Invest during med school or pay down unsubsidized loans?

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serikk85

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Sorry if this is similar to other threads, but I'm not financially savvy enough to relate other situations to mine. I'm a med student on a research year between 2nd and 3rd years. I have $60K in Stafford loans (6.8%), about $42K of it is unsubsidized. I should have around $90K total principal borrowed by the time I'm done (my med school is weird in that it gets cheaper the longer you're there). I'm 26 and married, and my wife just started working. We have no credit card debt. We have a 0% auto loan. Our emergency fund is very small, about $1K. We have no investments. Working through our finances, I've found that we'll have about $8K per year that I can either put on my loans, invest, or save for emergencies, etc. I'm tempted to put it all in Roth IRA's because I know we only have a limited time window to invest in a Roth before income disqualifies us. I'd be interested to hear what people here would do were you in my shoes. Thanks.

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Sorry if this is similar to other threads, but I'm not financially savvy enough to relate other situations to mine. I'm a med student on a research year between 2nd and 3rd years. I have $60K in Stafford loans (6.8%), about $42K of it is unsubsidized. I should have around $90K total principal borrowed by the time I'm done (my med school is weird in that it gets cheaper the longer you're there). I'm 26 and married, and my wife just started working. We have no credit card debt. We have a 0% auto loan. Our emergency fund is very small, about $1K. We have no investments. Working through our finances, I've found that we'll have about $8K per year that I can either put on my loans, invest, or save for emergencies, etc. I'm tempted to put it all in Roth IRA's because I know we only have a limited time window to invest in a Roth before income disqualifies us. I'd be interested to hear what people here would do were you in my shoes. Thanks.

I think trying to put at least some of that in a roth ira is a good idea; but I also would consider building your cash reserves ...so maybe split between the two. Also take care of yourself and your wife and make sure you do some 'fun things' or maybe a vacation thrown in there... something within reason to make the work seem worth it.

Some students on here are quoting loan numbers betweenn 200-400K which seems absurd to me but I guess it is happening. You are less than 100K which I do not think will be too big of a deal to pay off regardless of what you end up doing.

Good luck!
 
I think trying to put at least some of that in a roth ira is a good idea; but I also would consider building your cash reserves ...so maybe split between the two. Also take care of yourself and your wife and make sure you do some 'fun things' or maybe a vacation thrown in there... something within reason to make the work seem worth it.

Some students on here are quoting loan numbers betweenn 200-400K which seems absurd to me but I guess it is happening. You are less than 100K which I do not think will be too big of a deal to pay off regardless of what you end up doing.

Good luck!

I agree with this. You need to build up cash reserves first. You never know when big expenses will hit. Afterwards, a Roth isn't a bad idea.
 
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I think trying to put at least some of that in a roth ira is a good idea; but I also would consider building your cash reserves ...so maybe split between the two. Also take care of yourself and your wife and make sure you do some 'fun things' or maybe a vacation thrown in there... something within reason to make the work seem worth it.

Some students on here are quoting loan numbers betweenn 200-400K which seems absurd to me but I guess it is happening. You are less than 100K which I do not think will be too big of a deal to pay off regardless of what you end up doing.

Good luck!

I agree with this. You need to build up cash reserves first. You never know when big expenses will hit. Afterwards, a Roth isn't a bad idea.

Good advice, thanks guys. I've heard such mixed things about how much in cash reserves one should have, anything from $1K to 1 year of expenses. What do you think is a good number to settle on for someone in my situation?
 
I would build up your cash reserves first, as well. How much depends on your circumstances. Have enough that if your wife lost her job, you have enough to live on for at least 6 months. This could be shorter, depending on what field she is in and how comfortable you feel with her finding adequate employment sooner. You need to look at the absolute worse case scenario and save for that.

Your debt seems like it is going to be very reasonable, so I would worry more about 'today' than 'tomorrow' until you get a bigger safety net.
 
