Pay interest or pay off principal balance? During medical school

  • Livestream AMA: Join SDN as we welcome Dr. John Ligon, a Pediatric Oncologist with the National Cancer Institute on May 11th at 8:00 PM Eastern. Register now!

dtx_17

2+ Year Member
Sep 29, 2017
44
10
Status (Visible)
  1. Medical Student
Second year here.
I got married recently, and my husband's income is enough to cover our monthly expenses. We have enough to invest ~$500 monthly in loan repayment. We have a fluffy enough savings already (TY cash wedding registry) so adding to savings is not in consideration.

My question is - is wiser to pay off accruing interest across the board while I'm a student, or to focus on lowering/paying off a couple of the principal balance (after paying that loan's interest, obviously).
I have ~$122k of principal, ~$5500 interest accrued thus far. I've taken out both Direct Student Plus ($27k) and Stafford loans (the rest).

I'll be posting this on the Financial Aid forum as well because I don't know which is better suited for my question :)
 

mvenus929

10+ Year Member
Jul 6, 2006
7,116
1,928
Status (Visible)
  1. Fellow [Any Field]
Honestly, probably a wash. So I guess it depends on whether or not you anticipate your interest capitalizing at any point.
I’d go for the highest interest loan. And hope $500 per month will allow you to actually pay it down.
 
  • Like
Reactions: 1 user
About the Ads

dtx_17

2+ Year Member
Sep 29, 2017
44
10
Status (Visible)
  1. Medical Student
Honestly, probably a wash. So I guess it depends on whether or not you anticipate your interest capitalizing at any point.
I’d go for the highest interest loan. And hope $500 per month will allow you to actually pay it down.
Sounds good! I dont think any of them start capitalizing until the grace period ends post grad.
 

dpmd

Relaxing
10+ Year Member
Sep 14, 2006
22,783
39,540
Lazytown
Status (Visible)
  1. Attending Physician
The Direct plus is about 7% and the Stafford loans are about 6% I believe, give or take a few tenths of a %.
Paying off the higher interest rate loan can have some benefits, but preventing interest from capitalizing is also good. With them being so similar in rate i think either will be fine (but make sure you also are maximizing retirement investment)
 

Stroganoff

15+ Year Member
Nov 6, 2003
44,398
28,773
$6000 to his Roth IRA, $6000 to your Roth IRA, max out his 401k (or whatever), then whatever is left can go towards your loans I guess. $2500 in interest/year is tax deductible (helps if married filing jointly too since it phases out at like ~$65k AGI if single).

It can get nuanced especially if juggling different kinds of loans (especially with private loans), but seems yours are Staffords and Direct Student PLUS so all government. I'd lay out your loans in a spreadsheet or whatever and obviously tackle the 7% ones first and if you can pick and choose individual loans instead of "groups," pay down the smallest 7% loan and dump every extra penny into that one (while also making sure you can max out the $2500 interest loan deduction).
 
  • Like
Reactions: 1 user

TheHungarianCPAPFS

CPA, CFP, IAR,Life Agent here to advise
Jan 14, 2020
15
4
Los Angeles, CA
www.erkfc.com
Status (Visible)
  1. Non-Student
If you have six month of reserved to pay for all your overhead, in case of emergencies, then I would attack one loan at a time. I would look at the highest interest rate loan first and pay that down/off. I would also look at if it is subsidized or not. If it isn't, then you are paying the interest right away. If it is, you have a grace period after graduation to pay off. So if while you are in school and in your grace period, you are able to pay off the highest interest/non subsided loan, then by that time you will have enough funds to pay off the subsidized/lower rate balance then. Hope this helps.
 
  • Like
Reactions: 1 user

dpmd

Relaxing
10+ Year Member
Sep 14, 2006
22,783
39,540
Lazytown
Status (Visible)
  1. Attending Physician
One thing to mention is make sure you are not paying on current loans while also taking out new loans. With the origination fees you are better off minimizing new loans even if that means you can't pay much on the prior loans (if you took some loan funds this year you may be able to cancel them and give them back to get out of the origination fees and interest charged)
 
  • Like
Reactions: 1 user
About the Ads
This thread is more than 1 year old.

Your message may be considered spam for the following reasons:

  1. Your new thread title is very short, and likely is unhelpful.
  2. Your reply is very short and likely does not add anything to the thread.
  3. Your reply is very long and likely does not add anything to the thread.
  4. It is very likely that it does not need any further discussion and thus bumping it serves no purpose.
  5. Your message is mostly quotes or spoilers.
  6. Your reply has occurred very quickly after a previous reply and likely does not add anything to the thread.
  7. This thread is locked.