Hey everyone, just wondering what makes best financial sense. I am in a unique position where I don't have to take any loans for dental school. However, before anyone tells me how lucky I am the only reason I have this money is bc my dad passed away and left me some plus a life insurance policy. Obviously I'd rather have my dad back but just wondering, would you pay cash or take loans. Now that student graduate loans are unsubsidized I'm looking at 5.6 or so interest rate from the moment I take them. I'm a rather conservative investor so I don't want to risk a whole lot of my savings in the stock market, but I could make around 3.5% pretty safely. That's still a lot less than the interest rate, but is peace of mind worth the added interest? Once I spend all this money I can never get it back, but if I take loans things are a bit more relaxed( payment schedules, etc) anyway just wanted to get some thoughts on it! Thanks!
Paying cash vs loans for dental school
- Thread starter Kayaker89
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This wouldn't be a question to me. Cash.
You have a guaranteed "return" of 6.21% if you don't take out the loans. (And this number may very well rise every year.) You might be able to make "3.5% pretty safely" in the stock market.
If the loans were at 2-3%, then maybe we'd have something to discuss here. But they aren't! 🙂
You have a guaranteed "return" of 6.21% if you don't take out the loans. (And this number may very well rise every year.) You might be able to make "3.5% pretty safely" in the stock market.
If the loans were at 2-3%, then maybe we'd have something to discuss here. But they aren't! 🙂
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I am also a pretty risk-averse person. I would probably pay the first two years cash (so to lower the principal and following interest) and take loans the last two years. This leaves you with at least some investment funds and some flexibility and also makes your loan payments more manageable (typically the lower the debt is, the harder we attack it).
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The OP didn't say that paying for all 4 years would wipe out all of his inheritance, though... Or maybe that last sentence kind of implies it.
Can you clarify, OP?
Either way, I still think I'd do basically the same thing. You can pay for dental school with interest, or you can pay for it without interest. You're going to pay for it all eventually--these loans go with you to your grave. 🙂 I'd just rather start out debt-free. Save the investing for afterwards.
Or, maybe just invest a little bit for the next 4 years.
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Yeah that's true - I was assuming it would take the great majority of it! For example, if my school COA was 400K but I had over 100K left over after paying for the full COA, then yes I would certainly pay in 100% cash. I'm going off the philosophy that the more money we have the less important it becomes. It'd be nice to have quite a bit of money after dental school that allows for some more life choices - whether that's taking a lower salary to dig into a certain geographical area, do a GPR, put a sizeable down payment on a home...instead of having none of these options because you used your whole inheritance to pay off your loans. Choices make us happy 🙂
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I'm with the above posters, I think you'll be hard pressed to find a safe investment that will get you a return that is greater than the interest on your student loans. Towards the end of dental school you may have a better idea of where life will take you afterwards, and whether you'll want some savings to relocate, put a down payment on a house, car or even a practice. No one knows what the interest rate on student loans will be in 3 years, so if they go down in the future (unlikely, as far as I know), maybe it'll be worth putting that money elsewhere. For now, though, I'd get year 1 all paid for and go from there.
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Solid advice. Just decide on a year-by-year basis, since you can do that!
Kayaker, how much would you expect to have left at the end of DS? Do you already know what school you're going to?
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never heard of a cash discount....only "discount" I know of is paying your tuition off in full at the beginning of the semester or quarter prevents them from tacking on a few hundred bucks by being in a payment installment plan (something like 3 payments over the semester, etc.). But this isn't really a discount anyway.
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Take out loans which can be deferred while your attendance in college. And pay cash for what ever balance is left.
, put maybe 3/4 of your cash you don't need in a CD account, for your duration in DS.
Financially Plan ahead.....
Avoid any loans which will accumulate interests while in school.
Once you graduate you have up to 6months or a 1yr of deferment for your loans, or until you get a job,
Something like that.
Good luck in DS.
, put maybe 3/4 of your cash you don't need in a CD account, for your duration in DS.
Financially Plan ahead.....
Avoid any loans which will accumulate interests while in school.
Once you graduate you have up to 6months or a 1yr of deferment for your loans, or until you get a job,
Something like that.
Good luck in DS.
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That I haven't heard of - I don't see the incentive for the school to do that, being that they're getting the tuition payment in a lump sum anyway. I'd speak with a financial advisor or CPA about finding a productive use for your funds that aren't being utilized right away.
As far as I know don't almost all loans accumulate interest while in school, is just you don't have to start paying them until you graduate?
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Yeah, subsidized loans are largely a thing of the past, I wouldn't count on getting any. Interest begins accruing as soon as the loan is deposited in your account, as far as I know. Most students will fund dental school through the Direct Unsubsidized loan (6.21% interest rate), and the Grad PLUS loan (also unsubsidized, 7.21% interest rate). I believe the Perkins loan is subsidized and has a pretty low interest rate (5% or something?), but is only available for students who demonstrate "exceptional financial need".
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I would go cash because as much as you plan on letting your money work for you it won't keep up with the ridiculous rates on dental loans. I agree with the poster above that doing as much as you can subsidized and then paying cash for the rest might be your best option.
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That would literally be ANY loan he took out to finance dental school. He has way too much money to qualify for anything subsidized.
Loans that are deferred still accumulate interest. Direct and PLUS loans aren't subsidized.
It definitely wouldn't hurt to talk to a financial advisor.
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It's still worth stating.
I agree with you on the financial advisor, def. worth it.
Or just compare positive and negative interests. Which combination would cause least amount of cash to be used, short term.
