What to do with my leftover loan money

[usrael]

Just finished my first semester!
After paying for tuition+rent+food+fun I was left with roughly 5,000$ in loan money. Since the new set rate (pending Dem. decision) is 6.8% I believe that my best bet is to pay back the interest that has accrued from my unsub. Stafford loan and then make a small (4k) dent in the unsub. principal (T.H.E. allows to repay principal after taking care of interest).
Of course I can always invest the 5,000$ but I doubt I can top 6.8% return (after taxes..).
In my eyes paying off the unsub. principal kills two birds with one stone, since I am also lowering my future interest.
Any thoughts?

thanks guys,
and Happy Holidays!

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[jmk]

do you get money for summer? I didn't so I saved the "extra" and used it to have a fun summer... sure I'm $5000 more in debt but not having to work more than made up for it!

 

[Pinkertinkle]

The answer is obvious:

 

[emtji]

paying off the interest sounds reasonable. you'll have a job between 1st and 2nd year, so that should take care of summer expenses.

 

[lilnoelle]

Just finished my first semester!
After paying for tuition+rent+food+fun I was left with roughly 5,000$ in loan money. Since the new set rate (pending Dem. decision) is 6.8% I believe that my best bet is to pay back the interest that has accrued from my unsub. Stafford loan and then make a small (4k) dent in the unsub. principal (T.H.E. allows to repay principal after taking care of interest).
Of course I can always invest the 5,000$ but I doubt I can top 6.8% return (after taxes..).
In my eyes paying off the unsub. principal kills two birds with one stone, since I am also lowering my future interest.
Any thoughts?

thanks guys,
and Happy Holidays!

Thats a good idea. If it were me I would probably pay off a higher interest loan, my second mortgage (a 8.5% loan). Otherwise I would do what you are thinking of.

 

[Tired]

paying off the interest sounds reasonable. you'll have a job between 1st and 2nd year, so that should take care of summer expenses.

Things I've done with leftover loan money over the last 4 years:

1) Bought my wife's engagement ring
2) Went to Vegas for the first weekend of football
3) Went to Mardi Gras (New Orleans, not Rio)
4) Gambled more than I would have otherwise (this does not involve #2)
5) Bought books I didn't need, but wanted
6) Upgraded my cable service

I'm all for having fun with the leftover loan money. By the time you're an attending, you won't feel the difference between having spent that cash, and having paid down your existing loans. Yes, it's probably more sensible to pay on your accrued interest, but we live so poor during med school (at least I do) that it's wonderful to get something 'extravagant' for yourself and feel like a person again.

 

[Wizard of Oz]

It is admirable that you want to pay some of it back, but my view is that the school would not budget the amount that they did without good reason. I too have a surplus, but that cash is staying right where it is. FYI my account is hooked to an emigrant bank account (before that ING) at 5%. The difference in interest rates and the loan origination fee are not significant to me.

Unfortunately I have been in college for over twelve years, and I could have a surplus of twenty grand and still not be comfortable. My school's health insurance, for instance, sucks. Diagnostics and labs are very poorly covered, and if I somehow need unexpected emergency attention, I'm screwed. Likewise with unexpected car repairs/accidents. If you have an acute loss, you need money quickly regardless of whether or not you are going to be reimbursed.

There are also costs incurred by doing interviews during M4. There are special loan categories for those costs, but every time you borrow and then give back, there is a loan origination fee.

Of course it may be possible that you have a spouse who can support you completely without the loans and could cover the expenses/insurance heretofore mentioned, but I'd STILL keep the money (hey the reality is that you're probably going to be divorced someday anyway).

 

[ANCAdoc]

Keep the money and have fun or save it. There will be plenty of expenses down the road. Step 1 and 2 cost money, and step 2 is very expensive given the clinical skills portion of the exam (>$1K). By time you add Kaplan Q-bank (3-400) and other review materials, it gets even more expensive! Plus, you will buy doctor things later like a stethoscope, etc. Like Wizard of Oz said, interview costs are things to keep in mind as well.

 

[usrael]

Thanks for your advice everyone.
My school budgets pretty well so i was surprised that I had so much leftover.
I think part of the reason that i had a surplus was the fact that i paid 2 months rent up front before the loans were disbursed and had very few additional expenses.
I don't think that I will end up with 5k after every semester, but I am pretty confident that 2-3k can be put aside every 6 months. I see no point saving this current surplus in a safe online savings account- making 5% interest when my fat unsub. loans accrue 6.8%. (that's a loss)
Some of you recommend that I save the money. I am! I am paying off the interest and part of the principal and therefore lowering the amount of interest that accrues. Less principal=less interest. So if I end up repaying 4k (out of the 5k I have) it essentially knocks off 4k AND saves me 272$ in interest. I feel sick when I realize that in less than 6 months I have already accrued 500$ in interest.
Sure I kept the surplus fed and happy during the course of the year by keeping it in ING (I know, not the best rate) but now it's time to use it for the future.
And you know what, I'm satisfied with the ~200$ it made me during the semester. That should be enough for Vegas

 

[jdh71]

before I evolved the answer would have been obvious: cocaine and loose women

 

[Twitch]

Just curious isn't it possible not to take out the max amount from the amount allocated to you? I thought you could always take a portion of it out now and the rest later (as needed) during the financial aid year?

