Financial Advice

[saidel273]

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So I am a 2nd year medical student. I worked for few years before starting med school and I currently have about 60k of savings. I am yet to use any of this money to pay for my tuition. So far, I used only student loans.

Should I be using more of my savings? What would be the best financial decision to make here?

 

[devlyyn]

Unfortunately with no income during school you won't be able to contribute to a Roth IRA. If you could buy a house and get a good deal, I would strongly consider that. In my area you can find nice townhomes under $100k. If not, this is what I would do:

(1) take the $8,500 of subsidized Stafford loans each of the next two years.
(2) take the $17,000 that it will take to repay the stafford loans and invest it in a safe investment. You'd have to use your judgement when choosing where to invest, but you don't want to lose this money as you'll be using it to pay back those Stafford loans at the end of 4th year.
(3) use the other $43,000 to pay for school until it runs out

This way you still have a buffer of savings ($17,000) while getting an interest free loan from the government in the form of the subsidized Stafford loans.

Just keeping the whole 60 grand out you are assuming you are getting a guaranteed rate of return > 6.8% as that is the interest you are paying.

 

[TMP-SMX]

Guaranteed 6.8% return? Good luck. You also have to remember that there are origination fees if you get your money direct. Also keep in mind that your savings is preventing you from getting Perkins loans/need-based scholarships and grants. That also depends on your parental income so you may make your decisions based on that. Ask your school.

It is good to have some backup cash in case of an emergency, but keeping all of your money is going to cost you more in the long run. As the previous poster said, you want to take out the subsidized loans and use more caution with the unsubs. I'd say use your savings as it is tough to find an investment that will actually make you money over 6.8%.

 

[dragonfly99]

I agree with using your savings. In this current economy it's hard to make 6.8% on an investment...unless you can invest in a spouse's 403b with matching funds, or you are a very smart stock trader. Borrowing subsidized Stafford is a good idea, but borrowing other Stafford or private loan money isn't a great idea if you have your own money to spend in my opinion. You can keep back a few thousand for emergencies, etc. but I don't see keeping 60k in the bank and then taking out huge loans. I would not.

 

[dragonfly99]

Or the OP could borrow just the amount of his tuition only and then use the rest for living expenses and books, etc. for the next few years.

 

[PostLessOne]

Dragonfly : borrowing the arbitrary amount of the tuition only has no effect on the economics of the decision. Think about it.

I think he should keep about 10k in reserve as an emergency fund, take the $8500 subsidized staffords, and spend the rest on his school. That 17k idea listed above is an unnecessary complication and has no economic effects.

"Economic effects" refer to maximizing the expected value of your financial decisions.

 

[devlyyn]

You are correct in saying that setting aside $17,000 (or any other amount) has no direct economic effects. The reality is the OP would be best off by keeping the minimum amount that he/she feels comfortable for emergencies and using the rest of the money to pay off existing loans and minimize future loans.

 

[PostLessOne]

He should use it to minimize future loans. The reason is that with existing loans, if he pays them off, he'll lose the 2-3% in "origination and guarantee" fees. That is, he should spend his money above his reserve fund to pay future school expenses until that money is exhausted, EXCEPT that he should always take the max in subsidized loans every year.

If he pays off some of the loans he owns now, then he'll have to make new loans as soon as his fund is exhausted. Those new loans will have a NEW 2-3% fee attached. If he leaves his outstanding loans untouched, and uses his fund to prevent incurring some future loans, he'll avoid losing that 2-3% fee.

 

[devlyyn]

Depending on who his lender was. I used discover and they had no origination fee. I believe they were the only lender offering that at the time.