Graduating residents and student loans

[OB1🤙]

The most important financial thing a graduating resident can do is go to whitecoatinvestor.com and read everything there. Absolutely indispensable information.

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[deleted171991]

The most important financial thing a graduating resident can do is go to whitecoatinvestor.com and read everything there. Absolutely indispensable information.

+1.

 

[dmk5n]

• • you have spent the last decade learning science and medicine. you are way behind in personal finance skills and the business of medicine skills
  • +2 with whitecoatinvestor.com
• read the posts "stupid doctor mistakes" - entertaining and informative.
• read "Financial Planning Handbook for Physicians" ISBN 0763745790 is another good resource
• avoid buying a home for a long as you can. transactional costs, taxes, fees, maintenence, time suckage, will drain you over the long run. they will tell you that its an investment =BS. it doesn't generate revenue....
• save as much as you can. saving = financial freedom.
• invest some time learning the business of medicine. peruse some books on the medical group management association website. http://www.mgma.com/store/books
• Lawrence Wolper Physician Practice Management is good resource (ISBN 0763748218).
  

 

[dhb]

An interesting question is would you rather have no student debt and a lower final salary (like in Europe) or high student debt but more earning potential (even if the gap is reducing...)?

 

[Noyac]

D

An interesting question is would you rather have no student debt and a lower final salary (like in Europe) or high student debt but more earning potential (even if the gap is reducing...)?

Depends on how long you plan to be there.

 

[QofQuimica]

Coming back to this question of the F*** You account, where do you guys keep your emergency fund money? Seems kind of lousy to leave $50,000 or $100,000 sitting in a savings account or even a money market where it's basically earning nothing.

 

[aneftp]

Don't count on congress doing anything to lessen your burden. You will make too much and therefore, will be carved out of the law if one were to materialize. Some of us remember the Clinton years. Student loans were a big topic then and Clinton secured a large portion of the student vote promising graduates a break on their loans. Well I never saw one. Made too much.
But as I see it, there two ways to attack the loans. One as mentioned by IlDestriero by way of Jet,is to pay them off asap. There's nothing wrong with this plan and once paid off yo can take that extra income and continue to invest it. Debt is an anchor but student loan debt is not nearly as detrimental as credit card debt or other forms of debt. You won't be penalized nearly as severely for student loans. The second approach which is my preferred is to consolidate the loans. If that interest rate is lower than the rate of return you can achieve with a moderately safe investment then pay the minimum on the loans and invest the additional monies at a greater interest rate. For example the market currently has good returns. Let's say its returning a conservative 8-12% for the year. Your loans are at 2-4%. You can do the math but you see the minimum advantage is 4% here. Why pay off your loans early without making anything on that money?

Now, another thing to consider is tax write offs. Student loans are not afforded this benefit. So, one thing I did was to pay off my loans with a HELOC (home equity line of credit) because I consolidated long before the market crash and my APR was higher than my HELOC. The HELOC is tax deductible and therefore, I paid mine off three years ago. Otherwise, I would have been paying them for the full 30 yrs.

Heloc is not tax deductible for 80% plus of people earning more than 150k a year living in a state with state income taxes and/or real estate property tax deductions because of the AMT

If you get hit with amt. You will not be able to deduct interest on NON home improvement. Aka if you use heloc to pay off student loans and get hit with amt. The deduction is disallowed.

Although I agree Heloc allows an option. Pay off student loans with heloc during housing boom. Than my buddy defaulted on Heloc his primary home and beach condo. Screwed the bank $600k. Debt free. Including the mortgage forgiveness act.

He took major advantage of the mortgage forgiveness act and only paid taxes on the $150k heloc forgiven and no taxes on 2 homes he short sold because of a life triggering event "divorce and job loss" as anesthesiologist. The group "laid him off"

 

[Direct Laryngoscopy]

I plan on throwing everything, including the kitchen sink to eradicate my 250K loans in 18-20 months. I will be also maximizing my 401K/IRA, renting and not purchasing a new car during this time (I lease and it's not that expensive). I kind of have a FU account so I wont be saving as much during this time. I hate owing (or the thought of it) and for me, not having Sallie Mae send me anymore love letters is much comfort long term, than actually making that big gaudy purchase (car, house, etc).

I would also stress the residents (and attendings who spend too wildly) to spend time and read White coat investor to get some perspective on how to manage the large income they will be taking in monthly. I know an anesthesiologist who graduated the end of June and made the big luxury lease north of 1200/month in August, but then had buyers (leasers?) remorse 2 months later. Don't be that person. Financial freedom from bad debt (education loans are good to a point IMO, bad if they linger to long) is a great way to spend your hard earn money on hobbies, trips and all the other things you dream about while on call, stuck in a trauma 3 in the morning.

 

[sazerac]

Coming back to this question of the F*** You account, where do you guys keep your emergency fund money? Seems kind of lousy to leave $50,000 or $100,000 sitting in a savings account or even a money market where it's basically earning nothing.

I keep the emergency money and large immediate expenses (like my remaining two years of medical school) in a money market fund and an online savings account. Combined, they are about a quarter of a million dollars. Both accounts pay less than 1% APR.

Worrying about the interest the emergency fund generates is missing the point of owning such a fund in the first place. It isn't supposed to generate income; it is supposed to be a buffer in the event you have an unexpected cost (engine falls out of car) or unexpected loss of income (unemployed for three months while looking for a job). Owning an emergency fund means you won't make short sighted panic financial decisions. You can comfortably spend three months looking for the ideal job, for instance, without tapping your riskier long term investments at a temporary market crash, or accepting a bad job now because you need to make the mortgage payment.

