Balancing loans, savings, and investments as a med student

[Transmogrifier]

I'll be starting medical school this fall. I project I'll have about $230K in debit with $40K in GradPlus loans by the time I'm done.

I'm wondering how much I should use of my savings and investments to reduce the amount of loans I take out.

Here's what I've got:
401k/Roth IRA (all to be rolled over into Roth after I quit my job this summer): $7500

Savings: $6000

My investment accounts are way down in value right now so I wouldn't be too excited about withdrawing from them at this point.

I want to keep some amount of emergency savings, but I'm not sure how much. I'm single with no debts at all and I own a car.

I think I'd feel safer having some money saved and a little extra student debt rather than no investments and a little less student debt. I could hope my retirement accounts would outperform the 8.5% GradPlus interest rate but who knows how certain that is. It would certainly seem to make sense to use some savings to reduce the amount of GradPlus I take, but I'd like to keep some on hand ($2000? $4000? $X?).

Any advice and personal experience would be appreciated.

I've searched around for relevant threads but haven't found quite what I'm looking for. Steer me in the right direction if I've missed some good information that's already been posted.

I also have access to professional advice, but I wanted to get the perspective of those who have gone through this specific situation.

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[dragonfly99]

The 6000 is chump change, compared with what you are borrowing to go to school. So is the 7.5k in the retirement account, for that matter. The $ that you have in the Roth you already paid taxes on...you might want to leave that alone, just let it sit there while you are in med school + residency. The 6k, I would just use to help with living expenses your first year of school, so maybe you can afford to take out less loan money. I've never been quite in your situation, since even though I had to borrow all my tuition money, I always knew I could turn to my parents if I needed a few hundred dollars (or even a couple thousand) for living expenses for the year. It kind of doesn't matter what you do with that 6k since it is so little money. I think I had about 10k saved up from my prior career before med school, but that was all gone within a year (living expenses)...I think I kept untouched some old bank account my parents started for me when I was a kid, that had about $1500 in it, and I just let it sit there for emergencies, etc.

What you do to try to minimize unnecessary expenses while in school will be more important than what you do with that 6k. Don't get into credit card debt. Don't live in an apartment that is not for a student's budget. Don't buy a new car. Don't go out to eat too often or in too expensive restaurants. You get the picture.

 

[tourniquet1963]

i'm in a similar situation. I have about $35,000 saved up and will be starting med school this fall. i wasnt sure what to do with that money and if i should apply it towards my schooling. i plan to use some of it for travels this summer, and my car loan (since i will need to drive to school). i guess the rest will be for emergencies.

 

[dragonfly99]

35k is a lot more money.
I'm actually kind of confused about why someone with 35k in savings would even have a car loan...I'd think it would be better to just pay for the car up front, vs. paying interest.

With 35k I would definitely plan to borrow less money your first year. The 35k should be enough to pay for your living expenses and books and supplies, etc. so that you only have to borrow tuition the first year. That is what I would do, anyway.

 

[tourniquet1963]

well im going to be leasing.. not financing.. sorry if that was confusing.

my school tuition is about 40,000/year, with all the fees about 50,000. i signed up for a loan of 60,000/year.. which i could always change if need be.

according to my school's COA with parent is 63, 000 and without is 72,000.

i dont know if i will be living at home or not, so it's still up in the air.

do you think i should just take out 50,000 in loans and if other expenses arise, use my savings? -- probably makes make sense now that i think about it.

 

[dragonfly99]

Yes, absolutely take out less loans. Remember, for each $ you borrow, your payback is going to be a lot more than 1$...maybe 2-3$. So if you borrow 10k less, you may end up paying back 20-30k less, especially if you borrow at 6.8% or higher.

Personally, I think car leases are a big ripoff. You'd do better buying a used car for 5-6k and just driving that throughout med school and residency.

 

[Transmogrifier]

It seems it would pretty much always make sense to take out as little GradPlus as possible, but it would perhaps be advantageous to take out unsub Stafford since the interest isn't capitalized until after medical school. Correct? That is to say, I might take out stafford loans even if I could afford not to?

 

[GeraldMonroe]

The reason you have to take GradPlus at all is because you've hit the Stafford loan yearly cap of about 40k/year. (or you might have hit the 240k lifetime cap, but that's rare)

So no, you can't take unsub Staffords instead.

As for the OP : keep the 6k. You're going to quickly figure out that med school costs more than you think, and it's nice to have a buffer that you can draw on if you need it.

 

[Transmogrifier]

The reason you have to take GradPlus at all is because you've hit the Stafford loan yearly cap of about 40k/year. (or you might have hit the 240k lifetime cap, but that's rare)

So no, you can't take unsub Staffords instead.

As for the OP : keep the 6k. You're going to quickly figure out that med school costs more than you think, and it's nice to have a buffer that you can draw on if you need it.

Ehh the question wasn't stafford instead of gradplus. Here's a clearer hypothetical situation:

I have taken out max stafford loans. I need $5,000 to cover my remaining expenses. I happen to have $10,000 sitting around. I use $5,000 of the 10 to eliminate the need to take GradPlus loans, but I do not go further than that as it seems to make sense to take out the Stafford loan even though I have more cash.

 

[GeraldMonroe]

Ehh the question wasn't stafford instead of gradplus. Here's a clearer hypothetical situation:

I have taken out max stafford loans. I need $5,000 to cover my remaining expenses. I happen to have $10,000 sitting around. I use $5,000 of the 10 to eliminate the need to take GradPlus loans, but I do not go further than that as it seems to make sense to take out the Stafford loan even though I have more cash.

