that you’re setting yourself up to owe more on your home than its worth on the market, which could be a problem if/when you need to relocate for medical school or your residency. From what you’ve told us, it seems unlikely that you’d be able to bring a significant amount of money to the table to close a sale.
- Fedaykin Said:
I thought of this as well, but I'm also a bit leary of it. A personal loan is something he'll need to begin repayment of immediately, or if there's a grace period, within a short amount of time (say, a year).
I'm assuming he has a working spouse. And I think it's very likley that the monthly payment on a personal loan used for living expenses while in school would be FAR less than a 3K.
Just did some math. Paying $3,000 a month on a mortgage for six years (roughly the time it’ll be until he begins internship) comes out to be $216,000. Add a bit for insurance and origination fees, and in personal loans (or any loans for that matter) he’d have to find a total of $225,000. In reality he’d have to divide this up into annual loans, but this is a good enough approximation on the numbers.
A five year repayment (which on a personal loan is likely) comes out to be $4,500 a month. Now of course, that would come down somewhat when you consider he’d likely be taking a series of loans over the years. But it’s not going to be a huge reduction. And personal loans are considered bad debt- there’s the chance he may plan for three separate loans and find himself unable to get the third.
I think it would come down to what his budget looks like all things considered- spouse’s income included. My impression was that all things considered, he’s projecting a shortage of $3,000 a month for the mortgage. Of course, I could be assuming wrongly.
Thanks for all the responses. Actually, the mortgage is about $3k but I help pay it in my household. I live with other family members and my share is about half. So, I’m really just worried about my missing contributions to the monthly mortgage payment. Also, I am a woman with no spouse. 
- lhern605 Said:
Thanks for all the responses. Actually, the mortgage is about $3k but I help pay it in my household. I live with other family members and my share is about half. So, I'm really just worried about my missing contributions to the monthly mortgage payment. Also, I am a woman with no spouse.
Ah, ok. I think we were all (both?) guessing a bit at your exact situation. I'm sure that you can take what we've said and apply it to your specific situation, of course.
That considered, the home equity view may not really be an option. But I do have two questions.
First, what are your legal ties to the house? Is the mortgage in the name of any one person? Group of people? If so, how do you relate to that- is your name THE name on it, one of them, or does your name not appear and you, in a sense, rent? If you aren't named on the mortgage, you're basically in effect renting.
Second, if you had to relocate, would you be able to get away from your responsibilities in the mortgage? Or was the house bought with the knowledge that the group can only afford it if everyone's in the thing together? If you had to sell them your part of the house, would that be an option?
I suggest you think a lot on and look into the second question. Even if you aren't moving now, you're more than likely going to relocate for either med school or residency (if not both). Best to inform your housemates now that it's a matter of time, even if you don't know how much time that is.
If you want more information on financial aid, pick up a book called Getting What You Came For (check Amazon). Although it's actually written with graduate school in mind, a lot of the information I wrote up top came from it.