 

[usrael]

Just curious isn't it possible not to take out the max amount from the amount allocated to you? I thought you could always take a portion of it out now and the rest later (as needed) during the financial aid year?

i think you're right. my fin. aid office said I could borrow only what i needed.
I borrowed what I thought I needed (plus a bit extra- in case of emergency) and put it all in a savings acount. Every month I tranferred a certain amount to my checking account to pay for rent and food.

 

[Vox Animo]

put it in a money market account. You can get like 5% interests, your only losing about 1.8% a year, and you have it for emergencies

 

[t33sg1rl]

Put that cash aside, because at some point, you are going to need it. Think of it as residency application money. How much did you spend applying to med schools? Residency apps/travel/USMLE test prep is going to be a lot more. You may also be looking at a cross-country move. And let's not forget life's little emergencies-smashed cars, apartment robberies, engagement/wedding expenses (if you haven't already been sucked dry by those).

 

[usrael]

Put that cash aside, because at some point, you are going to need it. Think of it as residency application money. How much did you spend applying to med schools? Residency apps/travel/USMLE test prep is going to be a lot more. You may also be looking at a cross-country move. And let's not forget life's little emergencies-smashed cars, apartment robberies, engagement/wedding expenses (if you haven't already been sucked dry by those).

I respect your opinion, but my school increases loan options for 3rd and 4th years because they are aware of the extra expenses. I see no reason to lose hundreds of dollars in accrued interest just because I might need the money in the future.

 

[Wizard of Oz]

I respect your opinion, but my school increases loan options for 3rd and 4th years because they are aware of the extra expenses. I see no reason to lose hundreds of dollars in accrued interest just because I might need the money in the future.

I agree with t33sg1rl and Vox animo. By your reasoning, health and car insurance don't make any sense either. I'm paying hundreds in insurance now that is of no benefit to me whatsoever. I sleep MUCH better at night with a nest egg left over in case I need it. A few hundred in interest? Peanuts. If I were in my desired specialty right now as opposed to my previous career, I'd be looking at a five-fold income difference. I think that I can eat the cost. Look at it this way--I'm sure that you will work with many other colleagues in the future who shelled out a lot more hundreds than you on their education.

No I am afraid that med school is a gamble that I was willing to wager my life (and economic health) on. Give the the flipping piece of mind right now! I'm under enough stress, and I'd gladly accrue the interest in the meanwhile (not really "hundreds" if you take our advice BTW).

As for extra allowance M3/4, I want that extra cheddar too!

 

[The JockDoc]

Take advantage of the 6.8 or 8.5 percent interest - they're the lowest you'll ever see. If you run into health, car, life problems that eat into your savings, and you also find yourself spending on essential things such as applications/tests, it will be advantageous to have extra money left over.

If you don't have enough money, you might end up having to take out a significantly higher interest loan (credit card, perhaps), to cover necessary costs, which makes your past savings moot. You never know what can happen.

 

[Twitch]

Take advantage of the 6.8 or 8.5 percent interest - they're the lowest you'll ever see. If you run into health, car, life problems that eat into your savings, and you also find yourself spending on essential things such as applications/tests, it will be advantageous to have extra money left over.

If you don't have enough money, you might end up having to take out a significantly higher interest loan (credit card, perhaps), to cover necessary costs, which makes your past savings moot. You never know what can happen.

On the contrary, those are really high rates. 8.5%

For comparision, here are some random current rates:
Checking 2.27%
Savings 4.85%
Auto Loan 5.74%
Home Equity Line of Credit 6.99%

Hopefully the dems do us right next year and lower those student loan rates.

 

[The JockDoc]

On the contrary, those are really high rates. 8.5%

For comparision, here are some random current rates:
Checking 2.27%
Savings 4.85%
Auto Loan 5.74%
Home Equity Line of Credit 6.99%

Hopefully the dems do us right next year and lower those student loan rates.

I think you misunderstood my post. I'm agreeing with you in that the student loan rates are incredibly high. But you try to get an auto loan to pay off a medical bill or your residency fees, or your rent. Not gonna happen. And the line of credit only applies to the very small percentage of med students who even own their own property.

I'm not sure how the checking and savings interest rate figures into securing emergency money.