Financial advisor, a must.
The FA I talked too said to use cash, saying too many students are burdened with debt and I'll end up paying a lot less in the long run. It does make sense, but I've also heard many business people say always use someone else's money, bc it give more flexibility. So I don't know, in the short term I think cash is the way to go at least for the first couple years then maybe look into loans, thanks everyone for your advice! Keep it coming if you have any
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There some rules to money.
Cash is king.
Taking out loans at 6.8% -/+ 1-3%
For the 4yrs maybe you will owe
300-400k plus the interests, so let's say 400-500k you owe on the same day you start working.
But, this is the catch. Now you got cash you did not spend, 300-400k, plus you are working= cash flow.
(Cash flow + cash (in this case cash is approx. equal to debt) ) + debt = good ratios, and will kinda look good that you can easily manage debt, in the eye of lenders.
Cash is king, again , say within the last year of DS there is an opportunity to invest in a dental office, you got the cash and partners and/or lenders will like you.
Interesting situation.
Cash is king.
Taking out loans at 6.8% -/+ 1-3%
For the 4yrs maybe you will owe
300-400k plus the interests, so let's say 400-500k you owe on the same day you start working.
But, this is the catch. Now you got cash you did not spend, 300-400k, plus you are working= cash flow.
(Cash flow + cash (in this case cash is approx. equal to debt) ) + debt = good ratios, and will kinda look good that you can easily manage debt, in the eye of lenders.
Cash is king, again , say within the last year of DS there is an opportunity to invest in a dental office, you got the cash and partners and/or lenders will like you.
Interesting situation.
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Plus loan payments can be tax write offs.
Look into future tax scenarios also.
Look into future tax scenarios also.
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Capital one has a credit card that gives you 1.5% cash bonus for any purchase. Perhaps you should charge the entire semester on it and rinse and repeat.
Or you could just pay for 2-3 years, and invest in some business. Laundry mats pretty much run on their own, ect. Your father left you in a good position, whatever you decide, you'll make him proud.
Or you could just pay for 2-3 years, and invest in some business. Laundry mats pretty much run on their own, ect. Your father left you in a good position, whatever you decide, you'll make him proud.
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CASHHHHHH
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I can play devil's advocate here:
I think everyone's done an excellent job explaining why paying down the school costs with cash before taking on school loans is the way to go. However, what if you bought a house/condo first? Consider that renting for 4 years will run you tens of thousands of dollars over the span of dental school. If you were to purchase a property instead, you would get a return on that money. The exact amount depends on the market, and this plan would only work for lower priced COL areas, but I think given the right conditions, this could actually be the way to go. At the end of dental school, you would be able to sell the home or rent it out to other dental students. I would argue more dental students would take this route if they weren't being mercilessly suffocated under a mountain of debt. I think this course of action is at least worth broaching with your financial planner.
Here's a real world example:
Student A rents for 4 years, paying approximately $12,000/yr towards rent (not including utilities) = -$48,000
Student B buys a a home for $125,000, then sells after 4 years. He sells the home at the same price, adjusted for inflation, and pays the standard 6% realtor fees = -$125,000 + $125,000 - (.06*125,000) = -$7500
The question in this scenario becomes: Does student B spend $40,500 more than student A on loan interest over the lifetime of the loan?
You can plug in your own numbers and do the math. This example is conservative. It assumes no home appreciation or rent increases. However, it also doesn't factor in home maintenance or property tax. Since you would buy the house outright, mortgage fees are not in play. If you decide to research this further, check out this calculator:
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
I think everyone's done an excellent job explaining why paying down the school costs with cash before taking on school loans is the way to go. However, what if you bought a house/condo first? Consider that renting for 4 years will run you tens of thousands of dollars over the span of dental school. If you were to purchase a property instead, you would get a return on that money. The exact amount depends on the market, and this plan would only work for lower priced COL areas, but I think given the right conditions, this could actually be the way to go. At the end of dental school, you would be able to sell the home or rent it out to other dental students. I would argue more dental students would take this route if they weren't being mercilessly suffocated under a mountain of debt. I think this course of action is at least worth broaching with your financial planner.
Here's a real world example:
Student A rents for 4 years, paying approximately $12,000/yr towards rent (not including utilities) = -$48,000
Student B buys a a home for $125,000, then sells after 4 years. He sells the home at the same price, adjusted for inflation, and pays the standard 6% realtor fees = -$125,000 + $125,000 - (.06*125,000) = -$7500
The question in this scenario becomes: Does student B spend $40,500 more than student A on loan interest over the lifetime of the loan?
You can plug in your own numbers and do the math. This example is conservative. It assumes no home appreciation or rent increases. However, it also doesn't factor in home maintenance or property tax. Since you would buy the house outright, mortgage fees are not in play. If you decide to research this further, check out this calculator:
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Unfortunately I don't think I can put it on the card, tried that haha they only accept it out of a bank account( is there any way around that?)
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I used sallie mae for undergrad. Allowed me to use a credit card.
Good point
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OP,
I think you have been given some great advice in this thread. I am not a financial expert by any means, but I just wanted to congratulate you on your acceptance to dental school, and commend you on being mature and wise about how you spend the funds your father left to you. I'm sure he would be very proud.🙂
I think you have been given some great advice in this thread. I am not a financial expert by any means, but I just wanted to congratulate you on your acceptance to dental school, and commend you on being mature and wise about how you spend the funds your father left to you. I'm sure he would be very proud.🙂
