Paying for medical school (how much out of pocket)?

[Lokhtar]

Hey guys, I am currently a 23 year old senior finishing up my degree and I have a full time career. Soon, I'll be quitting my job and going to a post-bac, followed by medical school. After subtracting living expenses during post-bac and tuition, I will have about $130k saved up by the time I am ready to start medical school. I paid for myself through college (been working since age of 18 full time as a software engineer while going to university at night), and have about $30k in loans.

My question is - right now, my money has been getting very good interest, so should I take out loans or should I pay for most of it out of pocket? I'll end up at an expensive private school since my state school doesn't really prefer IS students and it doesn't really give them much of a discount. My loans from med school will likely be $200-$230k, and including my current loans, it will be around $250k in loans - which is quite a bit! I might be able to cut that in half, but the interest on the loans will likely be lower than the interest I am getting in my investments.

Can someone provide guidance?

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[RockfordWF]

Hey guys, I am currently a 23 year old senior finishing up my degree and I have a full time career. Soon, I'll be quitting my job and going to a post-bac, followed by medical school. After subtracting living expenses during post-bac and tuition, I will have about $130k saved up by the time I am ready to start medical school. I paid for myself through college (been working since age of 18 full time as a software engineer while going to university at night), and have about $30k in loans.

My question is - right now, my money has been getting very good interest, so should I take out loans or should I pay for most of it out of pocket? I'll end up at an expensive private school since my state school doesn't really prefer IS students and it doesn't really give them much of a discount. My loans from med school will likely be $200-$230k, and including my current loans, it will be around $250k in loans - which is quite a bit! I might be able to cut that in half, but the interest on the loans will likely be lower than the interest I am getting in my investments.

Can someone provide guidance?

First, fill out the FAFSA and see what loans you are eligible for.

The lowest interest loans are the Perkins and Stafford. You can always take them out later on if you run out of money, but cannot do that if you haven't already gone through the FAFSA and aid approval.

 

[DrMattOglesby]

dude, that is IMPRESSIVE! the most money i could save up as i worked all throughout my undergrad went straight to books and hobbies.
i guess you musta been making some pretty fat bank at your job.
lifeguarding never paid that well...

 

[Jolie South]

lifeguarding never paid that well...

i know this too well. . . not even when i was promoted to pool manager did I make bank.

 

[Lokhtar]

First, fill out the FAFSA and see what loans you are eligible for.

The lowest interest loans are the Perkins and Stafford. You can always take them out later on if you run out of money, but cannot do that if you haven't already gone through the FAFSA and aid approval.

I assume I do that right before medical school (about 2 years from now, I think). What are the interests on the Perkins and Stafford?

 

[armybound]

I assume the $130k is after paying back those loans you already have?

 

[Lokhtar]

I assume the $130k is after paying back those loans you already have?

Err, unfortunately, it is not. I think I can defer the payments on those after I get out of med school - but I am not sure if its a good idea to do so. 130k is after calculating what I'll spend during my post-bac years in expenses/tuition.

 

[armybound]

Are you making more interest on the 30k or on the loans? if the interest rate on the loans are higher than what you're making on your bank account, you're losing money. if the loans are subsidized, there's no point in paying them off now.

you can defer payments as long as you're a student at least half time.

 

[CptCrunch]

I assume I do that right before medical school (about 2 years from now, I think). What are the interests on the Perkins and Stafford?

Perkins is a fixed 5%. I would guess you probably wouldn't qualify for that.

Subsidized and unsubsidized Stafford loans are both currently at a fixed 6.8%.

 

[DrBowtie]

Moved to Fin. Aid Forum.

 

[Lokhtar]

Are you making more interest on the 30k or on the loans? if the interest rate on the loans are higher than what you're making on your bank account, you're losing money. if the loans are subsidized, there's no point in paying them off now.

you can defer payments as long as you're a student at least half time.

Yes, I am making more interest in the investments.

 

[Doctor Bagel]

Wow, congrats on saving that much money. As for what you should do with it, I don't know -- you've got to decide what makes you feel comfortable. I agree with the advice above to fill out the FAFSA and see what the offer you. One nice thing is that your assets aren't counted toward your EFC if your earnings are below a certain amount (approx. $49k) and you can file a EZ or A tax form.

If it were me, I'd probably lean towards taking out any Perkins loans if offered and the full Stafford amount offered, including subsidized and unsubsidized. Then you can use your savings to avoid having to go the private loan or GradPlus route. I'd also recommend putting some money into an emergency/boards fees/residency expenses account.

 

[Lokhtar]

Well, I calculated that if I don't touch this, after four years of med school and three-seven years of residency/fellowship training depending on my future specialty (seven to ten year total), I would have about $200-$300k with 10% interest. That's a nice chunk to have when you get your first attending job. So that is leading me towards keeping this untouched and letting it grow on interest.

 

[Lokhtar]

Wow, congrats on saving that much money.

Well, it was five years of being the cheapest bastard in existence. Ramen noodles, $3.99 clothes, and a monthly wild night out at McDonalds.

I don't think I've even bought a stick of gum without a coupon in that time.

 

[Lokhtar]

I did the math, and it looks like I'm much better off getting loans. Thanks for all of your advice and help .

Wow, congrats on saving that much money. As for what you should do with it, I don't know -- you've got to decide what makes you feel comfortable. I agree with the advice above to fill out the FAFSA and see what the offer you. One nice thing is that your assets aren't counted toward your EFC if your earnings are below a certain amount (approx. $49k) and you can file a EZ or A tax form.

Unfortunately, I make quite a bit more than 49k. But I think it works out better if I just leave my savings alone and take out loans. Especially as I did more research and most of the areas I am interested in practicing medicine have pretty good loan-repayment options, so I can take advantage of those (I can't stand big cities). And on top of that, the interest will be better in my savings, so I'll come out ahead that way as well.

 

[XerxesMD]

I would have about $200-$300k with 10% interest.

Whose paying you 10% interest? Tell me so I can give them some of my money too .

 

[Lokhtar]

Whose paying you 10% interest? Tell me so I can give them some of my money too .

Well I've been averaging about 15-18% (not counting the last month ) in some aggressive mutual funds over the past two years or so. Over the long term, an expectation of 8-10% isn't unreasonable.

 

[bl2seq]

Well I've been averaging about 15-18% (not counting the last month ) in some aggressive mutual funds over the past two years or so. Over the long term, an expectation of 8-10% isn't unreasonable.

First of all, congrats on being able to save so much!

I think your goal should be to get the max amount of grant/loans that are cheap (i.e., lower interest rate that what you can get from investing your savings). You can estimate EFC (estimated family contribution, from FAFSA) based on your savings and assets. Just do a google search on EFC. Also, keep in mind that retirement savings, primary residence, etc, are not counted when calculating your assets (pls double check on this). So to reduce your EFC so that you can get cheap loans, you can consider buying a place to shelter your savings (of course this depends on the housing price of where you are). You should also max your IRA.

 

[Lokhtar]

First of all, congrats on being able to save so much!

I think your goal should be to get the max amount of grant/loans that are cheap (i.e., lower interest rate that what you can get from investing your savings). You can estimate EFC (estimated family contribution, from FAFSA) based on your savings and assets. Just do a google search on EFC. Also, keep in mind that retirement savings, primary residence, etc, are not counted when calculating your assets (pls double check on this). So to reduce your EFC so that you can get cheap loans, you can consider buying a place to shelter your savings (of course this depends on the housing price of where you are). You should also max your IRA.

Great point! Thanks. A lot of my money is in retirement accounts, so hopefully that will help.