Pay off student loans or invest?

[Troyzle]

Hey all. So I recently was lucky enough to receive the David Geffen scholarship to UCLA which pays for tuition and living expenses for all 4 years of med school. I talked to a M3 wjo also has the scholarship who told me that they give you more than rnough for all your expenses and he actually had enough to invest some of it.

I know mothing about investing, but I am trying to stary ASAP so I'm not one of the 42% of doctors who have less than 500k when they retire. Dilemma is that I have ~100k in student loans from a SMP with an interest rate of 6.5% that will accrue interest while I'm in med school.

I'm looking for advice on whether to invest/what to invest any remaining money I have left over after expenses or if I should repay the loans ASAP with that money. Any general investinf resources for future physicians/med students would also be greatly appreciated. Thanks in advance!

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[Dr. Mortgage Lender]

I’d do a mix of both. Investing sooner than later gives you the benefit of more time earning potential ....while paying debt down gives you the benefit of less time paying interest. Two sides of the same coin. Talking with a financial advisor or wealth manager (that knows what they are doing) can help you map out those financial goals and determine the best strategy for allocating the extra cash you have.

 

[NITRAS]

I listen to a lot of Dave Ramsey. Personally, I’d pay off my loans first and quickly. When you have no payments, you can aggressively invest.

Even if you don’t make much headway during med school or residency, you should be able to pay off your loans, get a good emergency fund...maybe a decent down payment on a house within probably 18 months of being an attending. Sooner if you make some headway during residency.

Between, 403b, 457, IRAs, HSA, I’m able to save quite a bit. People retire broke because they don’t pay attention, not because they don’t make enough money.

 

[Troyzle]

I listen to a lot of Dave Ramsey. Personally, I’d pay off my loans first and quickly. When you have no payments, you can aggressively invest.

Even if you don’t make much headway during med school or residency, you should be able to pay off your loans, get a good emergency fund...maybe a decent down payment on a house within probably 18 months of being an attending. Sooner if you make some headway during residency.

Between, 403b, 457, IRAs, HSA, I’m able to save quite a bit. People retire broke because they don’t pay attention, not because they don’t make enough money.

Yeah, I've watched a few Dave Ramsey videos. I haven't seen much of his stuff on investing though. Just the ones that are like, "I'm 300k in student debt, and I dropped out of college" lol. I'll have to take another look.

And yeah, I'm thinking that paying off loans immediately might be the best option. I do want to invest just so I start to understand the process better because I literally just wouldn't even know how to begin that, and my family is pretty clueless about it as well.

Thanks for the insight!

 

[Troyzle]

I’d do a mix of both. Investing sooner than later gives you the benefit of more time earning potential ....while paying debt down gives you the benefit of less time paying interest. Two sides of the same coin. Talking with a financial advisor or wealth manager (that knows what they are doing) can help you map out those financial goals and determine the best strategy for allocating the extra cash you have.

Yeah, I don't know how to get a financial advisor, but I plan on talking to the financial aid department at UCLA to see if they have any advice. Debt freaks me out. Especially debt that's accruing interest that I can do nothing about right now lol.

 

[NITRAS]

You might look at white coat investor.

Investing isn’t rocket science, but it can be daunting.

 

[LookForZebras]

After covering basic living expenses and having a modest emergency fund, paying off student loans is never a bad idea. Until you gain some knowledge about the basics of investing, I'd say go ahead and start paying back your loans. Once you feel more comfortable about investing and expected returns, you can consider slowing down your rate of loan payback in favor of investments that will likely be more beneficial to you.

 

[RangerBob]

With student loans at 6.5%, it’s hard to beat that rate of return by investing.

Most people also will be much happier with their student loans paid off compared to having a little more for retirement.

I’d pay off the loans. I probably wouldn’t look into investing until they were paid off (with the exception of maxing out 401k match if available inresidency).

Though, it’s probably worth putting money into a Roth IRA though, as you’re in such a low tax bracket (if you eve owe taxes on your scholarship money). Otherwise I’d personally put everything towards the loans.

 

[The Physician Philosopher]

Agree with a lot of the above.

1. Save up an emergency fund with three to six months worth of living expenses. That way, any emergencies that come up after that don't end up getting put on a credit card, which has a much higher interest rate than your 6.5% loans.
2. (In medical school, you won't have access to "matching" for retirement since you won't have a true income. This will change in residency where I would advise you to at least put enough money to get the match before putting additional money towards student loans. Otherwise, you are leaving money on the table).
3. If your SMP loans are federal loans (not sure what "SMP" stands for), they likely qualify for REPAYE (Revised Pay As You Earn), then I would take advantage of this. REPAYE is an income driven repayment program that will pay for half the interest on any remaining debt you have each month. Since the payment is based on your income, and your income is zero dollars while in school... your monthly payment is also zero dollars. And this will effectively take your interest rate down to 3.4% (only half the interest accrues) while you are growing that emergency fund. It is a pretty sweet deal.
4. If your SMP loans don't qualify for REPAYE, then I agree with what was said above about it being hard to beat 6.5% in the market. If someone offered you a guaranteed 6.5% return on an investment you were going to make, you'd take that. And that is exactly what you'd get from any money put towards your loans.

