Goodbye to my student debt

[excalibur]

It is gone!!!!!!!

Last month I made a large payment and kissed it goodbye. It feels good!!!!

I want to thank the likes of Jet, BladeMDA, Dr. Doze, pgg, and all others for their financial advice on this site.

My loans were not nearly as high as some of the stuff I have been reading on new grads, but it needed addressing. It was under 100K and I was able to pay it off in 2 yrs and 5 months. This was while I contributed to a retiremnt plan at work, contributed generously to a 529 for my son, made a small donation to a taxable FU account, and lived very comfortably with vacations and nice purchases.

Again thanks to the folks here and to whitecoatinvestor for educating me in financial strategy, because I will admit that when I graduated residency, I was a dolt in this regard, and now I feel that my knowledge in this area is sound. I read articles and watch shows on debt repayment, and I can predict what advice is coming and I can follow along very easily with the terminology.

When I graduated residency, I just knew I owed an amount and it needed to get paid. I wasn't too savvy on any of the following: how aggressively I should get on paying it back, order of debt I should pay back, life insurance, disability insurance, 401K's, 529's, taxable accounts, mutual funds, investment strategies, and probalbly more that I am forgetting.

Thnaks to the guys here and to whitecoatinvestor I feel I have a come a long way.

Thanks, everyone!

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[Spikebd]

Congratulations! Im a first year med student envious of your financial position, haha. I hope the regular posters keep posting here during my time in med school and residency. The anesthesia forum is the best.

 

[ruralsurg4now]

It is gone!!!!!!!

Last month I made a large payment and kissed it goodbye. It feels good!!!!

I want to thank the likes of Jet, BladeMDA, Dr. Doze, pgg, and all others for their financial advice on this site.

My loans were not nearly as high as some of the stuff I have been reading on new grads, but it needed addressing. It was under 100K and I was able to pay it off in 2 yrs and 5 months. This was while I contributed to a retiremnt plan at work, contributed generously to a 529 for my son, made a small donation to a taxable FU account, and lived very comfortably with vacations and nice purchases.

Again thanks to the folks here and to whitecoatinvestor for educating me in financial strategy, because I will admit that when I graduated residency, I was a dolt in this regard, and now I feel that my knowledge in this area is sound. I read articles and watch shows on debt repayment, and I can predict what advice is coming and I can follow along very easily with the terminology.

When I graduated residency, I just knew I owed an amount and it needed to get paid. I wasn't too savvy on any of the following: how aggressively I should get on paying it back, order of debt I should pay back, life insurance, disability insurance, 401K's, 529's, taxable accounts, mutual funds, investment strategies, and probalbly more that I am forgetting.

Thnaks to the guys here and to whitecoatinvestor I feel I have a come a long way.

Thanks, everyone!

Are you able to briefly summarize the advice? I'm relatively new, so I never saw all the financial advice, but I'm curious. All I've been doing is making slightly-larger-than-required payments monthly on my loans, which has gradually eaten into the principle. I was told by my parents that it's not really a wise choice to try to knock out your student loans first because they're the lowest interest loans, in general, that most people have. (In other words, rather than write out a $100,000 check to eliminate your student loans, instead put that towards purchasing a house, which will have a higher interest rate.)

 

[pgg]

That's awesome to hear. Congratulations!



ruralsurg4now, your parents' advice was probably better a few years ago in the mid-2000s when it was common for student loans to be locked in at 2-3% but mortgages were still 6-7%. Now we've got low mortgage rates (creeping up but still around 4% or so) while student loans are quite a bit higher. Additionally, high earners like physicians can deduct mortgage interest but not student loan interest from their taxes so the effective rate on a mortgage is about 1/3 lower than face value. Coupled with a general expectation that investment income doesn't seem likely to average 8-10%+/year for the forseeable future (endlessly debatable but I think that's accurate), many people are choosing to very aggressively pay off high interest, non-deductable student loans.

