How do I Minimize my Debt?

[Dhooy7]

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I am just looking for some advice. I talked to a financial advisor at my school and said I need to submit my loan application for my school very soon. I was given a few options but looking to see how I can minimize my debt. I reached out to others but they said they couldn’t answer the questions for me.

I have personal savings and should be able to pay off my first year of medical school without loans. Would it be best to use all my savings and not take-out any loans, wait to take out loans my second semester or take out loans (Stafford- $42,722) and use my savings to pay for the rest? I have the option to use the for Graduate Plus if I intend to take out more than $42,722. What is the best way to reduce the amount of debt (including interest) I take out? Thanks!

 

[WoundupKnight]

Use all your savings.

 

[Schwifty]

Best way to minimize debt is to live cheap and not take out money you don't need. If you do take out loans, use the Stafford loan first because it has a lower interest rate. I'm personally taking out a lot in loans because I don't have enough saved and my family can't afford to cover all my expenses. To minimize what I have to take out I'm living in a cheap apartment, close to school, and most importantly sticking to a strict budget. If you can pay for your first year without loans you should pry do that because the loans you take out your first year will obviously accrue the most interest, as you will have those loans longer before you can start paying them off. I would say may sure you keep about 3 months of expenses saved up just incase you run into a problem where you need cash fast, like your car breaks down or something like that.

 

[Wjldenver]

...This is something to think about 3+ years out. Audition rotation and interview expenses in Year 4 could easily exceed $40K. My son took a Stafford Loan for 4 years which covered tuition, and we paid his living expenses for four years. In Year 4, he took a Stafford and a $47K Plus loan to pay for all interviewing and audition rotation expenses. And even with the additional $47K, we had to kick in some extra funds to help him cover his 4th year.

So, you could keep your savings in reserve to help cover your audition rotation/interview expenses in Year 4. And if not, it is always a good idea to have some emergency savings since unforeseen things happen. I wouldn't spend all of my savings to cover Year 1 tuition because Year 4 is a huge financial drain.

 

[Hippocrates II]

...This is something to think about 3+ years out. Audition rotation and interview expenses in Year 4 could easily exceed $40K. My son took a Stafford Loan for 4 years which covered tuition, and we paid his living expenses for four years. In Year 4, he took a Stafford and a $47K Plus loan to pay for all interviewing and audition rotation expenses. And even with the additional $47K, we had to kick in some extra funds to help him cover his 4th year.

So, you could keep your savings in reserve to help cover your audition rotation/interview expenses in Year 4. And if not, it is always a good idea to have some emergency savings since unforeseen things happen. I wouldn't spend all of my savings to cover Year 1 tuition because Year 4 is a huge financial drain.

I'm not 100% on the specifics since my savings are paying for a lot of my schooling, but why would you commit to taking out grad+ loans early in school and accumulating their ridiculous interest rates rather than burning savings now to delay taking out those loans as long as possible?

 

[WoundupKnight]

Yeah that math doesn’t work out. The difference in interest rate is only 1%. There’s a 3% difference in loan fees but that’s one time.

40k year 1 would be over $10k in interest and loan fees after 4 years with direct unsub loans.

40k year 4 would be $4.4k in interest and loan fees for one year for plus loans vs $2.8k for direct unsub. You’d be saving $1.6k.

I’d rather have $10,000 less in loans than $1,600.

 

[Wjldenver]

I'm not 100% on the specifics since my savings are paying for a lot of my schooling, but why would you commit to taking out grad+ loans early in school and accumulating their ridiculous interest rates rather than burning savings now to delay taking out those loans as long as possible?

...A point well taken Hippocrates. The bottom line is that Grad Plus loans are not your friend. Stafford Grad Loan rates are being adjusted to 6.08% this year with a 9.5% lifetime cap, with an origination fee of 1.069 percent I believe. On the Plus Loan side the government sticks it to you in a variety of ways. A higher interest rate (7.08%), a higher origination fee (4.2%) and a higher lifetime interest rate cap (10.5%).

So the takeaway is that Grad Plus loans should not be used without any forethought. But the OP also needs to be aware of how expensive his 4th year is going to be, because it certainly caught us by surprise. ...And all anticipated 4th year expenses should be factored into any financial decisions as well.

 

[hungrydoc710]

Can your family cover COL?
I think that's the vital part - either you're taking all $$$ out or just tuition.

I take out $45K for school and another 3-5K for messing around money (trips, nice dinners, new iPhone). My Dad covers COL (apt, car, food).
Not bad in my mind.

