Financial advice: 36 year old MS1

[artsciencelove]

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Hi, I recently got accepted to medical school, and now my thoughts have turned to how I am going to pay for all this education. I am in a very different situation from many medical students because I am 36 and starting my second career. I was previously an engineer for 13 years.

Depending on which school I go to, I will be paying between $30K and $45K per year in tuition. I figure my total costs will therefore be around $200-$300K for the four years of education. I am assuming I will get no significant grants or scholarships.

I understand things have changed such that federal student loans may be going away in the near future, and even if they don't, the 6.8% interest will be accruing all the time I am in school.

The good news is I currently have absolutely no debt except a mortgage which is not underwater. I also have a top tier credit score, so I should qualify for the most favorable private loans possible. I qualify for a medical student loan through my bank which has a variable APR of 4.75%-7.25%, and does not need to be repaid until after residency, which sounds like a sweeter deal than the federal loans. My assets are about $225K, most of it in my home and 401(k).

My current assets just about cover the low-end of my estimate for how much med school will cost. I have read that I can rollover my 401(k) into an IRA, and then withdraw my costs of education without paying the 10% penalty, and then I can take advantage of the Lifetime Learning Credit to avoid paying any taxes on that withdrawal, so long as my total "income" does not exceed $52K. I would probably also buy a modest home near where I attend school, and therefore be able to deduct my housing expenses.

Is all this wise? I potentially have the ability to graduate med school debt free but with no assets. I don't think my 401(k) plan from my old company is that great, because it's been pretty stagnant for the last 2 years.

Thanks for any advice from financial experts on this board. 🙂

 

[DrMidlife]

Hi, I recently got accepted to medical school, and now my thoughts have turned to how I am going to pay for all this education. I am in a very different situation from many medical students because I am 36 and starting my second career. I was previously an engineer for 13 years.

You'll be surprised how many former engineers you meet in med school. You won't be the oldest in your class, most likely. I'd put your odds at 50/50 that you'll have an older peer with whom you can discuss these matters in depth.

Depending on which school I go to, I will be paying between $30K and $45K per year in tuition. I figure my total costs will therefore be around $200-$300K for the four years of education. I am assuming I will get no significant grants or scholarships.

I suggest you'll want to look at total cost of attendance, not tuition. COA numbers from $50k to $75k are the norm now. Do everything you can do to get into your state's public schools, so that you can lower the price tag.

I understand things have changed such that federal student loans may be going away in the near future, and even if they don't, the 6.8% interest will be accruing all the time I am in school.

Federal student loans going away is an unsubstantiated rumor. To ask the question from the most fiscally conservative perspective I can imagine, do you think that the existing industries that depend on an incoming flow of physicians, to replace retiring physicians, will allow legislation that stops that flow and cripples their ability to provide services by which revenue is generated? Hospitals, pharm, medical equipment? Without federal loans, all but about 2000 of the 23,000 US medical graduates can't go to med school.

6.8% is not a constant number, and yes it accumulates during medical school and residency, for everybody. Federal loans allow for a number of repayment considerations, such as Income Based Repayment, and loan forgiveness for primary care and practice in underserved areas.

The good news is I currently have absolutely no debt except a mortgage which is not underwater. I also have a top tier credit score, so I should qualify for the most favorable private loans possible. My assets are about $225K, most of it in my home and 401(k).

I challenge you to prove to yourself that a private student loan is favorable to a federal loan. You get none of the federal repayment considerations with private loans. Take a look at the definition of the interest rates for private lenders - they don't have to go through Congress to raise their rates, they just have to tell you they're raising them.

But, a great credit score helps you get the best terms for federal Grad Plus loans, which are required to borrow COA for all but 2-3 medical schools. The Stafford limit for a year of medical school is $40,500; COA borrowing above $40,500 is met with Grad Plus.

My current assets just about cover the low-end of my estimate for how much med school will cost. I have read that I can rollover my 401(k) into an IRA, and then withdraw my costs of education without paying the 10% penalty, and then I can take advantage of the Lifetime Learning Credit to avoid paying any taxes on that withdrawal, so long as my total "income" does not exceed $52K. I would probably also buy a modest home near where I attend school, and therefore be able to deduct my housing expenses.

