Finances question

[Doctorstudent555]

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School finances question: One is ~$50k and one is ~$7k, so naturally I am thinking about debt.

If I took on 100% of the loans, and lived at home for medical school AND residency could I not just throw 100% of my residency salary on the loans and pay them off or get them down very low?

why or why not would this financially be a good/bad idea? If anyone has any good links to help me educate myself on finance in general that would be great too.

 

[SpoiledMilk]

If anyone has any good links to help me educate myself on finance in general that would be great too.

@HomeSkool is working on it and will post it.

 

[CyrilFiggis]

What's the actual question? Do you go to the $7k school or do you have your parents pay for everything?

 

[Chibucks15]

First let me preface that I don't know very much at all about finances.

Now I am very very lucky that I have been accepted to a few medical schools. One is ~$50k and one is ~$7k, so naturally I am thinking about debt. Out of curiosity can someone tell me why this would or would not be a good idea:

I am also very very lucky that my parents are willing to help me, a lot. If I took on 100% of the loans, though, and they were willing to pay for all living expenses for medical school AND residency (food, housing, cell phone bill etc), could I not just throw 100% of my residency salary on the loans and pay them off or get them down very low?

Besides the bash to my independence, if my parents were willing to do this why or why not would this financially be a good/bad idea? If anyone has any good links to help me educate myself on finance in general that would be great too.

Whatever you can do to save money...do it. Unless there is some massive difference in school reputation it wont do you any good to go to the 50k school (again assuming they are mostly the same level). I'm jealous you have that opportunity as I'm sure most of us on here are. If they are paying your living expenses and you can knock out debt quickly I would absolutely do it...especially if you go to the 7k school

 

[NickNaylor]

The only problem with your plan is the expectation that you would make much, if any, dent on your student loans during your residency. Things to think about:

- What if you end up in a high cost-of-living area for residency? You may not have that much discretionary income to “throw” money at your loans.

- Do you have a family? Even if you’re single now, that’s something that may change by the time you get into residency. Again, this could be an extra “cost” - even if your partner has their own income - which may limit your ability to pay off loans.

- A resident’s salary really isn’t all that much once you factor in taxes. Again, the cost-of-living in your area will also have a large impact on how much discretionary income - and, thus, income available to pay off loans - that will be available to you.

Just some things to think about. You may be greatly overestimating your ability to make a significant dent in your educational debt with your residency stipend alone. That doesn’t in and of itself mean that you shouldn’t attend the more expensive school because you’re ultimately the only one who can do that calculus, but for the purposes of financial planning I would assume the worst and move forward expecting to pay off very little or nothing during residency. And if that doesn’t end up being the case, great, you’ll make more progress on that front than you expected.

 

[Doctorstudent555]

Whatever you can do to save money...do it. Unless there is some massive difference in school reputation it wont do you any good to go to the 50k school (again assuming they are mostly the same level). I'm jealous you have that opportunity as I'm sure most of us on here are. If they are paying your living expenses and you can knock out debt quickly I would absolutely do it...especially if you go to the 7k school

Thank you! I guess what I'm saying, is would this actually get me debt free (or close bc taxes, interest) after residency, or am I ignoring some financial aspect that would make this plan a bad one?

 

[Doctorstudent555]

The only problem with your plan is the expectation that you would make much, if any, dent on your student loans during your residency. Things to think about:

- What if you end up in a high cost-of-living area for residency? You may not have that much discretionary income to “throw” money at your loans.

- Do you have a family? Even if you’re single now, that’s something that may change by the time you get into residency. Again, this could be an extra “cost” - even if your partner has their own income - which may limit your ability to pay off loans.

- A resident’s salary really isn’t all that much once you factor in taxes. Again, the cost-of-living in your area will also have a large impact on how much discretionary income - and, thus, income available to pay off loans - that will be available to you.

Just some things to think about. You may be greatly overestimating your ability to make a significant dent in your educational debt with your residency stipend alone. That doesn’t in and of itself mean that you shouldn’t attend the more expensive school because you’re ultimately the only one who can do that calculus, but for the purposes of financial planning I would assume the worst and move forward expecting to pay off very little or nothing during residency. And if that doesn’t end up being the case, great, you’ll make more progress on that front than you expected.

Thank you for the response! What if my parents would be OK with paying for my living situation though? And taxes is right. I suppose that + interest could foil the plan but I wonder how low it would get.

 

[NickNaylor]

Thank you for the response! What if my parents would be OK with paying for my living situation though? And taxes is right. I suppose that + interest could foil the plan but I wonder how low it would get.

Again, there are particulars to the situation that you and you alone will need to weigh and figure out if one situation or another is “better.” Having your parents help with living expenses would, I assume, reduce the cost, but the way you presented the situation makes it sound as if the more expensive choice would still be more expensive. And with respect to the points that I was making, the overall cost of the school has no relevance with respect to your ability to make meaningful progress in paying off your loans during residency.

 

[HomeSkool]

I was going to type you an answer, but instead I'm going to use the time to keep working on my med school financing primer.

 

[LizzyM]

If I'm understanding this correctly, OP is asking, "if I applied all of my after tax income as a resident over the 3 years of residency toward my loans would I put a serious dent in medical school debt or reduce it to zero?"