There's the psychological benefit of retiring debt too (see the OP!) and the psychological risk of volatile investments. There WILL be years when investments will lose value, and no one can predict when. I think it'd feel lousy to put a pile of money into savings and see it drop 8% while the loans you didn't pay off grew by 7%.

For relatively new grads who don't have loans consolidated at 2.5%, the risk/benefit of letting student loans compound in the background with minimum payments while trying to beat that rate with investing probably isn't so great.


Regardless, the big picture is living beneath your means, and the % of income that goes to savings OR debt. In the long run it makes a small difference if you choose debt repayment over saving, or saving over debt repayment. It makes a big difference if you choose high-rollin' instead of debt repayment OR saving.

 

[ruralsurg4now]

That's awesome to hear. Congratulations!



ruralsurg4now, your parents' advice was probably better a few years ago in the mid-2000s when it was common for student loans to be locked in at 2-3% but mortgages were still 6-7%. Now we've got low mortgage rates (creeping up but still around 4% or so) while student loans are quite a bit higher. Additionally, high earners like physicians can deduct mortgage interest but not student loan interest from their taxes so the effective rate on a mortgage is about 1/3 lower than face value. Coupled with a general expectation that investment income doesn't seem likely to average 8-10%+/year for the forseeable future (endlessly debatable but I think that's accurate), many people are choosing to very aggressively pay off high interest, non-deductable student loans.

There's the psychological benefit of retiring debt too (see the OP!) and the psychological risk of volatile investments. There WILL be years when investments will lose value, and no one can predict when. I think it'd feel lousy to put a pile of money into savings and see it drop 8% while the loans you didn't pay off grew by 7%.

For relatively new grads who don't have loans consolidated at 2.5%, the risk/benefit of letting student loans compound in the background with minimum payments while trying to beat that rate with investing probably isn't so great.


Regardless, the big picture is living beneath your means, and the % of income that goes to savings OR debt. In the long run it makes a small difference if you choose debt repayment over saving, or saving over debt repayment. It makes a big difference if you choose high-rollin' instead of debt repayment OR saving.

I agree with all of this and it's all solid advice. What do you guys do with your money? Because I live substantially below my earnings -- basically, just rent for my apartment, I'm a loser -- and I don't want to buy a house because I'm not planning on staying in this rural area long. I've just been throwing money into the bank, but that's got a very low interest rate (less than 1%). Is it just stocks? Because I'm not knowledgable about those and also I'm thinking the market is due to collapse as soon as the government withdraws their Quantitative Easing (i.e., as soon as Obama finishes his term in office). Should I just hire a financial planner? (I'm against that because I'm cheap, so I hate the idea of paying a guy to just watch my money with no guarantee of success.)

I guess theoretically I could just start paying huge chunks of my student loans back, but is that better? I'd be able to repay it all (<$100K) this year if I wanted, but then it's a question of finishing out this job with a butt-load of money and some loans or a moderate amount of money with no loans.

 

[IlDestriero]

Your expenses as a single guy with no family or home shouldn't be high, so if I were you, I'd buy a few toys and kill the debt as fast as possible after maxing out retirement options. I can't imagine you'd need more than 50k in an emergency fund. Even if you find a better job and move in a year or 2 you don't need a big down payment right away because you will probably rent for a year while you check the place out.

 

[Spinach Dip]

GGWP sir!

 

[pjl]

rural guy:
Your loans will always be there eating at your monthly net income. Since you are forgoing investing in anything and are getting crap for your returns, you may as well pay off a large chunk of them. Looking for a different job with gobs of money in your pocket but still making payments on loans vs looking for a new job with some money but almost no monthly expenses are the same, but you are more likely to blow some of that savings and live larger than necessary if you see a big number in your account. Or at least I would be.

Excalibur: Nice work. I chose to not pay mine off after getting them down to just the <3.4% ones, and invest heavily instead. But it does feel good to have the cash available to cover them.

