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Good morning Fools,
Just thought I'd share a few of the wonderful things I've recently run across regarding Federal financing of graduate studies.

1. Deferment: Yep, we all know that you can defer loans while you're in school at least half-time. If, like me, you don't like debt, you may be hesitant to defer undergraduate loans. You want to pay them off as quickly as possible. Here's the ringer: You can defer Subsidized Stafford Loans, and the federal gov't picks up the interest. You are allowed to continue paying on the principal. You don't have to be a math whiz to figure out that if every dollar goes to principal, you'll erase those undergrad loans faster.

2. Refinancing debt: Ah, those undergrad years. Weren't they great? An all that free money, too! Thanks, Mastercard. Ok, so I was a certifiable dumbass in college. I needed it, I charged it. I didn't need it, I charged it. Now I am carrying substantial cc debt. If you can borrow more than you need for tuition and living expenses, you can use the extra to refinance at considerably lower rates. Pay off your cc debt with 0% loans, and send those cc payments to the loan provider. Again, every cent goes to principal.

3. Make some money: Several types of loans, including the Subsidized Stafford and the Perkins Loan, carry no interest while you're in school. Often, the student will reject these loans based on the fact that you don't need them to meet expenses. Well guess what...just like the employer match in your 401k, this is free money. Take the loan, and put it in an interest bearing account for the duration of your education. When the loans enter repayment, simply pay them back, and keep the interest. Free money! You scoff? The yearly maximum Perkins Loan is $5000.00. Going to Grad School for a doctorate? 5 more years?
Got a 5-year CD paying 4%? A 4-year paying 3%? Etc.? Good. Take every cent, and build a CD ladder. The 5 year will pay you $850. The 4 year $464. Add in a 3 year at 2%? Another $202. Put the rest in an ING account a 2%. Make another two hundred or so over the two remaining years. You made $1700 bucks not doing anything. Add that to the 25K you borrowed, and put it in a short-term money market until your grace period is up. Pay back the loans, and pocket two grand.

I know what you're saying: "But Jon, don't I have to borrow more freakin' money to get through grad school?"

Yep, but if you're going anyway, you might as well make some dough. Add up saved cc interest, saved undergrad loan interest, and free money, and you've done yourself a hell of a favor. And your future earnings potential has been exponentially increased.

God I love compounding.

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