In the end, very few people regret paying down debt. Very many people regret putting money into the market when they had debt and later realized it wasn't a great idea. Particularly when that debt is at 6.5% interest.

If you want to learn more about personal finance for med student, residents, and early career attendings... there are places to learn these things (White Coat Invstor, Physician on Fire, or my site - The Physician Philosopher). There are also some really good book on the subject.

 

[Troyzle]

Agree with a lot of the above.

1. Save up an emergency fund with three to six months worth of living expenses. That way, any emergencies that come up after that don't end up getting put on a credit card, which has a much higher interest rate than your 6.5% loans.
2. (In medical school, you won't have access to "matching" for retirement since you won't have a true income. This will change in residency where I would advise you to at least put enough money to get the match before putting additional money towards student loans. Otherwise, you are leaving money on the table).
3. If your SMP loans are federal loans (not sure what "SMP" stands for), they likely qualify for REPAYE (Revised Pay As You Earn), then I would take advantage of this. REPAYE is an income driven repayment program that will pay for half the interest on any remaining debt you have each month. Since the payment is based on your income, and your income is zero dollars while in school... your monthly payment is also zero dollars. And this will effectively take your interest rate down to 3.4% (only half the interest accrues) while you are growing that emergency fund. It is a pretty sweet deal.
4. If your SMP loans don't qualify for REPAYE, then I agree with what was said above about it being hard to beat 6.5% in the market. If someone offered you a guaranteed 6.5% return on an investment you were going to make, you'd take that. And that is exactly what you'd get from any money put towards your loans.

In the end, very few people regret paying down debt. Very many people regret putting money into the market when they had debt and later realized it wasn't a great idea. Particularly when that debt is at 6.5% interest.

If you want to learn more about personal finance for med student, residents, and early career attendings... there are places to learn these things (White Coat Invstor, Physician on Fire, or my site - The Physician Philosopher). There are also some really good book on the subject.

Solid points for sure. Thanks for that response. Will definitely check your site out.

SMP=special master's program. Unsure if they have that PAYE option, but I'll look into it. Fairly certain they don't since it is a grad loan.

My idea to invest was solely so I understand investing better. Maybe invest 100 dollars into index funds just so I get a feel for what investing consists of. But agree that no index fund will provide anywhere close to a 6.5% return, so paying off student loans would be more beneficial.

Thanks again so much for that response!

 

[mvenus929]

With student loans at 6.5%, it’s hard to beat that rate of return by investing.

Most people also will be much happier with their student loans paid off compared to having a little more for retirement.

I’d pay off the loans. I probably wouldn’t look into investing until they were paid off (with the exception of maxing out 401k match if available inresidency).

Though, it’s probably worth putting money into a Roth IRA though, as you’re in such a low tax bracket (if you eve owe taxes on your scholarship money). Otherwise I’d personally put everything towards the loans.

You have to have earned income to contribute to a Roth IRA, so depending on the terms of the scholarship, they may not have this option.

 

[The Physician Philosopher]

Solid points for sure. Thanks for that response. Will definitely check your site out.

SMP=special master's program. Unsure if they have that PAYE option, but I'll look into it. Fairly certain they don't since it is a grad loan.

My idea to invest was solely so I understand investing better. Maybe invest 100 dollars into index funds just so I get a feel for what investing consists of. But agree that no index fund will provide anywhere close to a 6.5% return, so paying off student loans would be more beneficial.

Thanks again so much for that response!

Got it.

It matters less what your loans were for and it is more about what kind of loans you have. If you have federal loans (federal direct, subsidized, unsubsidized, Grad PLUS, etc), many of them can qualify. However, some have to be consolidated (combined together) so that they qualify.

You can read here if you want to learn more about that.

If you are not married and earning zero dollars, entering into REPAYE could save you money on interest earned during training.

If you were not in the situation of having medical school paid for via scholarships, this obviously wouldn't be the best plan.

And now that I think about it, I am wondering if there is anything that would prevent you from being able to enroll in REPAYE during medical school (as opposed to residency). I'll have to do some digging to see if there is a reason you couldn't consolidate and then enter the program during med school.

You have to have earned income to contribute to a Roth IRA, so depending on the terms of the scholarship, they may not have this option.

