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Med school debt question

dial1010usa

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I'm going to be an OMS III student.

My question is, if my family member is willing to help me financially what is the best option out of these?

1- Pay part of my 3rd year tuition fee.
2- Pay part of loans I have for OMS I/II
3-Pay the interest on loans from OMS I/II
 
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Ho0v-man

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Save the money for 4th year apps/aways, etc. My school typically gives out less money during 4th year despite expecting you to travel for interviews and auditions. So I’d save the money for help with that.
 
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km93

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make a post on the white coat investor forum or reddit personal finance sub.
You need to provide more info for people to actually advise you (total amount of loans, interest rates on those loans, budget for M3/M4, how much financial assistance your family is offering).

General advice is to pay off your loans with the highest interest rates first.
 
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Dr. Vinnie Boombatz

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What's your interest rate? The market is highly volatile right now but if you think you can make a higher percentage there than your interest rate then your money is more efficiently used in the market rather than paying off loans. I know it sounds counterintuitive but that's how it works.
 

km93

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What's your interest rate? The market is highly volatile right now but if you think you can make a higher percentage there than your interest rate then your money is more efficiently used in the market rather than paying off loans. I know it sounds counterintuitive but that's how it works.
Dude. Terrible advice. Don’t invest money you can’t afford to lose.
 
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Dr. Vinnie Boombatz

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Dude. Terrible advice. Don’t invest money you can’t afford to lose.
OP made it seem like this was a gift to not be paid back and he already has the loans to cover tuition and living expenses. He doesn't need this money to live and the ways he wants to spend it involve paying off existing loans. I'm saying that the money is better utilized in the market. Longterm, a diverse portfolio (I'm not saying risk it all in a startup) will grow an average of 7% per year. If his interest rates are lower than that he'd make more money off his investment interest than he'd be losing on his loan interest. Most financial managers will say the same thing. To put it in numbers, say he has $10,000 in loans at 5% per year and receives a $10,000 gift from family. He can either pay off the loan or invest the money. If the investment grows the average 7% he's made $700 and lost $500 to the loan's interest meaning he's still netted $200. If he just paid the loan off he'd have netted $0. Personally, I probably wouldn't invest it right now due to the market volatility caused by the pandemic, but, there's every indication that once the pandemic is over the market will return to its pre-pandemic numbers.
 

dial1010usa

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Thank you everyone. For sure not interested in stock market at all. I have loans around $200k with interest rate of 4.5% to 6%. I should have added this in my main question. Again I'm asking the same question where should I use that money because my parents are willing to pay off some of the stuff or paying towards my tuition.
 

km93

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Just because student loans interest rates have gone down a bit doesn't take away the hefty loan origination fees they come with. For grad plus, this has been about 4%. So, for a $10,000 loan - $400 of that is gone from day one for the privilege of taking out a loan, and you will pay ~5.31% interest on that (5.31% on 10,000 = (0.0531/365)*10.000 = $1.45 per day (or about $530/year just in interest).

honestly there are people who geek out over personal finance and would gladly run the numbers for you on reddit or whitecoatinvestor for the fun of it. i'm not a financial advisor, neither are the posters above me.... this is a math problem - figure out how much you need for M3/M4 and how much your parents are willing to contribute. If there is leftover money (parents contribution - M3/M4 budget), THEN put it towards your highest interest loans (likely grad plus).

The fact that you have racked up 200K in two years (~6 months of which your loans have accrued no interest due to CARES act) tells me:
- your tuition is sky high ... and/or .. there's probably room in your budget to live a little more frugally.
 
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dial1010usa

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Just because student loans interest rates have gone down a bit doesn't take away the hefty loan origination fees they come with. For grad plus, this has been about 4%. So, for a $10,000 loan - $400 of that is gone from day one for the privilege of taking out a loan, and you will pay ~5.31% interest on that (5.31% on 10,000 = (0.0531/365)*10.000 = $1.45 per day (or about $530/year just in interest).

honestly there are people who geek out over personal finance and would gladly run the numbers for you on reddit or whitecoatinvestor for the fun of it. i'm not a financial advisor, neither are the posters above me.... this is a math problem - figure out how much you need for M3/M4 and how much your parents are willing to contribute. If there is leftover money (parents contribution - M3/M4 budget), THEN put it towards your highest interest loans (likely grad plus).

The fact that you have racked up 200K in two years (~6 months of which your loans have accrued no interest due to CARES act) tells me:
- your tuition is sky high ... and/or .. there's probably room in your budget to live a little more frugally.

Thank you! I went SMP route so the $200k loan was from 3 years. Yes, the tuition is $56k for med school.
I appreciate my parents everyday because they help me a lot.
 

dial1010usa

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If it were me I would save it for now; there‘s generally not enough loan money fourth year to cover interview season and moving for intern year. Then, with what’s leftover, I’d put money toward the oldest loans with the highest interest.

Is there a limit how much you can take all together? I heard from others too that there won't be enough money for the 4th year.
I have $13k of interest on $220k loan.
I was thinking of paying off $13k interest first.
 
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km93

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This is what I use to run my numbers. Play around with it. you can see how much it will save you to pay off the interest vs pay off smaller loans.

my advice is to make a budget for M3/M4 before doing anything with that money. Fourth year budget being high is usu because of the cost of interviewing/residency applications (as ortnakas said). I wouldn’t worry just yet. The class of 2021 will save thousands due to virtual interviews. Virtual interviews may become the standard for years to come. I would budget a little extra for fourth year compared to third (+5K).. but I wouldn’t be taking out an extra 15-20 grand this year (and paying hefty interest + origination fee) just because you “might” need it in one year. Again, if you do not have enough $$ from your parents to cover expenses for M3/M4 - do NOT pay off old loans.

I have less debt than you and I accrue about 11K/year in interest. I was offered an interest free familial loan and opted to put it towards all M4 expenses not covered by stafford, and to pay off my smaller grad plus loans (with the highest interest rate). When I ran the numbers using the site above, it made more sense to pay off the grad plus principal (and never have to pay that 7.6% interest) rather than to put it towards my interest.

if you want to see my excel spreadsheet, pm me.
 
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