My attitude toward "writing a check" for med school is that it puts too much of your assets in one basket. Consider leaving your 401k alone as portfolio diversification. Your accumulated student debt is an investment with federal protection. If you clear out your 401k instead of accumulating debt, you lose the growth potential in your 401k until you're in practice, 8 years down the road, and can start making contributions again.

Is all this wise? I potentially have the ability to graduate med school debt free but with no assets. I don't think my 401(k) plan from my old company is that great, because it's been pretty stagnant for the last 2 years.

Right, we're in a recession. 401k's and home values tanked for everybody. You can try to game the system and choose the investments in your 401k (an activity for which you may or may not have any capacity or interest) to beat the prevailing market trend, or you can minimally invest your time into making sure your 401k follows an index fund, which over the course of decades is going to grow unless the economy never recovers. And, if the economy never recovers, we all have bigger problems than what our 401k's are doing.

Please think ahead about options for your home if you're not able to stay for residency. Do you want to trade your spare time for the duties of a landlord? You may want to consider getting out, to reduce your responsibilities. Lots of older med students have houses and mortgages and family responsibilities, but you don't have to have a house just because you can.

I like finaid.org as a starting place for COA & loan info.

Best of luck to you.

 

[redtomate]

"Take a look at the definition of the interest rates for private lenders - they don't have to go through Congress to raise their rates, they just have to tell you they're raising them."

From what I understand, they are floating rates based on LIBOR...they can't just raise your rates whenever they want.

With your assets, you are unlikely to need any of the federal repayment options. They generally only make sense for people with less wealth or low income.

I'd consider a HELOC. You could probably get 4% or so if you shopped around.

 

[dotdash]

The heart of the issue is whether to have assets + debt or neither. And the answer to that is really what you think the stock market/housing market/bond market (whatever you have your 401K in) will do in the next 4 years compared to the fixed interest on your loans.

 

[chavtwo]

Keep your 401k.
Why do you feel the need to purchase a home near your school? What I you match somewhere else?

 

[cincincyreds]

Here's my 3 cents.

The goal in med school is to spend the least amount of money as possible. Remember, even at 6.8%, your debt is doubling in value every 10 years, and we don't know if salaries will be the same as they are today.

I would not touch the 401k to pay off the student loans. You want as much tax advantaged dollars as possible as you will never get them back.

As far as buying homes when in med school, I say don't. You won't have the time to wait for people to show up to fix things. Just rent the least expensive reasonable place you can tolerate.

Debt is very bad, the goal is to minimize it, otherwise you become a slave.

This is advice from someone who is 5 years younger than you, so maybe you think debt is good.

And when you become an attending, take extra call to pay this expensive debt off.

 

[Igor4sugry]

Hi, I recently got accepted to medical school, and now my thoughts have turned to how I am going to pay for all this education. I am in a very different situation from many medical students because I am 36 and starting my second career. I was previously an engineer for 13 years.

If you start at 36, you will graduate at 40, after 3-5 years of residency you will be around 44.

Do you really want to be starting your attending career at 44yo? Why not attend a Physician Assistant program. It is shorter and you get paid very well. Medicine is quite a grind, and I am strong enough to go through it in my 20s, but why put yourself through this in your late 30s/early40s?

 

[MT Headed]

Lol, I will be studying for Step I when I turn 44yo.

OP, any plan that starts out with 'first, I'll cash out my 401k...' is a bad plan. Even if the bank makes it easy and penalty free, it's still a bad plan.

 

[DrMidlife]

If you start at 36, you will graduate at 40, after 3-5 years of residency you will be around 44.

Do you really want to be starting your attending career at 44yo? Why not attend a Physician Assistant program. It is shorter and you get paid very well. Medicine is quite a grind, and I am strong enough to go through it in my 20s, but why put yourself through this in your late 30s/early40s?

I have two sisters who are PAs, and I start med school in August. My sisters are 43 and 50. I'm 45.

They're both pooped out and ready to retire. PA is a job that'll burn you out as fast as medicine. If you're looking to retire "on time", don't do either career change.

I'm not pooped out and ready to retire. I didn't have kids. I'm not crushed with consumer debt. I've been very successful in one career already and I'll be bringing those experiences (with corporations and administrations and sociopathic executives and passive aggressive support staff) to bear in my medical career. You'll have to learn all that stuff during medical training. Yikes.

Best of luck to you.