That's true. I guess I was including that portion more for when the OP was a resident. Though, if you are married and your spouse does not work you can still contribute $6,000 per year for your non-working spouse so long as you have earned income.

 

[235009]

There's definitely a mix of good, bad and misinformed advice here.
The absolute bottom line is pay off the loans ASAP. There is no investment that will guarantee you 6.8% return. It just doesn't exist. Also remember that unless you pay off the interest immediately when you finish med school all that interest is going to compound once your loans go into repayment.

I’d do a mix of both. Investing sooner than later gives you the benefit of more time earning potential ....while paying debt down gives you the benefit of less time paying interest. Two sides of the same coin. Talking with a financial advisor or wealth manager (that knows what they are doing) can help you map out those financial goals and determine the best strategy for allocating the extra cash you have.

There's no point in doing a mix of both. Paying off the loan is a guaranteed 6.8% return. That wins hands down. There's no reason to put money in something that isn't going to net as much.

After covering basic living expenses and having a modest emergency fund, paying off student loans is never a bad idea. Until you gain some knowledge about the basics of investing, I'd say go ahead and start paying back your loans. Once you feel more comfortable about investing and expected returns, you can consider slowing down your rate of loan payback in favor of investments that will likely be more beneficial to you.

Agree with this except for the emergency fund. This totally depends on your situation. Do you have parents who are financially comfortable/well off to fall back on? Do you have a family of your own? If you have security in the form of your family willing and able to back you up in case something happens then you don't need a 3-6 month emergency fund as is usually recommended for adults who are on their own. Always nice to have a couple thousand on hand for fluctuations in spending but otherwise I wouldn't go crazy. That money is just going to be sitting in a savings account earning, at best, ~2.4%

With student loans at 6.5%, it’s hard to beat that rate of return by investing.

Most people also will be much happier with their student loans paid off compared to having a little more for retirement.

I’d pay off the loans. I probably wouldn’t look into investing until they were paid off (with the exception of maxing out 401k match if available inresidency).

Though, it’s probably worth putting money into a Roth IRA though, as you’re in such a low tax bracket (if you eve owe taxes on your scholarship money). Otherwise I’d personally put everything towards the loans.

You have to have earned income to qualify for a Roth IRA. Your scholarship is not earned income so you aren't allowed to put money in a Roth IRA. If you do you'll have to pay a 6% penalty every year it's in there until you either qualify and use that money as that year's contribution or you have to pay a 10% penalty to withdraw the funds.

A Roth IRA is a great idea however and you should absolutely start one and max it out every year in residency!

 

[LookForZebras]

Agree with this except for the emergency fund. This totally depends on your situation. Do you have parents who are financially comfortable/well off to fall back on? Do you have a family of your own? If you have security in the form of your family willing and able to back you up in case something happens then you don't need a 3-6 month emergency fund as is usually recommended for adults who are on their own. Always nice to have a couple thousand on hand for fluctuations in spending but otherwise I wouldn't go crazy. That money is just going to be sitting in a savings account earning, at best, ~2.4%

One should really be an "adult who is on their own" by the time he or she is in medical school. If you have parents who'll throw some cash at you in a pinch, that's great, but you shouldn't depend on it.

 

[235009]

One should really be an "adult who is on their own" by the time he or she is in medical school. If you have parents who'll throw some cash at you in a pinch, that's great, but you shouldn't depend on it.

If you're still in school and have never had any income then you aren't exactly an "adult who is on their own"

 

[LookForZebras]

If you're still in school and have never had any income then you aren't exactly an "adult who is on their own"

If you're not yet, you can at least take a step toward getting there by establishing a modest emergency fund.

 

[mvenus929]

If you're still in school and have never had any income then you aren't exactly an "adult who is on their own"

If you're not yet, you can at least take a step toward getting there by establishing a modest emergency fund.

Especially if you're getting a scholarship that more than pays for your expenses during school--that's essentially getting paid for going to school.

 

[ArdorAyurveda]

This is a good thread!

I’m curious to hear more about this scheme of entering REPAYE while you’re still a med student though. Interest does not accrue because you’re a med student and not earning income?

 

[RangerBob]

This is a good thread!

I’m curious to hear more about this scheme of entering REPAYE while you’re still a med student though. Interest does not accrue because you’re a med student and not earning income?

You can’t enter REPAYE (or any payment plan) until you are out of school and your loans are out of grace.

You can of course, make one-time payments to your loans at any time.

Interest unfortunately will accrue on any non-subsidized loans (I think all are unsubsidized now) while in med school. But that interest will not capitalize (meaning the interest doesn’t get added to the principle) until your grace period ends/you start repayment.