 

[fakin' the funk]

Are you able to briefly summarize the advice? I'm relatively new, so I never saw all the financial advice, but I'm curious. All I've been doing is making slightly-larger-than-required payments monthly on my loans, which has gradually eaten into the principle. I was told by my parents that it's not really a wise choice to try to knock out your student loans first because they're the lowest interest loans, in general, that most people have. (In other words, rather than write out a $100,000 check to eliminate your student loans, instead put that towards purchasing a house, which will have a higher interest rate.)

Every minute you spend on the site below is worth its weight in gold. Or somesuch mixed metaphor. It's a good site.

http://whitecoatinvestor.com/new-to-the-blog-start-here/

 

[deleted126335]

Congrats. I still remember paying off my last student loan 20 years ago, then car loan, then mortgage etc.

 

[pgg]

What do you guys do with your money? Because I live substantially below my earnings -- basically, just rent for my apartment, I'm a loser -- and I don't want to buy a house because I'm not planning on staying in this rural area long. I've just been throwing money into the bank, but that's got a very low interest rate (less than 1%). Is it just stocks? Because I'm not knowledgable about those and also I'm thinking the market is due to collapse as soon as the government withdraws their Quantitative Easing (i.e., as soon as Obama finishes his term in office). Should I just hire a financial planner? (I'm against that because I'm cheap, so I hate the idea of paying a guy to just watch my money with no guarantee of success.)

http://www.bogleheads.org/wiki/Getting_Started

dr doze pointed me there a couple years ago, I didn't know what I didn't know, I still don't know as much as I like, but I think I have a good plan now. That's where to start.

 

[x10694]

Congrats! I am just getting started on mine hopefully will be done before residency ends.

 

[ruralsurg4now]

Cool, thanks, everyone! I'm going to read those links that you guys provided. I guess I'll have to bang out that $100,000 check, too, lol.

The good/bad thing is that I already live waaaaay below my means (bad because that's probably the biggest error I think people are making and I'm already not doing it). Like, I think I save something like 80% of my income and my car is almost 20 years old. I basically maxed out a Roth IRA every year I could in residency, but my IRAs are just straight interest-rate based, they're not related to stocks, so they're not that lucrative. It's basically better than interest in any savings or checking account, but it's not like they'd double in value over 30 years or anything.

 

[excalibur]

Well my student loans were at 5.5%, and I paid them off after paying off credit card debt and my wife's student debt. All that is left is my cars (1.5 yrs left on the loans and it's 2.99%), and the mortgage on the house. I also have an IRA that I saw get obliterated in 2008 with the crash. I am happy to pay off my debt first, and it makes me feel great and indepedent. Could I have made more by investing?? Maybe, but that's a big maybe. Another crash, and I would feel like an idiot. Much easier to endure a crash when I don't have massive debt to repay

 

[CambieMD]

Congrats on paying off your student loans excalibur. I think that a huge part of being happy involves not getting caught up in the consumerism of our present society. My wife and I live way below our means. My only debt in my mortgage. I buy all of my vehicles used and avoid car payments. If it is at all possible, pay the quarterly interest off while you are in residency. Compound interest is a killer.

 

[BLADEMDA]

Congrads. It took me 4 years after Residency to pay off my student loan debt. You did it in 2.5 years.

 

[Postictal Raiden]

Congrads. It took me 4 years after Residency to pay off my student loan debt. You did it in 2.5 years.

How much debt did you have? Assuming you graduated sometime in the 1990's, it was less than 100K, less than 1/4 of what I will have in 4 years.

 

[excalibur]

Congrats on paying off your student loans excalibur. I think that a huge part of being happy involves not getting caught up in the consumerism of our present society. My wife and I live way below our means. My only debt in my mortgage. I buy all of my vehicles used and avoid car payments. If it is at all possible, pay the quarterly interest off while you are in residency. Compound interest is a killer.

