good points here - there's definite merit to having an emergency stash for "just in case" med school things -- I've heard one can bump up loan amounts, presumably grad plus, for unexpected, expensive things like a major car repair, but I personally would not want to have to try to convince the financial aid office of the merit of my proposed expenditure on an emergency thing -- they might disagree with me on the meaning of a necessary emergency expense.
Another way to look at this, rather than 5K now versus 160K in 45 years, is to think of it in terms of putting aside 5K now when you're on ramen, versus putting aside 10.8K in 10 years when you're earning 200K.. or better yet, putting aside around an extra $3,800 per year for 3 years when you're earning 200K per year..
Final thought on the "risk return" idea -- the stock market may have earned 9% or whatever rate on average over the past 6-8 decades, but it has high variability -- this matters hugely in that if you retired 3 years ago and are pulling out $$ now, you're in really bad shape. A more precise comparison would be measuring your student loan debt @ 6.8% to the "risk-free" rate; this would allow you to compare essentially certain debt to a certain return -- what's the current rate of return on money markets, FDIC insured deposits, or other essentially guaranteed financial vehicles?
My suggestion would be to hold the Roth IRA as an emergency fund until around January of MS4, and then plan to use it for tuition that semester.