Sorry if this is similar to other threads, but I'm not financially savvy enough to relate other situations to mine. I'm a med student on a research year between 2nd and 3rd years. I have $60K in Stafford loans (6.8%), about $42K of it is unsubsidized. I should have around $90K total principal borrowed by the time I'm done (my med school is weird in that it gets cheaper the longer you're there). I'm 26 and married, and my wife just started working. We have no credit card debt. We have a 0% auto loan. Our emergency fund is very small, about $1K. We have no investments. Working through our finances, I've found that we'll have about $8K per year that I can either put on my loans, invest, or save for emergencies, etc. I'm tempted to put it all in Roth IRA's because I know we only have a limited time window to invest in a Roth before income disqualifies us. I'd be interested to hear what people here would do were you in my shoes. Thanks.

I wouldn't worry about your loans. Your family situation sounds like a more pressing need.
You know you'll have the funds to eventually pay them off.
 
im going to agree with whats been said but will state my view on the priorities. you will find different schools of thought on this. but first priority is your emergency funds. the reasson is that if you go in the negative it will be harder to catch up. not being able to pay for necessities will make life real hard. some people say 3 months, some say 6, and some say 1 year. some factors may influence this number, such as if you have relatives who will give you money for free or for 0% interest, then you might reason that you can keep a smaller reserve and focus your money on the next priority. another factor is that if your spouse has a very stable job and you are pretty sure you're going to get a steady income, then that would also be another reason to choose a smaller #.

next is bad debt. bad debt are expenses thst dont give you any reasonable returns like credit card or car loans. good debt is like school loans or a mortgage, since school invests in your future and you still keep your house after the mortgage is paid off, or at worst you can use your home as collateral and other purposes. you stated that you have little or no bad debt, which kind of solves this issue.

next priority is to find a balance between your good debt and retirement. retirement accounts are still subject to taxes. if your contributions are exempt, you will be taxes on capital gains when you withdraw. if your capital gains areexempt, you'll probably be taxed on the contributions. all the while you are paying interest on your good debt. the 6.8% on our direct loans are crazy compared to the near 0% we get on most checking accounts these days. if your budget is comfortable with making your current loan payments (you probably aren't while still in med school), then maybe you can focus your surplus on retirement. but if your investments are returning very little yield or unrealized capital gains, it may be better to reduce the principle of your loans so that you dont pay as much interest in the long run.

i forgoy to add that the very first priority is to assess your income and expenses to see if you can cut unecessary costs, which would increase your surplus and help you on your debt and retirement. even a small increase each year can add up in the long run.

this was the way i wax brought up and i recently read personal finance foor dummies by eric tyson, which put my thoughts into words. you can probably finnd the book in the local library, and i dont advise it but there are probably bootleg pdf coppies of the book if you google for it. there are also many websites with advice on the subjects. i think a sticky thread at the top of this forum subsection has links. sorry if everything i have said in this post are things you already know.
 
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Build up 3-6 months living expenses, before you even think about investing in stocks, bonds, mutual funds, etc. Remember, you'll need a little money during 4th year for going on residency interviews, etc. and to pay for the USMLE step 1 and 2, etc. if not already taken. If your wife has a job that gives her matching funds if she puts money in a retirement plan, then I think it would be worthwhile for her to invest. Your student loans aren't going to be much of a problem at the amount you are taking out...I took out 130k in the early 2000's but it was at 3% interest only. In your situation, I'm assuming you will pay 6% or so, so if you end up in a good financial position during 4th year then I would advise just taking out a little less in student loans...that will probably be better than you could do/get in the stock market or other investing, unless you got very lucky. The money you borrow ends up morphing into a large amount by the time you pay it off. For example I'm paying more than $500/month and have been for years, just because my loans were a pretty big amount (though not high interest). So keeping your loan amount down, within reason, is good. I agree w/the poster above, though...you're in a good position b/c you'll have a good job in the future and your wife has a job now, so have some fun once in a while and take a little vacation, go to a reasonably nice restaurant, etc.
 
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