borrowing more than the cost of attendance

When you need to borrow beyond the Cost of Attendance…

Michael Lux Blog, Student Loan Plan, Student Loans 0 Comments

In this edition of the Student Loan Plan, we look at options for Tim who needs to borrow beyond the estimated cost of attendance.  Normally this is a mistake, but Tim has some unique circumstances.  If you want tips for dealing with your student loans, contact us.

Tim writes:

Hi There,

I would like to provide some context before jumping in to my question, I have looked at many forums/posts on line and I know that the general advice is to not borrow above the certified cost of attendance and if there is a problem I should look at cutting back expenses. I understand and agree with that advice in most cases…

My case is the following, I am a newly admitted student at an MBA program. I am married with kids. My wife has decided to stay home with the kids.

As far as financing the program goes, I am sponsored by my employer who will be paying back 100% of the certified COA capped at 180k, 50% the day I return after graduation and 50% on my 1-year anniversary.

Where my challenge comes in is where I believe that with a conservative budget I will come up short about 25,000 after considering the funding I can get up to the COA and my personal savings.

I have already decided to look into appealing the COA to increase my available funding, but the amount is limited and not guaranteed that I will successfully increase the funding. I assume that if I can land an internship that nets more than 18k over the course of the summer and any potential income during my second year (on campus part-time work, internships, etc.) will offset the 25k funding gap, but assuming conservatively that none of that works out I was wondering if you have any advice for how/where I might be able to fill that gap. As a last resort I can roll my 401k over to an IRA and take a qualified withdrawal, but I would prefer to find alternative sources of funding.

I have thought a lot about this and unfortunately have found that there are limited options for a full-time MBA student with a big family like mine when COA is really designed around the single MBA student.

If you have thoughts or can direct me to areas I have missed I would really appreciate the advice.


The Issue

The big problem that Tim is facing is that a student loan, by definition, is a loan that is used to cover the expenses that make up the cost of attendance.  When you borrow beyond that amount, it has major implications for the lender.

Most notably, student loans are nearly impossible to discharge in a bankruptcy.  Other types of loans are significantly easier to discharge.  Because student debt is so difficult to discharge, there is less risk to the lender and they can theoretically offer lower interest rates to riskier borrowers.

This issue is why borrowers like Tim will likely find it impossible to find a student loan for funds beyond the cost of attendance.

Alternate Options

Ideally Tim is able to find summer employment to make up his budget shortfall.  If he is not able to do so, there are options beyond traditional student loans.

The best bet may be to take out a personal loan.  The interest rates on these loans are not as good as those on some student loans, but they do not care about the cost of attendance.  One thing to keep an eye out for with personal loans is the origination fees.  These have become less common in the student loan world, but the personal loan world often has origination fees.  However, if you look around you can find some lenders without any origination fee.

A more desperate option would be the credit card route to cover expenses.  Interest rates can be brutal and unforgiving, but if you can find a card with an ultra low introductory rate, it might get you through the initial shortfall that first year.

Bottom Line

Borrowing beyond the cost of attendance is often a bad idea, and the limited alternate options are part of the reason.  Even in circumstances like Tim’s, where borrowing beyond is necessary due to his large family, it is difficult ground to navigate.  However, if you look beyond the world of student loans, there are options available.