Yeah, in the past my emergency fund was throwing off all kinds of extra income (in the 1980s it even bought me my senior year of undergrad!), but that was all buckshee. Emergency funds today don't pay very much, and they still serve their primary purpose just fine.

 

[QofQuimica]

True. I have mine in an online savings account too. Part of it was in a short term CD for a while, but now the CDs don't pay any more than the savings account does, so I moved all the money to the savings account once the CD matured. Oh well, I'd still rather have the savings account with lousy interest than a load of debt. :-d

 

[projectpat]

MS3 here.. I'm not at the level or have the knowledge most of you guys have, but I'm trying to educate myself because my ever-growing student loans total terrifies me. I want to pay off my debt as fast as possible

Most advice here centralizes around the theme of being smart, conservative and prepared. One's income would go towards rent (apartment), paying off student loans, maxing out 401K and IRA, establishing a FU fund, and smart investing (easier said than done?).

My question is.. does the graduating resident make enough income to successfully put money into all these things?

 

[fakin' the funk]

For those of you who have been down this road before, what advice do you have for graduating anesthesiology residents going into repayment on their student loans? Has anyone had experience consolidating and refinancing with some of the newer groups out there? Or do most people continue with their IBR or PAYE program? Your insight would be much appreciated.

The answer is only a mathematical one. The White Coat Investor has some good posts on this topic; seek them out.

But the answer to your question (assuming you are going to be an anesthesiologist making >$200000/yr) depends on the interest rate of your loans.

If your interest rate is high, e.g. > 7-8%, your mathematically wisest choice is to pay it off ASAP. There is no investment out there that can GUARANTEE a 7-8% return. Your loan is essentially a 7-8% guaranteed NEGATIVE investment. Even a stock market index fund may average only 8% over the long run, but still with considerable risk and volatility.

If it's lower, e.g. 4-5%, most would probably pay off some of the loan but also invest whatever money is left over in a taxable investment account.

If it's even lower, e.g. 2-3%, most people would probably only pay the minimum since whatever money you're throwing at the loan would do better (over the long run) in stock/bonds etc.

Good luck.

 

[deleted162650]

I just consolidated my med school debt with Darien Rowayton Bank. They have multple options for both fixed v. variable rates and payoff terms ranging from 5-20 years with no pre-payment penalities. I have a sizable amount of student loan debt and they were able to cut my MONTHLY payment by $1300 from what Sallie Mae had me at.

 

[fakin' the funk]

Coming back to this question of the F*** You account, where do you guys keep your emergency fund money? Seems kind of lousy to leave $50,000 or $100,000 sitting in a savings account or even a money market where it's basically earning nothing.

If it's your emergency fund...then by definition it's not a huge amount to you, and you have to be able to get it right away. Seems like wanting to lock it up and risk it in investing runs counter to both principles.

 

[QofQuimica]

If it's your emergency fund...then by definition it's not a huge amount to you, and you have to be able to get it right away. Seems like wanting to lock it up and risk it in investing runs counter to both principles.

I don't think there's anything that will ever make that kind of money feel like "not a huge amount" to me. But you're correct that there doesn't seem to be much in the way of better options for keeping it totally safe and liquid. At least not any that I've found.

 

[Impromptu]

I just refinanced with Sofi.com. Dropped my rate from 6.5% to 3.1% with a 10 year variable (going to pay it off in 2-3 years before interest rates rise too much). This will save me over $6000/year in interest. They have been a very good company to refinance with so far, especially their help line. They are small enough that multiple calls to their help number went to the same guy, who was extremely helpful. I have also heard good things about DRB, but they have been very slow to respond, so I went with Sofi.

I don't want to advertise for them, but if any of you were already planning on refinancing, you can private message me for a referral link that will give you $100 after you refinance. With large loans like ours, $100 shouldn't be the deciding factor for anyone to refinance. But, if you were already going to do it, why not get $100 out of the deal?

 

[k12balla]

Nice. How often do they change the variable rate? I refinanced 50k with drb from 6.8 to 4.5% with auto debit, 10 year fixed, but I have another 50k at 5%. Do you think it would be worthwhile to get apply for the variable rate with so fi? I plan to pay off in 5 years.

 

[Impromptu]

I think that Sofi and DRB offer similar products at similar interest rates, which are better than most other offerings out there. I don't think one will be extensively better than the other. If it were me, I would pay slightly more for the convenience of having all my loans in one place.

Sofi uses the 1 month libor average, and I think DRB uses the 3 month libor average. I think the monthly payments can change month to month for both of them.

Your example
Current $50,000X0.05=$2500/year in interest
Variable $50,000X0.031+$1556/year in interest
Refinancing will save you nearly $1000/year for the variable rate.

Sofi has a maximum variable rate of 8.99% (We'll say 9% for ease of math)
$50,000X0.09=$4500/year in interest. $2000/year more.

I think you will be safe and make a good decision if you plan on paying off the variable loan within about 2 years. Beyond that no one knows. People have been predicting rising interest rates for many years. In 2011 it was a sure thing they were going to rise in 2012. It didn't happen then. But low interest rates cannot last forever. And they can jump rapidly over the course of several years. So prudence would dictate looking at how aggressive you are going to be in paying off the debts. I am moderately aggressive, but not Dave Ramsey aggressive, and I still refinanced.

If you are a resident, get the lowest rate you can, but I am not sure being super aggressive is the best idea. I was willing to let some interest accrue rather than pay it off more aggressively at the time. That decision ended up costing me about 1/2 month attending pay in interest. I think it was worth it to have a small financial cushion and occasionally go on modest vacations.