Making loan payments while in medical school

[pigsinacloth]

Long version (Short version below):

So I am starting medical school in about 1 month and I am in a kind of interesting situation. During my gap years I worked for doctor at a major hospital and now that I am leaving they are letting me stay on as a work when you can employee entering data on surgeries into a database. Basically the work for this project will always exist so the opportunity will last as long as I have time/until I graduate in 4 years because I think that with the additional credentials I would probably require a much higher salary by HR standards. Honestly the data entry is pretty easy it just takes a little time, but doing it for a few hours every week while listening to a podcast or music is not bad at all

Along with that I also was pretty lucky as a kid and my grandpa helped me to invest the money I made from working/from gifts into the stock market. This combined with my money saved from my gap year job has me at around 110,000 in savings/currently invested in the market (mostly in savings and the investments are in safer things like Index funds/Apple/Home Depot etc... not bitcoin or tesla). This amount does not count Roth IRA investments (which I have maxed out every year since I started working as a teen). I don't have any student loans from undergrad due to a mix of nice parents/athletics and I honestly live a pretty cheap lifestyle because that's kind of just how I was raised.

I'm pretty sure that I want to do academic medicine and that most major academic medical centers are 5013c organizations so they would qualify for PSLF, but I don't know if I want to bank on that being around/want a couple hundreds of thousands of dollars looming over my head for a decade. I took out enough loans for things like tuition/housing this year because I figured I wanted a easier transition when starting school, but could plan on using the money I have saved up as early as second semester/second year.

So basically because I have the ability to to start paying off some of my loans/take out fewer loans while in medical school should I just start to pay off the debt while in school right away or should I wait and see what happens with my interests and keep saving the money and then decide on PSLF vs quicker loan repayment later when I have little more clear understanding of how I think my career path will pan out. Also because I have the option to work some I do plan on maxing out my Roth IRA as much as I can while in medical school with that income and putting this money towards safe index funds.

Short version: I am starting med school, but have money saved/a super easy and relaxed part time job. Should I just plan on PSLF or start paying off loans right away?


Thank you everyone for your help I just want to hear some outside opinions so that I make sure that I look into everything before I make a decision on how I want to go about handling finances for the next few years.

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[mvenus929]

There's probably not a wrong decision here. You should take out less money overall if you can, but student loan interest is simple interest, not compounded interest, so the only downside is collecting more interest while you're waiting to decide what to do. Also depends on the mental burden debt has on you. I hate having debt, so I will probably pay off some of my loans before I get them forgiven with PSLF, even though I will very likely get all of it forgiven.

Maxing out your Roth IRA is a good option. Congrats on the nice financial situation. You're doing better than me and you're about 11 years behind me.

 

[abolt18]

You are light-years ahead of most. IMO you pay tuition and living expenses with that saved up money for as long as you possibly can stretch it out. Pay off the loans you already took out. A LOT will happen between now and finishing residency. You don't want to feel forced into a sub par job just because you have loans and want PSLF.

Keep maxing out that Roth IRA. It'll be worth millions by the time you retire.

 

[Andrew StudentLoanAdvice]

Agree with the commenters above on a number of levels.

• Take out the least amount possible in loans
• Pay them off as soon as possible and private refinance your federal loans to private to receive a much lower interest rate
• Not doing PSLF will allow you to have more flexibility in employment. You could change your mind before you graduate and even while in your training on what type of job you pursue
• But understand, if you do pursue the route of paying off your loans, you will probably payout lots more towards your student loans than if you did PSLF.

 

[GreenDuck12]

I’m going to disagree with most folks on here and say you should maintain your investments and take advantage of the extra years of compounding interest. It’ll be more valuable down the line than the opportunity cost from paying back loans. Instead of thinking about debt as a negative, think about how to use it as a tool to build wealth. Minimize the loans you need to take out, keep working and investing in your Roth, and you’ll be well on your way to having a secure future.

 

[Chemist0157]

I’m going to disagree with most folks on here and say you should maintain your investments and take advantage of the extra years of compounding interest. It’ll be more valuable down the line than the opportunity cost from paying back loans. Instead of thinking about debt as a negative, think about how to use it as a tool to build wealth. Minimize the loans you need to take out, keep working and investing in your Roth, and you’ll be well on your way to having a secure future.

I like this counterpoint and thought about that myself. You can do the math. Assume a rate of return for an investment of the money you could have applied to loans while paying just the regular payment over the duration of the loan vs. paying it off as fast as you can. You will probably find that gains from investment will outweigh whatever interest you would have saved by paying the loans off faster, BUT consider 1) capital gains on investment gains and 2) state of the market. If you assume a 10% from an entire stock market index fund, and we move into a recession where gains evaporate, you would be better to pay off the loans.

This is the argument made against paying a mortgage off quickly. Student loans do not quite fit that however as the time horizon is likely much, much shorter, and the interest rates are higher.