 

[hallowmann]

...This is something to think about 3+ years out. Audition rotation and interview expenses in Year 4 could easily exceed $40K. My son took a Stafford Loan for 4 years which covered tuition, and we paid his living expenses for four years. In Year 4, he took a Stafford and a $47K Plus loan to pay for all interviewing and audition rotation expenses. And even with the additional $47K, we had to kick in some extra funds to help him cover his 4th year.

So, you could keep your savings in reserve to help cover your audition rotation/interview expenses in Year 4. And if not, it is always a good idea to have some emergency savings since unforeseen things happen. I wouldn't spend all of my savings to cover Year 1 tuition because Year 4 is a huge financial drain.

$47k ontop of normal expenses seems like quite a bit, even for 4th year. Is that including all living expenses, like apartments for auditions? Total cost of applications, suits, interviews and licensing exams for me (and I way overapplied and overinterviewed) were $10-$15k. I didn't end up spending much more than usual for housing that year because I lived cheap, lived in as much hospital housing as possible, and essentially packed everything into my car every month. I could see COL during audition season costing somewhere in the realm of $20k especially in high COL areas, but >$30k seems a bit excessive.

 

[AlbinoHawk DO]

I am just looking for some advice. I talked to a financial advisor at my school and said I need to submit my loan application for my school very soon. I was given a few options but looking to see how I can minimize my debt. I reached out to others but they said they couldn’t answer the questions for me.

I have personal savings and should be able to pay off my first year of medical school without loans. Would it be best to use all my savings and not take-out any loans, wait to take out loans my second semester or take out loans (Stafford- $42,722) and use my savings to pay for the rest? I have the option to use the for Graduate Plus if I intend to take out more than $42,722. What is the best way to reduce the amount of debt (including interest) I take out? Thanks!

Your savings are real money in case of an emergency. It can easily be grown through an index fund, and If you were to die, the money on hand can be inherited while your student loan will be "forgiven." Besides, even 3 years of medical school student loan debt will balloon up due to interest during medical school and residency.

At the end of your degree, you can choose a pathway where you pay 10% for 20 years, so I don't see why anyone would ever bother to worry about debt in this worst case scenario

 

[Tiran145]

Can your family cover COL?
I think that's the vital part - either you're taking all $$$ out or just tuition.

I take out $45K for school and another 3-5K for messing around money (trips, nice dinners, new iPhone). My Dad covers COL (apt, car, food).
Not bad in my mind.

That sounds nice....

 

[fldoctorgirl]

$47k ontop of normal expenses seems like quite a bit, even for 4th year. Is that including all living expenses, like apartments for auditions? Total cost of applications, suits, interviews and licensing exams for me (and I way overapplied and overinterviewed) were $10-$15k. I didn't end up spending much more than usual for housing that year because I lived cheap, lived in as much hospital housing as possible, and essentially packed everything into my car every month. I could see COL during audition season costing somewhere in the realm of $20k especially in high COL areas, but >$30k seems a bit excessive.

Yeah, all the 4th years I have spoken to suggested that $10-15k was considered a lot in their class. I can't see how you would spend almost $50k.

 

[Wjldenver]

Yeah, all the 4th years I have spoken to suggested that $10-15k was considered a lot in their class. I can't see how you would spend almost $50k.

There is a lot of individual variation here, but you need to look at the entire life cycle of your 4th year. If you remain in one geographic area for your rotations and interviews you certainly can save quite a bit of $, if not, the costs quickly add up. Here are some unforeseen expenses which you need to be aware of during your 4th year and leading up to your first residency paycheck:

O Application fees--I believe my son's were around $3K. As I recall, he applied to >120 programs.

O Travel Expenses--He rotated in positions from coast-to-coast. In some cases, he only had one or two days between rotations >1,000 miles apart, so he flew between sites, and rented a car for a month since driving to a new location >1,000 away in one day was not really feasible.

O Lodging expenses in high cost cities add up. ...Philadelphia for example, I believe that was a $2,700+ charge for lodging. (And a number of his rotations were in high cost cities.)

O Interviewing expenses while on a rotation, many times upon short notice. I recall one plane flight to NC where the airfare from his rotation location was around $1K. Also, you need to factor in lodging and rental car expenses for interviews. (But some residency sites will pay for your lodging.)

O Last, but not least, in some cases your relocation expenses are going to be substantial. He matched to residency >1,000 miles from his last apartment, and the moving expenses were $5K. (Yeah, I got lazy and did not decide to rent a truck to help him move his stuff over 1,000 away. So that was an expense I covered.)

O Deposits and rent on a new apartment before you get your first residency paycheck. In his case, there was a security deposit and he had to make in addition to June and July rent payments before receiving his first residency paycheck.

Note, most residency programs will offer you a short term loan of $2.5K to cover miscellaneous moving costs/rent deposits.

 

[hungrydoc710]

That sounds nice....

I'm quite grateful yes