That's an acceptable choice. 8.5% interest + origination fees is a pretty expensive loan. Only thing to keep in mind is that residency interviews and relocation can cost 10k or more, and the private loans for that have high interest rates. Also, during med school, an expense might come up to where you wish you had kept all 10k in the bank. If I were in your situation, I'd hang on to 5-10k, leaving the money in high interest savings accounts, and I would take the max in student loans unless I had a lot more of my own money to contribute.

As for tax-deferred retirement accounts (401k, Roth, and similar) : don't ever touch those unless it's a true emergency. You'll never get those tax breaks again.

 

[Transmogrifier]

That's an acceptable choice. 8.5% interest + origination fees is a pretty expensive loan. Only thing to keep in mind is that residency interviews and relocation can cost 10k or more, and the private loans for that have high interest rates. Also, during med school, an expense might come up to where you wish you had kept all 10k in the bank.

Oh I wasn't aware that costs for residency interviewing weren't part of the COA. That certainly changes things.

 

[GeraldMonroe]

Oh I wasn't aware that costs for residency interviewing weren't part of the COA. That certainly changes things.

Feds won't allow it. The school has to file a justification somewhere for each item on the CoA. However, there's a lot of leeway and so sometimes a school will be in a cheaper area yet somehow have a higher living allowance budget.

 

[Transmogrifier]

Feds won't allow it. The school has to file a justification somewhere for each item on the CoA. However, there's a lot of leeway and so sometimes a school will be in a cheaper area yet somehow have a higher living allowance budget.

Between keeping an emergency fund and having some money for applying for residency I think I'll keep all of that savings nicely tucked away and my investments untouched. Perhaps I'll do a little CD ladder with some of the savings and keep at least $2000 liquid.

 

[dragonfly99]

It doesn't cost 10k, or even 5k, to go on residency interviews unless you are flying all over the country, and applying to a picky specialty, and/or need to apply separately to prelim/intern years as well as an advanced position (like you do in some specialties like radiology or dermatology). I only had to fly to a couple of places and I'm sure I spent 2k or less total on residency interviews. You can do what you want, though...I personally wouldn't keep 10k in the bank while I took out a bunch of loans, but you definitely want a grand or two kept back for emergencies, etc.

 

[Transmogrifier]

It doesn't cost 10k, or even 5k, to go on residency interviews unless you are flying all over the country, and applying to a picky specialty, and/or need to apply separately to prelim/intern years as well as an advanced position (like you do in some specialties like radiology or dermatology). I only had to fly to a couple of places and I'm sure I spent 2k or less total on residency interviews. You can do what you want, though...I personally wouldn't keep 10k in the bank while I took out a bunch of loans, but you definitely want a grand or two kept back for emergencies, etc.

The 10 grand was hypothetical for discussing whether to use it or take out Stafford loans. I'm the OP and I'll still have only 6K =]. If I say 2-3K for residency plus another 2K for emergencies that leaves me with not very much spent on living expenses to reduce GradPlus loans.

 

[nogolfinsnow]

If you can, I would definitely try to keep at least a few thousand in an emergency savings account. Don't touch it unless you really need to, but my feeling is people making a budget for the 1st time tend to underestimate what they truly spend. As well, it's not that uncommon to get hit with a big car repair bill, or an extra $200 to the dentist for some cavities and it's better if you can pay those off with cash vs. credit card debt. As well, as was eluded to above, if you know you're likely going to be crossing the country for your residency interviews then you'll want some money put away if possible.

 

[Acherona]

8.5% interest rate really sucks. I think it's a crime this is the rate the federal government is offering to students. I would avoid as much as possible taking out a loan with such a bad rate. You just run a treadmill trying to keep up with the interest. I would use my savings first, and then if I run out of money I can always apply for the loan at that time. Also, keep in mind that gradplus is not the only option. My first year I took out a private med loan which turned out to be a much better loan. It has a variable interest rate but has been at 3.25% for a while and I have a 3yr grace period before the interest capitalizes.

 

[NewKidin2block]

I'll be starting medical school this fall. I project I'll have about $230K in debit with $40K in GradPlus loans by the time I'm done.

I'm wondering how much I should use of my savings and investments to reduce the amount of loans I take out.

Here's what I've got:
401k/Roth IRA (all to be rolled over into Roth after I quit my job this summer): $7500

Savings: $6000

My investment accounts are way down in value right now so I wouldn't be too excited about withdrawing from them at this point.

I want to keep some amount of emergency savings, but I'm not sure how much. I'm single with no debts at all and I own a car.

I think I'd feel safer having some money saved and a little extra student debt rather than no investments and a little less student debt. I could hope my retirement accounts would outperform the 8.5% GradPlus interest rate but who knows how certain that is. It would certainly seem to make sense to use some savings to reduce the amount of GradPlus I take, but I'd like to keep some on hand ($2000? $4000? $X?).

Any advice and personal experience would be appreciated.

I've searched around for relevant threads but haven't found quite what I'm looking for. Steer me in the right direction if I've missed some good information that's already been posted.

I also have access to professional advice, but I wanted to get the perspective of those who have gone through this specific situation.

Definitely keep the 6k, the money come in handy in case something happened during med school and residency.

It's impossible to obtain student loan and private loan if you need to take a semester/year off.

 

[NewKidin2block]

did you need a co-signor for the private loan? or you simply have a great credit score?

My first year I took out a private med loan which turned out to be a much better loan. It has a variable interest rate but has been at 3.25% for a while and I have a 3yr grace period before the interest capitalizes.