 

[mvenus929]

This is a good thread!

I’m curious to hear more about this scheme of entering REPAYE while you’re still a med student though. Interest does not accrue because you’re a med student and not earning income?

In addition to the above, REPAYE provides a subsidy for interest—50% of unpaid interest. Which means that your interest is still accruing in REPAYE, just not as much as if you were in a different repayment plan.

 

[Troyzle]

These responses are great, guys! Super helpful, and I seriously appreciate those of you that took the time to respond.

To follow up on some things: my parents would be willing to back me up financially, though knowing some things about their current financial situation, they can't afford to (even if they tell me otherwise). So an emergency fund is a great idea. I've been watching more of Dave Ramsey's stuff on YouTube which is really great, and he talks about the 3-6 months of expenses saved as well. With the scholarship, I'm not sure an emergency fund of that size will be necessary since I'll be getting around 30k (including what is taken out from taxes) for my expenses for the next 4 years. I've lived on a lot less and have already ran through the expenses of LA living, and I should be able to have around 5 grand of this remaining each year.

With this in mind, I plan on saving up at my job currently to have around 1 month of expenses saved up for an emergency fund and investing any other remaining funds into my loans.

 

[The Physician Philosopher]

You can’t enter REPAYE (or any payment plan) until you are out of school and your loans are out of grace.

So, normally this is true as you accrue more debt, but for the OP (who got a full-ride for medical school), what would stop them from filing a tax with an AGI of zero dollars, consolidating the debt to get out of the grace period, and paying zero dollars each month under REPAYE while in medical school?

It is a bit of a unique situation, and I cannot find a definitive answer on whether you can enter this program while in medical school if you consolidate.

Not questioning your knowledge here, but I'd love to see the source of that information.

 

[RangerBob]

So, normally this is true as you accrue more debt, but for the OP (who got a full-ride for medical school), what would stop them from filing a tax with an AGI of zero dollars, consolidating the debt to get out of the grace period, and paying zero dollars each month under REPAYE while in medical school?

It is a bit of a unique situation, and I cannot find a definitive answer on whether you can enter this program while in medical school if you consolidate.

Not questioning your knowledge here, but I'd love to see the source of that information.

Unfortunately you can’t consilidate your federal loans with a federal consolidation loan until they are no longer in in-school status. But many consolidate after graduation (it usually takes a few weeks for the system to register you as being out of school) but prior to starting internship so they can legitimately claim an AGI of $0.

I don’t have a specific source to reference-this is from looking at the federal consolidation loan refs, talking with my services (FedLoan) and hearing others’ experience here on SDN.

If we were talking about undergrad loans (or the OP took a leave of absence from med school), then there could be ways to consolidate while in med school. But as long as any loan is in in-school status, you can’t consolidate it (with a federal consolidation loan)

 

[The Physician Philosopher]

Unfortunately you can’t consilidate your federal loans with a federal consolidation loan until they are no longer in in-school status. But many consolidate after graduation (it usually takes a few weeks for the system to register you as being out of school) but prior to starting internship so they can legitimately claim an AGI of $0.

I don’t have a specific source to reference-this is from looking at the federal consolidation loan refs, talking with my services (FedLoan) and hearing others’ experience here on SDN.

If we were talking about undergrad loans (or the OP took a leave of absence from med school), then there could be ways to consolidate while in med school. But as long as any loan is in in-school status, you can’t consolidate it (with a federal consolidation loan)

The OP only has undergrad loans... None of them will be "in school" status. They have a full ride.

Given this unique situation, I don't see why they couldn't...

 

[235009]

The OP only has undergrad loans... None of them will be "in school" status. They have a full ride.

Given this unique situation, I don't see why they couldn't...

Huh? Federal loans get deferred when you matriculate as a full time student. Doesn't matter whether they're undergrad or grad, doesn't matter if you have full ride. You have to be in repayment in order to consolidate. There's no way to "game" the system here.

 

[RangerBob]

The OP only has undergrad loans... None of them will be "in school" status. They have a full ride.

Given this unique situation, I don't see why they couldn't...

As MeatTornado states, undergrad loans (any federal loans for that matter, including graduate loans and/or federal consolidation loans) return to "in school" status automatically upon matriculating to med school.

 

[Doctorows]

Unfortunately you can’t consilidate your federal loans with a federal consolidation loan until they are no longer in in-school status. But many consolidate after graduation (it usually takes a few weeks for the system to register you as being out of school) but prior to starting internship so they can legitimately claim an AGI of $0.

I don’t have a specific source to reference-this is from looking at the federal consolidation loan refs, talking with my services (FedLoan) and hearing others’ experience here on SDN.

