To borrow or not to borrow?

[pktchris]

I'm not sure if anyone else is in the same position, but I could really use informed opinions/advice. I'm trying to decide if it would be a good idea for me to take out student loans or not. Here is my situation. I want to go to Iowa(accepted, but still waiting to hear on a scholarship) which will be about $84,000 (excluding living expenses, and if I get the scholarship for $60,000). My fiancee and I would also like to buy a house during D-school. We also plan to start a family maybe during my 2nd or 3rd year. My fiancee has various assets worth about $300,000. We were planning to get a mortgage for the house. I guess the question is, would it be a better financial decision to pay for school out of pocket, or keep that money in investments because the government loans have such a low interest rate right now?

P.S. No flames please. This is an honest financial question
thanks
chris

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[StarGirl]

wow, i wish i had that as my problem....

but if i were you, i would borrow the money and take advantage of the low interest... save what you have and use it for the downpayment for the house and/or a practice when you graduate...

 

[Henna]

Moved to Financial Aid forum.

 

[NewNameForGoogleBot]

Holy bankrolls batman!! 300 grand?!

The only reason to take out student loans is if your money is invested at a higher interest rate right now. Currently, that is probably the case assuming your fiancee has her money in the right places. However, that could change. My personal feeling is that the hassle of loans and the associated fees is not worth it. I would pay cash - you'll still have plenty of money for a house downpayment and a family. If you take out loans you could make a little extra, but I would imagine that would only be in the range of $10K, which isn't that big a deal for the free pass you could have never to have to deal with the financial aid office. Realize that you only have to withdraw 20K per year from your investments, so the rest will still be in there to do its thing. Of course, this all assumes your money is reasonably liquid, with no big pentalies or tax implications if you sell.


Now if you don't get the scholarship you might want to look into the details more because you are talking about quite a bit of money. Things like what kind of investments you are holding, how long you have held them, are you selling at a loss or a gain, etc. Are we talking stocks, bonds, bond funds (a very complicated beast). It's hard to give a solid answer without knowing the type of investments you currently hold.

 

[DrScott]

DO NOT PAY CASH FOR YOUR TUITION!! If you do the math(which I have), you will come out WAY ahead by taking loans out. For example, assume that your total medical school costs are $164,000 for 4 years, loan interest rate is 8.25%(the max), and your investments earn 10%. If you take loans out instead of depleting assets, you will have cleared the difference between these two interest rates which amounts to $31,000 dollars over the 10 year life of the loan. This is substantial...especially if you consider that this is close to a worst-case scenario. This same scenario run with todays rates(3.42% loan rate and the historical return of the stock market of 10%) amounts to approximately $310,000. Don't you dare touch your investments!! Trust me, $310,000 is worth the hassle of dealing with the financial aid process. Looking back at 2003 and my investments as a guide, if a med student had paid a 38k tuition bill with investments instead of loans, then that same student would have been down $12,000 just for 2003 alone!! Let your money work for you, not the other way around.

Incoming 2004 Med Student and former stockbroker.

 

[antoniodlc]

Originally posted by DrScott
DO NOT PAY CASH FOR YOUR TUITION!! If you do the math(which I have), you will come out WAY ahead by taking loans out. For example, assume that your total medical school costs are $164,000 for 4 years, loan interest rate is 8.25%(the max), and your investments earn 10%. If you take loans out instead of depleting assets, you will have cleared the difference between these two interest rates which amounts to $31,000 dollars over the 10 year life of the loan. This is substantial...especially if you consider that this is close to a worst-case scenario. This same scenario run with todays rates(3.42% loan rate and the historical return of the stock market of 10%) amounts to approximately $310,000. Don't you dare touch your investments!! Trust me, $310,000 is worth the hassle of dealing with the financial aid process. Looking back at 2003 and my investments as a guide, if a med student had paid a 38k tuition bill with investments instead of loans, then that same student would have been down $12,000 just for 2003 alone!! Let your money work for you, not the other way around.

Incoming 2004 Med Student and former stockbroker.

you are assuming that investments will guarantee at least a 10% return every year. it is true that 2003 was a great year for wall st, but you forget to mention that the previous 3 years were horrendous. if i were in the guy's shoe, i would take advantage of the low interest in the loans, but also pay some of the med school expenses with the assets currently available. maybe a 50/50 split, depending on the comfort level.

 

[DrScott]

When dealing with the stock market, you have to make some assumptions. If you have a long-term outlook(which would be the case for student loans since they take at least 10 years to pay off), statistically speaking the odds are that you will earn around 10%. Lately, we have been spoiled and punished by 30%+ returns and losses. However, the average return over the last 100 years hovers around 10% which includes things like stock market crashes etc... I still would recommend keeping the money in the stock market since it is a very good possibility that over the next 10 years your return will average 10%. Since this is a long-term decision, short-term stock market corrections should not factor into the decision. Just my opinion but as a stockbroker I have seen dozens of people throw their money away by getting out of the market just because it happens to be down for a few years. It is true that 2000-2002 were not good years, but this is short term fluctuations in the market that should not factor into long-term decisions.

 

[southerndoc]

You may also get an agreement to have a group to pay off your loans. I have an agreement (written) that if I return to a particular hospital, they will pay for my loans. I'm no longer planning to practice there, but I'm sure I will be able to find a hospital to pay off my loans. There are private groups that have similar policies. You may find that some large dental groups can do this (I'm assuming you mean dental school when you say D-school).

Secondly, some of the loans you may still qualify for might be interest free or federally subsidized loans. I cannot tell you the particular requirements for subsidized loans (whether federal or institutional), but a financial advisor could.

The best answer to your question? Talk with your school's financial aid advisor and your accountant ASAP.

 

[oldtimer]

Geek Medic,

I have heard about these programs that you are talking about. Hospitals use these programs to attract and retain people who have student loans. Suppose that I don't take out any loans for med schools, how do hospitals fairly compensate me compared to the person who does have loans? Do I receive bonuses instead equal to the amounts that the hospitals would paid out for my loans? If the hospitals have no incentives for those without loans, then it makes more sense to me to take out loans for med school since they might be paid off by someone else.

 

[2tall]

Debt is dumb. Pay cash for your tuition and your home (including furnishings), pay off all other debts and be happy and worry-free. I'd recommend that you and your fiance(e) read Dave Ramsey's Total Money Makeover.

P.S. The borrower is slave to the lender.

 

[DrScott]

What is dumb is to make wide-sweeping comments like 'debt is dumb'. Nothing is dumb about paying 2.62% so that you can earn at least 10%. Forget all the rhetoric...run the numbers and let them speak for themselves....One thing I have learned as a stockbroker...even the most intelligent people are completely ignorant about finances and make basic mistakes that cost them hundreds of thousands of dollars. Take subsidized/unsubsidized loans out....if you don't...you will worry about all the money you lost by pulling your valuable money out of the market.

 

[mpp]

I agree...borrow as much as you feel comfortable borrowing at less than 3%...then consolidate it and fix the rate if it starts to go up. Use the money to make money.

 

[oldtimer]

Isn't "borrowing money to make money" a double-edged sword? Since you have to report your assets for financial aid purposes, your school will see that you have resources -- although it is loan money -- and hence reduce the need-based assistance that they give you?

 

[mpp]

Yes, but when you have a $300,000 inheritance you're not going to get much need-based aid.