Let's Talk Finances. Living Cheaply vs Extravagantly. Borrowing $320K in loans.

[Magyarzorag]

As I start medical school next year, I realize that I will likely be $50K short to pay for 4 years tuition, and probably $95K short to pay for tuition+living expenses. I currently have about $130K in savings from scholarships/award packages during undergrad (I severely cut down on living expenses given to me in undergrad), and can probably save $5K more from a part time job, so I will have to borrow about $90-$100K to finance my education. My parents offered to support that, but I really don't like taking money from them, I've supported myself through work and scholarship/internship/financial aid money mostly through undergrad, with my parents only paying for my health insurance (on my mother's employee insurance), and giving me their old car.

I'm really interested in refinancing through the PAYE program and borrowing the maximum of $320K in federal direct unsubsidized loans (according to COA, and my school over budgeted rent by almost $20k/year) over 4 years, since I'll be paying the same amount over 20 years regardless if I borrow $100k vs $320K (I would definitely overpay if I only borrow $100K).

I do, however, have some worries about the PAYE Program.

1. If the plan is cancelled or modified in the future (though that would only apply to loans taken out after a certain day)
2. If my remaining balance is not forgiven (given how one 1% of PSLF applications were forgiven)
3. Tax bill due at end (though I'll try to not work that year)

However, some reasons why I'm considering borrowing the max. and doing income based repayment

1. It's psychologically traumatic to see my bank count fall from six figures to 1 figure
2. Insuring against future physician pay cuts if we switch to a national health system ( like UK physicians make half of what USA physicians make)
3. Insuring against fallout from profession (lost of license, failure or low USMLE score, dismissal for criminal/indecent behavior)
4. I can maybe invest the extra money
5. Most important: Not worrying about money all the time/ being able to afford to upgrade my car, take vacations, etc.
6. 10% of my income after taxes and living expenses will feel like nothing once I'm an attending
7. I see pleasure in seeing my bank account grow.
8. I can maybe use the money I save to purchase a house with cash after med school.

Some other things about long term goals

1. I rather die in debt or penniless than with a fortune to my name
2.Don't plan on having children, so I won't need to save money for their futures
3. Only savings I plan on having for retirement is a 401K (which I will max at $18.5K once I become an attending), house, and, social security. I'm generally wary of stocks and other investments as I get anxious when they go down.
4. I'm willing to postpone or not marry at all.
5. I can be a cheapskate and love pinching pennies, but long term financial health isn't important for me (I just hope to be able to save 18k/year for my 401K after all expenses)
6. I don't want to live frugally during residency and my first few years to pay off loans. I want to be able to drive a pre-owned $25k BMW (and maybe upgrade to a $70K Maserati once I'm an attending), mortgage a home, go on international vacations, and start dating and take my dates out to expensive dinners (as an Asian Male, I feel like I'm at a severe disadvantage when it comes to dating, so I'm hoping I can compensate by showering my dates/girlfriend with gifts)
7. I'm a strong proponent of the YOLO concept. I may have a heart attack, get in a car accident, be a victim of a tragic crime. Tomorrow is not guaranteed, so I believe in living each day as if it was your last


Given all this info, would you recommend I borrow just enough to cover my expenses, or borrow the max and keep the remaining money in my bank account?

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[deleted480308]

Live cheap

 

[Yasuo]

Uhhhh not sure you've thought this one through. Federal loans are between 6-8% interest. You don't take them out just to "keep the remaining money in your bank account". That's really stupid. You take out loans you need to live comfortably and have the supplies necessary to succeed in school. Take out the minimum amount and pay off your debt as soon as possible out of residency. You shouldn't be entering medical school already deciding to use the REPAYE program.

 

[Lawpy]

Live cheap

Yep agreed here. This is the one financial advice i follow and it works well

 

[deleted1020563]

4. I can maybe invest the extra money

You... want to borrow loans at 7% interest with a 4% fee to invest into the stock market? /r/wallstreetbets would like a word.

 

[Magyarzorag]

Uhhhh not sure you've thought this one through. Federal loans are between 6-8% interest. You don't take them out just to "keep the remaining money in your bank account". That's really stupid. You take out loans you need to live comfortably and have the supplies necessary to succeed in school. Take out the minimum amount and pay off your debt as soon as possible out of residency. You shouldn't be entering medical school already deciding to use the REPAYE program.

I'm planning to have about $350k loans forgiven, of which I will pay only $90K in taxes

 

[Type2Fiber]

So you've been responsible your whole life and now you want internet strangers to rationalize your irresponsible financial plan? Borrowing more than you need is a terrible idea

 

[Pepe18]

There is so much no here. First, don’t unnecessarily take out high interest loans. Second, don’t plan your whole financial life around long term goals that will almost certainly change. Third, Asian males who act like they are at a disadvantage when dating are at a disadvantage. The Asian males in my class are doing well for themselves (unless they are weird, which is the same for weird white, brown, and black guys). And planning your finances as a back up in case you are charged with crime or indecent behavior falls under the weird category...look up the med student kicked out of UMiami. He is undateable

 

[Magyarzorag]