My point is that the cheapest general purpose loan that you can get as a medical student are the student loans that go at 6.8 and 8.5% interest. If there is another way to currently get money at a lower interest rate to pay off my daily expenses, please let me know because I want a piece of it.

 

[ANCAdoc]

If there is another way to currently get money at a lower interest rate to pay off my daily expenses, please let me know because I want a piece of it.

There is, join the Army. Two of my friends joined, and they have a 20 or 25K loan they can take out at a very, very low interest rate (I wanna remember <2%??).

One took out the full amt to furnish his new house and other things. The other guy is thinking about taking out the full amt and investing it, as he is pretty much assured a profit.

 

[frycek]

taking a long and not-so-exciting view - invest $4K in a roth IRA account in a stock index fund. compound interest is amazing, and it's the best possible way to grow money tax-free. just don't do this if there's a good chance you'll need the money in the future. it's a beautiful investment, but you get penalized if you take it out before age 60.

(i actually did this a couple months ago with my extra loan money. for real.)

 

[JohnnyOU]

Just finished my first semester!
After paying for tuition+rent+food+fun I was left with roughly 5,000$ in loan money. Since the new set rate (pending Dem. decision) is 6.8% I believe that my best bet is to pay back the interest that has accrued from my unsub. Stafford loan and then make a small (4k) dent in the unsub. principal (T.H.E. allows to repay principal after taking care of interest).
Of course I can always invest the 5,000$ but I doubt I can top 6.8% return (after taxes..).
In my eyes paying off the unsub. principal kills two birds with one stone, since I am also lowering my future interest.
Any thoughts?

thanks guys,
and Happy Holidays!

yea/// send it to me

 

[GoSprout24]

My only aside to note is that interest rates for student loans have been going up and up in the past few years. Recently, they reached an all time low, but that's changing now. For my first three years of med school, it was <5% or so (I think it was 1-ish, 3-ish, and then 4-ish), which is lower than the rate of inflation. But my guess, with the current administration (*cough, cough*) is that interest rates will continue to increase throughout your medical school career. So it might make more sense to take out as much as you can this year in loans and save it -- with the expectation that rates will continue to increase later, and then you won't need to borrow as much at the higher interest rates.

I only wish I had graduated last year instead of this year -- then I coulda gone my whole med school career with <5% interest rates! Alas.

A lot of people at my school use Graduate Leverage (http://www.graduateleverage.com/) to manage/consolidate our loans. I would check it out. They're a nonprofit organization started by these Harvard Business School guys that basically help you figure out the best way to manage your loans -- and help you consolidate with a group that will give you the best deal in the long run (note: it's NOT the national government, who we all automatically consolidate with if you don't change it). Check it out yourself.

Later gators.

 

[usrael]

taking a long and not-so-exciting view - invest $4K in a roth IRA account in a stock index fund. compound interest is amazing, and it's the best possible way to grow money tax-free. just don't do this if there's a good chance you'll need the money in the future. it's a beautiful investment, but you get penalized if you take it out before age 60.

(i actually did this a couple months ago with my extra loan money. for real.)

Thanks. Great idea. That was #2 on my list.

 

[falx]

Unless you have absolutely no emergency cushion (including parents who might help you out in a bind), I think your initial idea of paying down the loans is the most financially sound. The argument that "I'll make tons of money in the future, borrowing an extra 4 grand now doesn't matter" simply doesn't make sense. Every dollar you borrow now is equal to approximately $1.50 you will pay back in the future. So, every dollar you hold onto, even as insurance, materially makes you significantly poorer in the future. That's one less uninsured patient you can see, or one less charity to which you can donate.

Secondly, as some have alluded to here, I think it is likely that the incoming Democratic Congress will shift funds towards education, with the result being decreased interest rates. That is not definite, but seems reasonable.

Best of luck with your decision,
Falx

 

[emtji]

There is, join the Army. Two of my friends joined, and they have a 20 or 25K loan they can take out at a very, very low interest rate (I wanna remember <2%??).

One took out the full amt to furnish his new house and other things. The other guy is thinking about taking out the full amt and investing it, as he is pretty much assured a profit.

Sounds like a great deal, except for the whole joining the army part.

 

[Doctor Bagel]

I'm with the others in that I'd hold onto it just in case you need it. What you really don't have to have happen is to be put in a situation where you need something and don't have the money for it. It'd suck to accrue credit card debt for a root canal or car repair because you got rid of that extra loan money. IMO, they overbudget money to us to give us a cushion just in case bad stuff happens. Also, since they don't budget money for necessary future expenses like USMLE fees and the costs of applying for residency, it's good to hang on to the extra cash you pick up.

 

[usrael]

Thanks everyone.
I ended up paying back 4,000$ and keeping 1,000$ for an emergency.

good luck with all your school work!