Can confirm. I tried consolidating my federal loans shortly after match day, but the application got denied because of my in-school status at the time. Only after my school updated my status to graduated, and my loan status changed to "in grace period", was I able to proceed with consolidation. I had to decline my grace period to be able to enter repayment and enroll in REPAYE right away and thus take advantage of my AGI of $0 at the time.

 

[The Physician Philosopher]

Huh? Federal loans get deferred when you matriculate as a full time student. Doesn't matter whether they're undergrad or grad, doesn't matter if you have full ride. You have to be in repayment in order to consolidate. There's no way to "game" the system here.

Got it. Never had someone in this situation before, and had never thought about consolidating while in grad school (med school in this case), because ~80% of students have loans when graduating medical school.

When trying to search for the answer to the question of whether you can consolidate while in school, it is actually harder than you'd think to find the answer.

I did find one article saying that consolidation used to be possible for those during "in school" status, but that was changed and no longer permissable. "Students can no longer consolidate while they are still in school."

Here is another one outlining the change.

 

[FlowRate]

It's not a cut and dried question but more related to risk tolerance and the emotional component of being in debt. My version of the above goes something like:

During Residency:
1. Emergency Fund
2. Max Roth IRA, even if you don't get matching
3. Income-based payments (if federal) or deferment/forbearance of others (unless you get paid way more than you need for a decent standard of living where you do residency)

After Residency:
1. Emergency Fund
2. Max any matching funds from employer or, if employed and in a particularly high earning specialty, max tax-advantaged accounts (401k)
3. Aggressive loan payments

Even using very conservative assumptions it's actually better* to invest a sizable amount during your first few years as an attending vs. paying your loans off in two years instead of four or five. You can use this calculator to test your own scenarios.

*Assuming your conservative assumptions don't turn out to have been optimistic assumptions, so there is a risk tolerance issue here. Can't rely on the market to do any particular thing in this relatively short term.

 

[235009]

It's not a cut and dried question but more related to risk tolerance and the emotional component of being in debt. My version of the above goes something like:

During Residency:
1. Emergency Fund
2. Max Roth IRA, even if you don't get matching
3. Income-based payments (if federal) or deferment/forbearance of others (unless you get paid way more than you need for a decent standard of living where you do residency)

After Residency:
1. Emergency Fund
2. Max any matching funds from employer or, if employed and in a particularly high earning specialty, max tax-advantaged accounts (401k)
3. Aggressive loan payments

Even using very conservative assumptions it's actually better* to invest a sizable amount during your first few years as an attending vs. paying your loans off in two years instead of four or five. You can use this calculator to test your own scenarios.

*Assuming your conservative assumptions don't turn out to have been optimistic assumptions, so there is a risk tolerance issue here. Can't rely on the market to do any particular thing in this relatively short term.

....but OP is a med student

that being said I agree with the common sense (though off topic) outline you've written for residents/attendings

 

[751866]

There's definitely a mix of good, bad and misinformed advice here.
The absolute bottom line is pay off the loans ASAP. There is no investment that will guarantee you 6.8% return. It just doesn't exist. Also remember that unless you pay off the interest immediately when you finish med school all that interest is going to compound once your loans go into repayment.



There's no point in doing a mix of both. Paying off the loan is a guaranteed 6.8% return. That wins hands down. There's no reason to put money in something that isn't going to net as much.



Agree with this except for the emergency fund. This totally depends on your situation. Do you have parents who are financially comfortable/well off to fall back on? Do you have a family of your own? If you have security in the form of your family willing and able to back you up in case something happens then you don't need a 3-6 month emergency fund as is usually recommended for adults who are on their own. Always nice to have a couple thousand on hand for fluctuations in spending but otherwise I wouldn't go crazy. That money is just going to be sitting in a savings account earning, at best, ~2.4%



You have to have earned income to qualify for a Roth IRA. Your scholarship is not earned income so you aren't allowed to put money in a Roth IRA. If you do you'll have to pay a 6% penalty every year it's in there until you either qualify and use that money as that year's contribution or you have to pay a 10% penalty to withdraw the funds.

A Roth IRA is a great idea however and you should absolutely start one and max it out every year in residency!

There is a common theme when you post: you seem to be the only one in a thread with a good understanding of what you're saying. I'll only add for the OP that a financial advisor will almost certainly be a waste of your time and your money. They almost never justify what you pay them and most aren't that bright (they just use vocabulary words you're not familiar with). You're smart enough to learn what most FAs would do for you. The only exception would be something that likely won't apply to any of us; if you're uber wealthy (hundreds of millions) having an asset management/legal/accounting team might make sense.

 

[Noah Littell]

Yeah, I don't know how to get a financial advisor, but I plan on talking to the financial aid department at UCLA to see if they have any advice. Debt freaks me out. Especially debt that's accruing interest that I can do nothing about right now lol.