I think by the time I considered this (as I have been getting my loans paid off in about 5 years after training), it may cost me 10k-40k to pay the loans off early. I did not consider taxes on the gains and did assume market would keep running hot for the next several years. You have to consider how much the mental ease is worth to you, and at this point, it is worth it to me to just get my loans done by end of 2022.

 

[GreenDuck12]

I like this counterpoint and thought about that myself. You can do the math. Assume a rate of return for an investment of the money you could have applied to loans while paying just the regular payment over the duration of the loan vs. paying it off as fast as you can. You will probably find that gains from investment will outweigh whatever interest you would have saved by paying the loans off faster, BUT consider 1) capital gains on investment gains and 2) state of the market. If you assume a 10% from an entire stock market index fund, and we move into a recession where gains evaporate, you would be better to pay off the loans.

This is the argument made against paying a mortgage off quickly. Student loans do not quite fit that however as the time horizon is likely much, much shorter, and the interest rates are higher.

I think by the time I considered this (as I have been getting my loans paid off in about 5 years after training), it may cost me 10k-40k to pay the loans off early. I did not consider taxes on the gains and did assume market would keep running hot for the next several years. You have to consider how much the mental ease is worth to you, and at this point, it is worth it to me to just get my loans done by end of 2022.

Definitely important points in this but I think the biggest one is making the decision that enables one to sleep at night.

I would definitely agree that it is worth running the numbers in a variety of scenarios. I remember meeting with my programs financial advisor to figure out if it would be better to take loans or use savings to pay for school. In the end, he showed me that to use savings instead of loans, even with conservative returns and a 08-09 style recession in the middle, would have an opportunity cost between a half million and million dollars. Being able to tack on an additional 10-12 years of compound interest is huge (factoring in 4 years of medical school, 5 years of residency, and 3 years to save the initial amount). That and considering that one can refinance from relatively high interest federal loans to private loans for 2-4% for a 10, 15, or 20 year term. I just went through this with my SO and for our scenario, we decided that a longer term loan with a low interest rate is in our interest to have more room to invest for the long term.

 

[pigsinacloth]

I like this counterpoint and thought about that myself. You can do the math. Assume a rate of return for an investment of the money you could have applied to loans while paying just the regular payment over the duration of the loan vs. paying it off as fast as you can. You will probably find that gains from investment will outweigh whatever interest you would have saved by paying the loans off faster, BUT consider 1) capital gains on investment gains and 2) state of the market. If you assume a 10% from an entire stock market index fund, and we move into a recession where gains evaporate, you would be better to pay off the loans.

This is the argument made against paying a mortgage off quickly. Student loans do not quite fit that however as the time horizon is likely much, much shorter, and the interest rates are higher.

I think by the time I considered this (as I have been getting my loans paid off in about 5 years after training), it may cost me 10k-40k to pay the loans off early. I did not consider taxes on the gains and did assume market would keep running hot for the next several years. You have to consider how much the mental ease is worth to you, and at this point, it is worth it to me to just get my loans done by end of 2022.

As an update after reading over people's comments and thinking about it myself, I am currently taking out just enough loans to pay for tuition and housing costs and using my savings to pay for everything else during my first year.

I also realized after posing this that there is still a student loan payment/interest pause that may even get extended by another couple of months, so I don't even really need to worry about interest accruing right now. Given that situation, I am going to plan on saving my income and dividing it between expenses such as food, gas, etc, while also putting some of it aside in savings/roth, and putting around 10% of it into the market to hopefully grow at a reasonable rate and collect some dividends. I will then use previous savings to supplement all remaining expenses.

I think for me I mostly just don't like the idea of having debt and would rather just pay it off quicker rather than later because if I don't end up deciding to go into academic medicine I want it to be for reasons unrelated to finances and I definitely don't want it to have a huge influence on the field of medicine I choose to practice.

 

[dpmd]

Don't forget about origination fees. That money comes off immediately so you would be better served by reducing future loans taken than paying off loans you already paid origination fees on.

 

[Andrew StudentLoanAdvice]

As an update after reading over people's comments and thinking about it myself, I am currently taking out just enough loans to pay for tuition and housing costs and using my savings to pay for everything else during my first year.

I also realized after posing this that there is still a student loan payment/interest pause that may even get extended by another couple of months, so I don't even really need to worry about interest accruing right now. Given that situation, I am going to plan on saving my income and dividing it between expenses such as food, gas, etc, while also putting some of it aside in savings/roth, and putting around 10% of it into the market to hopefully grow at a reasonable rate and collect some dividends. I will then use previous savings to supplement all remaining expenses.

I think for me I mostly just don't like the idea of having debt and would rather just pay it off quicker rather than later because if I don't end up deciding to go into academic medicine I want it to be for reasons unrelated to finances and I definitely don't want it to have a huge influence on the field of medicine I choose to practice.

Sounds like a great plan. Your best bet is to live like a resident and have these done in a few years. The peace of mind will be astonishing.

Live Like a Resident | White Coat Investor

The secret to becoming the rich doctor your friends and family think you are is to live like a resident for 2-5 years after residency.

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[GeorgeM1]

There's probably the best decision which I read. Thanks!