The answer is that it depends on the amount of the debt and the amount of your after tax income as a resident. Both are variable.

 

[Medic741]

Whenever I hear this always think it’s *nuts* that financial independence is put off for so long.

Take out loans, live within your means... it’s a huge part of the growing up process & financial independence is worth more than its weight in gold.

 

[IlDestriero]

It’s not rocket science.
4x50k=200k. There will be interest to add as well let’s call it 6%/yr. you can do the math yourself.
Let’s call your resident take home around 30k.
3x30k=90k.
So you can expect to pay somewhat less than 1/2 your debt off during residency with your plan.
However being your own man/woman and not dependent on your parents has some real value. Perhaps not to you though.
My parents could have paid my whole bill without batting an eye, but I did it on my own. No regrets. And don’t forget, no matter how rich they are, giving that money to you means losing some opportunity to use it for something else. A rental house, investments, hookers and blow, whatever.


--
Il Destriero

 

[ciestar]

Whenever I hear this always think it’s *nuts* that financial independence is put off for so long.

Take out loans, live within your means... it’s a huge part of the growing up process & financial independence is worth more than its weight in gold.

Won’t lie, I get jealous... but then I remember I am an adult and need to responsible for myself, eventually.

OP, I wouldn’t bat an eye going to the cheaper school. I go to a super expensive school and the amount of debt I am facing is terrible. Weigh your pros and cons. Some people around here care about rank. Hell, go where you’ll be happiest if that matters at all, now and future you.

 

[3toedsloth]

You're not likely to pay off your debt while in residency, but you'll make a good dent in the debt.

Why are you considering the 50k school? Is it in some way better than the one that costs 7k?

 

[HomeSkool]

It’s not rocket science.

I'd feel more comfortable hearing this from someone with a "Rocket Scientist" badge. 😉

 

[jazzmetal]

If I'm reading right, the $7K school is not close enough to home to live with your parents, so at that school, you'd have living expenses on top of tuition during school, and living expenses during residency. Back of the envelope calculation for that scenario: $2K/month living expenses times four years of med school = $96K in loans to cover your living expenses during med school, plus $28K in loans to cover your tuition = $126K in loans for med school. Then you'd have another $96K in living expenses during a four-year residency, which along with taxes would eat up most of your take home pay (let's assume $50K/yr gross, $36K/yr after taxes minus your $24K/yr living expenses), leaving maybe $1K/month discretionary, of which about $600 would go toward interest on your loans, and $400 extra towards principal. You could pay down about $19,200 ($400/mo times four years) of your $126K loan principal --> $106,800 balance.

If you went to the $50K school and found a residency in the same city and lived with your parents for the whole eight years and they paid for housing, clothing, food, misc., you'd have $200K in loans for tuition. The interest on that after med school would be around $1K/month. You'd have $3K/month take home pay during residency, out of which you'd pay about $1K/month in interest and could put another $2K/month toward principal. In that scenario, you could pay down about $48K of your $200K loan principal --> $152K balance.

I'm obviously just ballparking the numbers, and the financial aid offices at each of these schools should be able to help you fine tune them for a more precise comparison, but the $7K school looks like a better deal, plus you get to live on your own, plus who knows, maybe you move in with someone along the way and your living expenses go down and the delta becomes even greater. Plus your very generous parents might pitch in along the way and help you come out with less debt --> lower monthly interest --> faster paydown of principal even with the same overall monthly payment.

 

[Doctorstudent555]

If I'm reading right, the $7K school is not close enough to home to live with your parents, so at that school, you'd have living expenses on top of tuition during school, and living expenses during residency. Back of the envelope calculation for that scenario: $2K/month living expenses times four years of med school = $96K in loans to cover your living expenses during med school, plus $28K in loans to cover your tuition = $126K in loans for med school. Then you'd have another $96K in living expenses during a four-year residency, which along with taxes would eat up most of your take home pay (let's assume $50K/yr gross, $36K/yr after taxes minus your $24K/yr living expenses), leaving maybe $1K/month discretionary, of which about $600 would go toward interest on your loans, and $400 extra towards principal. You could pay down about $19,200 ($400/mo times four years) of your $126K loan principal --> $106,800 balance.

If you went to the $50K school and found a residency in the same city and lived with your parents for the whole eight years and they paid for housing, clothing, food, misc., you'd have $200K in loans for tuition. The interest on that after med school would be around $1K/month. You'd have $3K/month take home pay during residency, out of which you'd pay about $1K/month in interest and could put another $2K/month toward principal. In that scenario, you could pay down about $48K of your $200K loan principal --> $152K balance.

I'm obviously just ballparking the numbers, and the financial aid offices at each of these schools should be able to help you fine tune them for a more precise comparison, but the $7K school looks like a better deal, plus you get to live on your own, plus who knows, maybe you move in with someone along the way and your living expenses go down and the delta becomes even greater. Plus your very generous parents might pitch in along the way and help you come out with less debt --> lower monthly interest --> faster paydown of principal even with the same overall monthly payment.

Thank you this is what I was looking for!

 

[aldol16]

You should consider which school, if either, would position you the best for a successful career. If both are similar in this regard, then ask yourself which school you would be happier at. $7k/yr means nothing if you don't finish your training or end up in a specialty you hate. If both schools are really similar in terms of career potential and your happiness, then I think you have your answer.