I think I will end up borrowing the maximum. I did the math, and assuming an income of $300k/year, after taxes and living expenses, I will only owe $20000/year for the 15 full years I'm working. First year I refinance as a resident, I will owe $0, and the next 4 years, I will owe about $3000/year. In total, I will be paying $310K for a $320K loan. Add in the tax penalty of $419K that's forgiven, and I will be paying an additional $88K in taxes. Given this, I will be essentially paying $398K total for a $320K loan over almost 30 years, which is equivalent to a 1.7% mortgage rate, a steal considering the average 30 year mortgage rate is 3.8%

 

[Angus Avagadro]

Debt is tyranny. You get up every day, go to work, and your creditors get paid first! You are in essence working for someone else. Live cheap until debt is paid off, including mortgage. Then live it up. Didnt buy my first sports car until I was 40, house paid off, college funds funded. With debt gone, there is lots more disposal income.

 

[dpmd]

So you want to pay 398k so you can get sugar babies and fancy cars. Seems like a totally legitimate plan that we should spend lots of time debating here.

 

[Magyarzorag]

Debt is tyranny. You get up every day, go to work, and your creditors get paid first! You are in essence working for someone else. Live cheap until debt is paid off, including mortgage. Then live it up. Didnt buy my first sports car until I was 40, house paid off, college funds funded. With debt gone, there is lots more disposal income.

You know what's bigger tyranny than debt. Taxes and Alimony. Taxes eat up a much bigger chunk if your income than student loan debt, with the latter at least being an personal investment in yourself. Also, you can't go to jail for not paying debt, but you can for not paying taxes. Even worse is Alimony, which eats up 4 times student loan debt, and you're stuck in that for life instead of just 20 years.

I understand living cheap, but when I become a physician, I definitely expect to live more extravagantly than my friends who were communication or business majors.

 

[dpmd]

You know what's bigger tyranny than debt. Taxes and Alimony. Taxes eat up a much bigger chunk if your income than student loan debt, with the latter at least being an personal investment in yourself. Also, you can't go to jail for not paying debt, but you can for not paying taxes. Even worse is Alimony, which eats up 4 times student loan debt, and you're stuck in that for life instead of just 20 years.

I understand living cheap, but when I become a physician, I definitely expect to live more extravagantly than my friends who were communication or business majors.

Then what is stopping you from living large now? Oh right, your fake trollishness.

 

[deleted1001426]

I’m inclined to believe this is a troll post but either way, thanks for the read. It made me chuckle a bit

 

[Lawpy]

and thanks SDN for reminding me why it's a good idea for me to not follow financial advice on here.

the advice listed here is good, but the exaggerated situation listed in OP is not.

 

[Yasuo]

I think I will end up borrowing the maximum. I did the math, and assuming an income of $300k/year, after taxes and living expenses, I will only owe $20000/year for the 15 full years I'm working. First year I refinance as a resident, I will owe $0, and the next 4 years, I will owe about $3000/year. In total, I will be paying $310K for a $320K loan. Add in the tax penalty of $419K that's forgiven, and I will be paying an additional $88K in taxes. Given this, I will be essentially paying $398K total for a $320K loan over almost 30 years, which is equivalent to a 1.7% mortgage rate, a steal considering the average 30 year mortgage rate is 3.8%

You cant use REPAYE if you refinance. Your understanding of finances and inability to heed advice is on a whole new level of ignorance and stupidity.

While you’re at it, I heard Bitcoin is a good investment. Just use your student loans to buy them, I’m sure you’ll come out on top.

 

[Magyarzorag]

Then what is stopping you from living large now? Oh right, your fake trollishness.

I don't like living large, as it doesn't make me proportionally happier. However, I would rather

You cant use REPAYE if you refinance. Your understanding of finances and inability to heed advice is on a whole new level of ignorance and stupidity.

While you’re at it, I heard Bitcoin is a good investment. Just use your student loans to buy them, I’m sure you’ll come out on top.

I meant using PAYE, not refinancing

 

[jurisburger]

Why not just swallow your pride for now and accept your parents' help financially? You can pay them back 2-3x over if you like after you finish residency and that way everyone wins except the federal government and their bloodsucking interest rates.

Also just my humble opinion: the dates who tend to be impressed by your wealth/status may not be the the people you want to commit to anyway

 

[Angus Avagadro]

You know what's bigger tyranny than debt. Taxes and Alimony. Taxes eat up a much bigger chunk if your income than student loan debt, with the latter at least being an personal investment in yourself. Also, you can't go to jail for not paying debt, but you can for not paying taxes. Even worse is Alimony, which eats up 4 times student loan debt, and you're stuck in that for life instead of just 20 years.

I understand living cheap, but when I become a physician, I definitely expect to live more extravagantly than my friends who were communication or business majors.

Ok, I'll bite. You can live extravagantly, by choice. Then you will be a broke ass Dr with nice toys, working until you 75 with no pension
I often say life is full of choices, make good ones. Taxes? Well you gotta pay them. Live in a tax friendly state with low housing costs and no state taxes.
Alimony? Well that one answers itself about making good choices. Some states dont require alimony.

 

[gyngyn]

It looks like OP got his answer.