Hey, so the best advice I can offer is that you should start the vetting process of finding a Physician specific advisor who can show you signed testimonials from their Dr clients that you can spot check by calling them and ask their opinion on the advisor. Everyone’s relationship with money and individualistic goals are unique so find someone that you start building trust and grow long term with. Best, Noah

 

[751866]

Hey, so the best advice I can offer is that you should start the vetting process of finding a Physician specific advisor who can show you signed testimonials from their Dr clients that you can spot check by calling them and ask their opinion on the advisor. Everyone’s relationship with money and individualistic goals are unique so find someone that you start building trust and grow long term with. Best, Noah

95% of financial advisors don't know squat and the perceived difference is vocabulary. Signed testimonials aren't worth much when those signing can't vet risk adjusted returns or make assessments on the given advice.

 

[redfish955]

I would pay off your loans because you can always take out more loans down the road. Then follow this. How Do I Save for Retirement, College, and Pay Off the Mortgage at the Same Time?. The only other thing I would add is to get a house you can pay off in fifteen years instead of leveraging into one on a 30 year loan.

 

[751866]

I would pay off your loans because you can always take out more loans down the road. Then follow this. How Do I Save for Retirement, College, and Pay Off the Mortgage at the Same Time?. The only other thing I would add is to get a house you can pay off in fifteen years instead of leveraging into one on a 30 year loan.

You should clarify that someone should buy a home only that they can comfortably afford on 10-15 year mortgage (payment-wise), but taking a 30 year mortgage on that same house isn't generally "a no-no". You can always prepay the mortgage in 10-15 years as long as you didn't get a crappy mortgage with prepayment penalty.

 

[Noah Littell]

95% of financial advisors don't know squat and the perceived difference is vocabulary. Signed testimonials aren't worth much when those signing can't vet risk adjusted returns or make assessments on the given advice.

Agreed. So goal should be to find those 5% out there. And if word of mouth and peer feedback attesting to the aptitude of an advisor isn’t meaningful, then yea it’s going to be tough. Or you can just rely on google/yelp reviews.

 

[calvnandhobbs68]

It's not a cut and dried question but more related to risk tolerance and the emotional component of being in debt. My version of the above goes something like:

During Residency:
1. Emergency Fund
2. Max Roth IRA, even if you don't get matching
3. Income-based payments (if federal) or deferment/forbearance of others (unless you get paid way more than you need for a decent standard of living where you do residency)

After Residency:
1. Emergency Fund
2. Max any matching funds from employer or, if employed and in a particularly high earning specialty, max tax-advantaged accounts (401k)
3. Aggressive loan payments

Even using very conservative assumptions it's actually better* to invest a sizable amount during your first few years as an attending vs. paying your loans off in two years instead of four or five. You can use this calculator to test your own scenarios.

*Assuming your conservative assumptions don't turn out to have been optimistic assumptions, so there is a risk tolerance issue here. Can't rely on the market to do any particular thing in this relatively short term.

I would certainly have an emergency fund during residency but it can probably be less than when you work as an attending. Both the residency programs I've been have required you to pay into disability insurance and it would be unlikely for you to lose your job without much warning.

If you have a 401k/403b (most hospitals will) where they match basically anything, you should pay into this FIRST (before a Roth IRA) up to the max matching amount. Even better if it's a Roth 401k/403b. You instantly get 50-100% (usually get at least 50% matching to a certain amount) return on investment.

 

[FlowRate]

If you have a 401k/403b (most hospitals will) where they match basically anything, you should pay into this FIRST (before a Roth IRA) up to the max matching amount. Even better if it's a Roth 401k/403b. You instantly get 50-100% (usually get at least 50% matching to a certain amount) return on investment.

Very few hospitals provide matching to residents and the few I've come across require 5 years to vest. Agreed, you should max matched funds if available and no issues with vesting.

 

[calvnandhobbs68]

Very few hospitals provide matching to residents and the few I've come across require 5 years to vest. Agreed, you should max matched funds if available and no issues with vesting.

Eh, my last program started matching 50% from the first day you got there and vested in 3 years and my current program matches 50% after you've been employed for a year (although you can contribute to a Roth 403b starting with your first paycheck) and vests in 3 years (so any resident should be fully vested by the time they're done).

 

[FlowRate]

Eh, my last program started matching 50% from the first day you got there and vested in 3 years and my current program matches 50% after you've been employed for a year (although you can contribute to a Roth 403b starting with your first paycheck) and vests in 3 years (so any resident should be fully vested by the time they're done).

That's awesome and, as far as I know, pretty rare. Surprising both of your programs are that way.