Thanks, Cambie. Yep, I made larger monthly payments for over a year, and when I finally saved enough on the side to pay the student loan in one payment, I definitely had reservations wondering if it was the best financial move. My mind just thought if I invest that big chunk of cash, how much could I make in a year's time. This was especially hard with how the market has done over the last year with ridiculous returns. I recalled though 2008 when the market was ghastly and sucked savings dry. I felt investing was not a guarantee, but paying off the loan was a guarantee. Also, considering I had been planning this financial move for over a year and a half, I thought I should just stick with the plan...which is still a smart plan. From the ultimate financial expert's point of view, could I have made more with a different strategy? Maybe. But I for sure sleep more soundly at night knowing that it's gone.

To the poster who commented saying their parents recommended holding off on paying student loans because the rates were so low...

Mine were at 5.5%. I wouldn't really consider that low, and I know that med school graduates NOW are looking at rates between 7-9%. These rates are still lower than credit card debt, and certainly credit card debt should get paid first, but I just can't agree that these are low rates. In fact, out of my auto loan, the mortgage, and student debt, the rates on the student debt were the highest! So just imagine what the rates would be like for new grads

 

[Laryngophed]

Congrats on kissing your education debt goodbye.

 

[BLADEMDA]

How much debt did you have? Assuming you graduated sometime in the 1990's, it was less than 100K, less than 1/4 of what I will have in 4 years.

Do you have any idea what salaries were like in the mid 1990s? Dirt. I didn't even earn 6 figures year 1. The job market was so poor that it took me 3 years to get to decent level pay. That's why it took me 4 years. Once I started earning what an AMC pays today I had my debt paid off quickly.

 

[Postictal Raiden]

Do you have any idea what salaries were like in the mid 1990s? Dirt. I didn't even earn 6 figures year 1. The job market was so poor that it took me 3 years to get to decent level pay. That's why it took me 4 years. Once I started earning what an AMC pays today I had my debt paid off quickly.

When I made my assumption I was depending on some information I found regarding salaries in mid 1990's in this study http://www.turner-white.com/pdf/hp_jan00_phycomp1998.pdf The numbers were provided by MGMA. In 1998, the median compensation for anesthesia was 250k (~350k in 2013 money).

 

[IlDestriero]

How much debt did you have? Assuming you graduated sometime in the 1990's, it was less than 100K, less than 1/4 of what I will have in 4 years.

I'm still amazed at what has happened to tuition over the last 20 years. My med school apartment mate graduated with ~$160k of debt and he was the highest in the class. Many people had zero. 10 or so years before that, my brother went to a top 10 law school for under $30k, though he lived rent free.
The students today are really starting out behind the 8 ball. Combine that with where medicine is headed in the next decade and it's a bit of a gamble. Betting that a 1 or 2 percenter will be granted loan forgiveness by the masses is a bit of a gamble as well. As soon as forgiveness hits the radar as significant expense, they'll want to control it.

 

[Laryngophed]

I'm still amazed at what has happened to tuition over the last 20 years. My med school apartment mate graduated with ~$160k of debt and he was the highest in the class. Many people had zero. 10 or so years before that, my brother went to a top 10 law school for under $30k, though he lived rent free.
The students today are really starting out behind the 8 ball. Combine that with where medicine is headed in the next decade and it's a bit of a gamble. Betting that a 1 or 2 percenter will be granted loan forgiveness by the masses is a bit of a gamble as well. As soon as forgiveness hits the radar as significant expense, they'll want to control it.

Indeed they will, however, an attorney friend of mine says that there was a law slipped into the books that said if you've started the repayment process on IBR, and you are on the track for PSLF, you're grandfathered in to that point. I'm concerned because there is no contract (other than your IBR paperwork), but I believe that includes info about your employer's tax status, which may be the out. All of that aside, I think tuition has skyrocketed with declining support from states for state-subsidized schools, and guaranteed access to funds via Uncle Sam.