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Pay Accruing Interest on my Unsubbed Loans vs. Investing?

Discussion in 'Finance and Investment' started by TysonCook, May 3, 2007.

  1. TysonCook

    TysonCook Senior Member Physician Faculty 10+ Year Member

    Aug 19, 2002
    Carolinas Medical Center
    So I'm going to ask your opinions on a financial question that I have. I have 2 years left in residency and will be able to save around $1,000 a month. I can do one of several things with that money.

    My loans are the following:
    $16,000 school loan in grace until graduation, 7% APR after.
    $4,000 Perkins, in grace until graduation, then 5%+T-Bill APR after.

    Staffords (consolidated and in economic hardship deferrment):
    Subsidized Principal $25,500.00 @2.875%
    Subsidized Principal $8,545.13 @4.750%
    Unsubsidized Principal $90,254.41 @2.875%
    Unsubsidized Principal $31,000.88 @4.750%

    Accrued Interst on my Stafford Unsubbed: $6,400

    $115,000 on a 6.15% 5/1 ARM

    So my options seem to be the fololwing
    1) Invest in the market $1000/mo, I guess in a MMA, CD (or something else?), then when I graduate and my privates kick in at ~7% APR have a chunk of change to pay them off ($20k)?
    2) Start paying the interest on my unsubbed loans ($6,400), before it gets compounded? Then move on to #1
    3) Pay extra per month on my mortgage?
    4) Screw it and buy a bunch of hookers and coke as investing as a resident is futile?

    Any suggestions?
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  3. Sol Rosenberg

    Sol Rosenberg Long Live the New Flesh! 10+ Year Member

    Feb 11, 2006
    Living in America
    Everyone will have different advice, but mine is:

    Don't touch the 4.75% and 2.875% loans. Pay them off as slowly as possible (I wouldn't bother trying to avoid the capitalization.) It's quite likely that you will never find money that cheap again in your lifetime (maybe 4.75%, but not 2.875%)

    I'd pay off the 7% stuff and watch the variable rate Perkins stuff (? I thought that Perkins was 5% fixed -- mine from Ugrad were.) If it starts to get up there, then just pay it off.

    Then invest or pay off your house, as you see appropriate (need to consider tax implications of paying off your house, and I'd probably just lean towards investing.)

    If you are a smart and semi-lucky investor, you can make 10%+ long-term easily, so just paying the minimum and investing the maximum is a viable strategy, but if you aren't smart, or very unlucky, it's POSSIBLE that you may not see returns that good, so I usually go for a compromise of paying off debt with 6%+ interest (your mortgage is therefore borderline, esp. when considering the interest is tax deductible) vs investing.

    Just my opinion. I'm sure you will have plenty of others. Best of luck to you!
  4. TysonCook

    TysonCook Senior Member Physician Faculty 10+ Year Member

    Aug 19, 2002
    Carolinas Medical Center
    Thanks Jota, I think that its pretty straight forward on the staffords, but the invest vs paying down my mortgage is the tough one.

    Maybe I'll try to refinance for a lower APR, not sure how that works out.

    My plan is to have at least $20-25k in the market/bank to pay off those 7% loans, getting there is the hard part.

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