EDIT: Actually, I shouldn't have used "very few" or "most." So much as "few that I looked at for residency" which were mostly big hospitals in large metros not in the midwest.

 

[dpmd]

You should clarify that someone should buy a home only that they can comfortably afford on 10-15 year mortgage (payment-wise), but taking a 30 year mortgage on that same house isn't generally "a no-no". You can always prepay the mortgage in 10-15 years as long as you didn't get a crappy mortgage with prepayment penalty.

Yeah, but that sweet rate discount on a 15 yr is nice.

 

[redfish955]

Yeah, but that sweet rate discount on a 15 yr is nice.

It leaves you room to save either way.

 

[751866]

Yeah, but that sweet rate discount on a 15 yr is nice.

Gotta look at the crossover point of where the lower rate on a 15 year would be better than lower required payments on a 30 year with optional additional payment amounts above the required. Flexibility to pay more and required to pay less can be very beneficial.

 

[751866]

Agreed. So goal should be to find those 5% out there. And if word of mouth and peer feedback attesting to the aptitude of an advisor isn’t meaningful, then yea it’s going to be tough. Or you can just rely on google/yelp reviews.

Or learn it yourself. After the vocabulary requirements, financial planning isn’t rocket science and the time you put into learning and doing it yourself outweighs costs of an advisor in most cases.

A tax lawyer or good CPA/CFA charterholder might be worth money in some selected cases.

 

[OraclePL]

Hey all. So I recently was lucky enough to receive the David Geffen scholarship to UCLA which pays for tuition and living expenses for all 4 years of med school. I talked to a M3 wjo also has the scholarship who told me that they give you more than rnough for all your expenses and he actually had enough to invest some of it.

I know mothing about investing, but I am trying to stary ASAP so I'm not one of the 42% of doctors who have less than 500k when they retire. Dilemma is that I have ~100k in student loans from a SMP with an interest rate of 6.5% that will accrue interest while I'm in med school.

I'm looking for advice on whether to invest/what to invest any remaining money I have left over after expenses or if I should repay the loans ASAP with that money. Any general investinf resources for future physicians/med students would also be greatly appreciated. Thanks in advance!

A list of things I would consider. I personally would not do #1 below, but I mention it for the sake of completeness because you didn't explain what your "leftover money" situation is going to be like. We need specifics on your expenses and scholarship money to make clear recommendations, but here are some things to consider:

1) Assuming you're not going for public service loan forgiveness and intend to pay the $100,000k back, you can consider refinancing those loans. Why? To lower your interest rate from 6.5% to ~4% based on current rates. However there's a big caveat here: you only refinance if you're sure you can make the payments every month. If there's any doubt - if your income isn't steady, if there's a chance your expenses go up in LA and you can't afford a minimum $1000 payment a month or whatever it is, then you wait to refinance until residency.

(Long explanation: There are 2 reasons not to refinance: you're not planning on paying off the full loan (going for PSLF) or you don't think you can make the payments consistently in medical school without income. I generally don't like deferment/forbearance, but I understand when you're a med student with no steady income it's often necessary. If you refinance your loans to a private lender, you're stuck making the payments every month without conveniences like income-based repayment).


2) Let's say you've decided to hold off on refinancing because you're not sure how much extra money you'll have, or how steady your expenses will be. What should you do with your money?

Take advantage of every tax-deferred account you have first - however I don't think you're going to have any as a med student. You don't really have a job. AFAIK, scholarship money isn't classified the same as taxable income from an occupation that's reported on a W2, so you can't open up an IRA.

So with no tax-advantaged plans to save for retirement, I would recommend putting most of your extra money towards paying down the 6.5% loan. Think of it this way: if you invest, you may make more than 6.5% in any given year on the stock market. You could also make way less or lose money. That's assuming you know how to invest correctly. But if you pay down your loans, you are getting a guaranteed 6.5% return which is very solid.

TL;DR version: I would save up an emergency fund first (if you have family depending on you, a little larger; if you have parents to help you out in case of emergency, a very small one) and then pay down the loans.

 

[FlowRate]

A list of things I would consider. I personally would not do #1 below, but I mention it for the sake of completeness because you didn't explain what your "leftover money" situation is going to be like. We need specifics on your expenses and scholarship money to make clear recommendations, but here are some things to consider:

1) Assuming you're not going for public service loan forgiveness and intend to pay the $100,000k back, you can consider refinancing those loans. Why? To lower your interest rate from 6.5% to ~4% based on current rates. However there's a big caveat here: you only refinance if you're sure you can make the payments every month. If there's any doubt - if your income isn't steady, if there's a chance your expenses go up in LA and you can't afford a minimum $1000 payment a month or whatever it is, then you wait to refinance until residency.

