What To Do With Those Loan Refunds…

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Most of us have the great burden of having to finance our own higher education, and based on the rising cost of private graduate education, many law students are graduating with student loan debt reaching or exceeding the $200,000 mark.

The demanding course-load most law students endure makes it difficult (read: impossible) to go to school and work full-time. In order to help pay monthly expenses and survive with a decent standard of living during law school, I depend on my student loans refund at the beginning of each semester to help the fiancee and I survive.

The question is, how should you allocate the funds?

The Frugal Law Student’s Guide to Getting the Most From Student Loan Refunds

• Step One: Budget your refund. You’re going to need to decide at the outset how much of your money you can allocate to expenses each month, and make sure your total expenses are less than your refund. I personally use You Need A Budget, I like the fact that it works on both Mac and PC (I use a MacBook, but the fiancee uses a Gateway and an HP). Whatever you decide to use, you won’t get far into the semester if you haven’t budgeted at the outset.
• Step Two: Place the bulk of your money in a high-interest savings account. ING is running a promotion where you get $25 instantly placed into your account, when you open an account with an initial deposit of $250. (See link here). I use ING because I like their customer service. There are certainly plenty of other banks out there that offer higher interest rates.
• Step Three: Take advantage of opportunities for free money from banks for opening accounts. The math is simple here: if ING is offering $25 for you to open an account by depositing $250, and Etrade is offering $25 for you to open an account by depositing $100, and you have well over $1,000 in your checking account “doing nothing”, go ahead and open an ING and Etrade account. Most of the promotions only require you to keep your cash in the bank for 30 days if you decide later to close the account.
• Step Four: Only borrow what you need to live on. I’m not advocating you max-out your Grad Plus and Stafford loans so that you can invest your money in a 4% savings account. Based upon the time-value of money and the high-interest rates we pay on education loans, borrowing more than you need is a losing proposition. Even if you borrow excess money through your loans and invest aggressively and are successful, you’re really only talking about a nominal return, not even taking account the true value of the money you are borrowing (i.e., adjusting for inflation).

You need to plan ahead and be conservative when deciding how much money to borrow to finance your education costs. However, it is even more important to store the borrowed money wisely (not in canisters or buried inside your mattress) so that you can ease the pain that will later be brought on by high-interest rates during repayment.

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9 Comments

1. strange bird on 11.01.2008 at 19:38 (Reply)

   The fiancee? I thought you were married?

2. Brett McKay on 11.01.2008 at 20:23 (Reply)

   Whoops. This post is by Tony, a new contributor to FLS. I thought I fixed it so it should up who posted what. Better look into this.

3. strange bird on 12.01.2008 at 01:18 (Reply)

   Ohhhhh. Maybe put the post’s author on top by the title? I might be in the minority, but when I read blogs, I tend to read in what I imagine to be the author’s voice. So I got totally confused here :).

   1. Performance car loans on 22.06.2008 at 02:07 (Reply)

      hehe… im confused too

4. Prosper Blog: Prosper, the online marketplace for people-to-people lending » Blog Archive » Prosper Roundup — Reader’s Choice Best Use of Corporate Blog Edition on 12.01.2008 at 07:25

   […] The Frugal Law Student tells us about student loan refunds in What To Do With Those Loan Refunds… […]

5. Ericka on 12.01.2008 at 10:21 (Reply)

   Budgeting is the way to go. For those of us insane enough to work full time and attend law school at night, it’s been nice to borrow the minimum subsidized loans offered. I am aggressively saving the small refunds to pay for bar prep fees, books and living expenses for the two months leave of absence I’ll take from work and I’m going to be pretty close. I consider it worth it at the end to have only 40K in loans including undergrad.

6. Linus on 18.01.2008 at 13:51 (Reply)

   This has been great for me. I save some of my unsubsidized stafford each month to do this. Its not right all the time, but I’ve never had a month (only been 3) where I at least didn’t make more than the interest that is accruing against my loan.

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7. Car on 04.06.2008 at 13:45 (Reply)

   Won’t the taxes you’ll pay on earned interest exceed the amount you’d earn in the high interest account? I’ve considered the ING/ etrade thing but I’m not sure if it’s cost-effective. Any insight would be much appreciated.

8. Global Investigation on 28.06.2008 at 03:43 (Reply)

   Hi Tony,
   Thanks for sharing some valuable informations through the post. Sure all the students who are studying through loans should “plan ahead” to repay the amount.

   Great keep posting…ya…

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