College Student Starting to Save. Advice Appreciated.

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I go to school full time and work part time but most of my living expenses are covered by grants and loans. I have taken out all of the subsidized student loans that I can because the interest is deferred until I graduate and I like having emergency money so that I don't have to resort to high interest loans if something unfortunate occurs. I plan to pay off the excess in one large payment when I graduate and before interest accrues. Recently, I've also put excess job earnings ($4000) from the summer that I don't anticipate needing into a one year 4.50% APY CD.

I was wondering if the board had any doubts or suggestions about the appropriateness of my plan.

[DebtFreeMe2]

"I plan to pay off the excess in one large payment when I graduate and before interest accrues"

You do understand that differed interest is not a no interest loan correct? What differed means is you’re not obligated to make payments while you're in school, not that interest isn't being tacked on while you're in school.

I certainly think as a college student you should have an emergency fund, but I don't know if $4,000 in a CD is the right place to have it. You need to find out what your student loan rates are at and decide for yourself if it's worth waiting to pay off.

For your emergency fund I would go with an online money market account. Many are paying 3.5% interest, but the money is always available, and there is no penalty for getting the money out like there will be with a CD.

Good luck, and good job thinking about this early on in life .

DebtFreeMe2

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You do understand that differed interest is not a no interest loan correct? What differed means is you’re not obligated to make payments while you're in school, not that interest isn't being tacked on while you're in school.

I'm sorry but I don't think I was using the right term. The state and national government pays the interest on my subsidized loans until I graduate so I don't see any interest until that time. Because my EFC is 0, I was granted a number of subsidized loans. Even though the combined amount of subsidized loans and grants is usually $1000+ more than I need per semester because I also work, I continue to take out the full amount every semester to build up a financial cushion because the deductible on my car and health insurance is very high. The $4000 CD is in addition to that and is pretty much what I made this summer minus living expenses. I opted for a CD because I can take out the full sum when it matures to pay off student loans before interest accrues. I don't know if you can do this without penalty on savings accounts.

I've been wanting to move some money into a savings account as well. But I don't know if earning interest on subsidized student loans can be construed as an unethical use of such loans? Can you advise?

[Joan.of.the.Arch]

If you are keeping this money in any form of savings (except earmarked for retirement), you are supposed to be reporting it on your grant applications each year. Any savings looks like money you should be able to apply to tuition, and would tend to reduce the grants you are eligible for. The same loan money socked away over four years at school could penalize your grant amounts each year you apply. Have you already applied more than one year for grants?

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I am too young (<24) and do not meet the requirements to apply for FAFSA as an independent. However, I've reported to FAFSA that I do file my taxes independently and my parents no longer claim me as a dependent. If I recall correctly, they have not asked me about my financial assets in multiple years of application. Should I report the CD amount as an asset belonging to my parents if they do not query me about my assets?

This is the third time I'm applying for financial aid through FAFSA. The grant amount has remained fairly constant in those years.

[Joan.of.the.Arch]

Among materials you are supposed to have available when filling out the FAFSA are

~Your current bank statements

~Your current business and investment mortgage information, business and farm records, stock, bond and other investment records

Under the section on student Finances on page 7 of the 2008-20009 FAFSA there are questions about your (you, the student) finances. There is an attached worksheet for you to add up various things that go into those blanks on page seven. It includes bank and investment info.

http://www.fafsa.ed.gov/fafsaws89c.pdf

But the CD is not to be reported as your parents' asset. It is your asset. When your parents fill out the FAFSA they need information about your finances, too. If your parents had no idea you had CD's, they cannot have reported it. Perhaps you did not have CD's at the time they filled out the FAFSAs.

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I fill out the FAFSA online and I report all my assets and earnings. I do not recall questions about my savings but it could have been that I have not had any savings until recently and I did not pay much mind to it. Until now, I have kept all of my money in checking. I do report all of my tax and W-2 information and I will certainly update the application with my new financial information. Since my parents have very little income (below poverty line) and savings, I don't think $4000 in savings will affect my financial aid status too much.

My primary reason for starting a CD is that I'm reasonably confident that I'm going to be fully funded through a fellowship for graduate school. I want to continue working during that time and keep the money in a CD so I can pay off all of my undergraduate student loans in one payment when I get my graduate degree. However, it seems now that it would be better for me to wait until I get my undergraduate degree and no longer require financial aid through FAFSA before I put money into savings or CDs. Am I correct?