(Long explanation: There are 2 reasons not to refinance: you're not planning on paying off the full loan (going for PSLF) or you don't think you can make the payments consistently in medical school without income. I generally don't like deferment/forbearance, but I understand when you're a med student with no steady income it's often necessary. If you refinance your loans to a private lender, you're stuck making the payments every month without conveniences like income-based repayment).


2) Let's say you've decided to hold off on refinancing because you're not sure how much extra money you'll have, or how steady your expenses will be. What should you do with your money?

Take advantage of every tax-deferred account you have first - however I don't think you're going to have any as a med student. You don't really have a job. AFAIK, scholarship money isn't classified the same as taxable income from an occupation that's reported on a W2, so you can't open up an IRA.

So with no tax-advantaged plans to save for retirement, I would recommend putting most of your extra money towards paying down the 6.5% loan. Think of it this way: if you invest, you may make more than 6.5% in any given year on the stock market. You could also make way less or lose money. That's assuming you know how to invest correctly. But if you pay down your loans, you are getting a guaranteed 6.5% return which is very solid.

TL;DR version: I would save up an emergency fund first (if you have family depending on you, a little larger; if you have parents to help you out in case of emergency, a very small one) and then pay down the loans.

I was so confused reading your post before the post you were replying to like "if he has all this money, why is he taking out med school loans?" And then I read his post. Damn, 100k just for an SMP?

Now that I know what you're replying to, I think this is a very reasonable take. Basically you're telling OP to figure out what the difference will be between their stipend and their COL. If it's enough to support a standard refinanced repayment then that makes sense. Otherwise he can do IBR/prepay above IBR/invest.

 

[chunkingstudentdebt]

It's not a cut and dried question but more related to risk tolerance and the emotional component of being in debt. My version of the above goes something like:

During Residency:
1. Emergency Fund
2. Max Roth IRA, even if you don't get matching
3. Income-based payments (if federal) or deferment/forbearance of others (unless you get paid way more than you need for a decent standard of living where you do residency)

After Residency:
1. Emergency Fund
2. Max any matching funds from employer or, if employed and in a particularly high earning specialty, max tax-advantaged accounts (401k)
3. Aggressive loan payments

Even using very conservative assumptions it's actually better* to invest a sizable amount during your first few years as an attending vs. paying your loans off in two years instead of four or five. You can use this calculator to test your own scenarios.

*Assuming your conservative assumptions don't turn out to have been optimistic assumptions, so there is a risk tolerance issue here. Can't rely on the market to do any particular thing in this relatively short term.

Great plan!

 

[The White Coat Investor]

Hey all. So I recently was lucky enough to receive the David Geffen scholarship to UCLA which pays for tuition and living expenses for all 4 years of med school. I talked to a M3 wjo also has the scholarship who told me that they give you more than rnough for all your expenses and he actually had enough to invest some of it.

I know mothing about investing, but I am trying to stary ASAP so I'm not one of the 42% of doctors who have less than 500k when they retire. Dilemma is that I have ~100k in student loans from a SMP with an interest rate of 6.5% that will accrue interest while I'm in med school.

I'm looking for advice on whether to invest/what to invest any remaining money I have left over after expenses or if I should repay the loans ASAP with that money. Any general investinf resources for future physicians/med students would also be greatly appreciated. Thanks in advance!

That's not an accurate statistic. However, about 1/4 of doctors have less than $1 Million net worth in their 60s.

 

[Vikings22]

To OP, I have some questions: (Congrats btw)

1. Does UCLA hand out the Geffen Scholarship on a holistic basis or is it strictly stats (GPA/MCAT)?
2. Did you take a Gap Year?
3. If not, do you think that taking a year off would've made you more likely to receive it?
4. How does it feel knowing that you don't have burden of taking out >$200k in loans

 

[kaycee18]

Hey all. So I recently was lucky enough to receive the David Geffen scholarship to UCLA which pays for tuition and living expenses for all 4 years of med school. I talked to a M3 wjo also has the scholarship who told me that they give you more than rnough for all your expenses and he actually had enough to invest some of it.

I know mothing about investing, but I am trying to stary ASAP so I'm not one of the 42% of doctors who have less than 500k when they retire. Dilemma is that I have ~100k in student loans from a SMP with an interest rate of 6.5% that will accrue interest while I'm in med school.

I'm looking for advice on whether to invest/what to invest any remaining money I have left over after expenses or if I should repay the loans ASAP with that money. Any general investinf resources for future physicians/med students would also be greatly appreciated. Thanks in advance!

I am doing a bit of both, although I am leaning more towards investment as any unfortunate event that can result in my death or if worst case scenario, i chose to flee, I can depend on the investment instead of living on handouts.