You still have student loans and you've "moved on?"

[Gern Blansten]

Bingo.

A thread like this popped up about this time last year. Amazing what tax time will do.

This ends up being a very personal decision for everyone. I fall into the above camp with Gern/Jet/Sevo, et al. I'll be 4 yrs out this summer, graduated with ~175K+/-, consolidated 3%. Told myself I would have it paid off in 5 years. I should beat my schedule by 6 months. I live almost exactly like I do when I was a resident... I'm a cheap b@stard, so much so that my partners make fun of me. Oh well. If I'm living so cheap, why isn't it paid off already you may ask??? I don't plan on living cheap forever... I've built up a down payment for a house, an FU account, and have started fully funding some retirement accounts.

Nothing wrong with crunching numbers and following a plan like Slavn. Everybody is different, and this makes perfect mathematical sense. Maybe this plan is right for you, its just not for me.

Congrats. I wish I had done it this way. Getting in much better shape, but I definitely took the long way.

---

Members don't see this ad.

 

[excalibur]

Mman, u say u r gonna pay the minimum on 200K at 1.7% and be aggressive on your mortgage because it is at a higher 3.9% and u view that as a headache. GREAT! Sounds reasonable.

Bostonredsox has double your student loans at 400K and quadruple the interest rate at 6.8% and electing to stretch that over 20 years. In addition he wants to get a mortgage for 400k and stretch that over 20 years as well. As mentioned in previous posts, you can knock down the loans fairly quickly. Why would you want to stretch 400K at 6.8% over 20 years?? Mman stated a 3.9% interest rate made him nervous and he got aggressive.

Oh and Bostonredsox, yes you can always contribute more without issue. If your min monthly payment is $500 and one month you opt to pay $1000, the next monthly payment will be much less and not $500. The loan companies attempt to stretch out the min payments so that the time to pay off entire loan remains at 10 or 15 or 30 years. So if you decide to contribute 5000 one month, your next few monthly min payments may be zero.

A good strategy in paying back loans is see what the min monthly payment is and just opt to contribute a little more than that via auto withdrawal. I realized that my min monthly payments were not knocking down the principal at all. My payments were covering the ongoing interest that was accumulating. I then looked at budget and time factor and began contributing a much larger monthly amount.

 

[Mman]

Mman, u say u r gonna pay the minimum on 200K at 1.7% and be aggressive on your mortgage because it is at a higher 3.9% and u view that as a headache. GREAT! Sounds reasonable.

Bostonredsox has double your student loans at 400K and quadruple the interest rate at 6.8% and electing to stretch that over 20 years. In addition he wants to get a mortgage for 400k and stretch that over 20 years as well. As mentioned in previous posts, you can knock down the loans fairly quickly. Why would you want to stretch 400K at 6.8% over 20 years?? Mman stated a 3.9% interest rate made him nervous and he got aggressive.

/QUOTE]

I agree with the notion that 6.8% interest rate is tough to beat with any investment or savings idea with high enough certainty to be worthwhile.

But I still think people need to look at it on a case by case basis and there is no cookie cutter rule other than pay off higher interest rate stuff first.

 

[AnesThrow]

We've spent so much time (as Medical Students) not making any money and still being able to live off of loans. I plan to live the exact same way (spend as much money per year for living as I did when I was taking loans) and contribute the entire rest of my salary to loans for the first few years.

Sure, I will be living like a medical student/resident for a couple of more years but I think it'll be worth it in the long run. Is this crazy?

 

[badasshairday]

We've spent so much time (as Medical Students) not making any money and still being able to live off of loans. I plan to live the exact same way (spend as much money per year for living as I did when I was taking loans) and contribute the entire rest of my salary to loans for the first few years.

Sure, I will be living like a medical student/resident for a couple of more years but I think it'll be worth it in the long run. Is this crazy?

Life is too short man. You don't know what tomorrow brings.

Not saying to go all out, but also don't be a hermit either. You spent so much time without income, when you do get some, it is ok to spend a little once in a while. Just don't get out of hand. Never rack credit card debt... credit cards are to be paid off in full each month. Save money every month.

 

[dhb]

Inflation over the last year has dependably been around 2% (check your math and sources, dhb).

I agree with what you say but not this: the government tells you it's 2% that doesn't mean it's true. How do you explain the rise in prices if inflation has been at a Goldilocks 2% for the past decade or more?

Everyone can agree that financing your lifestyle by credit is not a good thing, being debt free is different. All those savings is money you loaned to the bank and you might or might not see it back (bank going under is not that uncommon these days) so i'd rather have the bank lending me money than the other way around.

 

[cincincyreds]

One really needs to view themselves as their own company. What I care about are #1 debt and #2 interest rates.

I accumulated close around 180k combined for college and med school. I consolidated it at an interest rate of about 1.5%. So, right now my debt number is about 150k. At that interest rate, I'm gonna take my sweet time paying that back. In fact, my super safe EE bonds that I've accumualted easily beat that 1.5% as long as I hold them 20 years.

And guys, that is the trick. It is called Leverage. This is how banks make money. At the worst, if I can't beat the interest rate, I'll just pay the loan back.

Now, if my student loan rate was 6.8% and if I owed $400k, I would be working a lot of weekends to pay that back. Luckily, people on this board average 300-400k per year, 200-250k after taxes, so living frugaly for a yer or 2, and the loan is gone. I am unable to safely beat 6.8% on a yearly basis.

We have very little to complain about.

 

[dhb]

And guys, that is the trick. It is called Leverage. This is how banks make money. At the worst, if I can't beat the interest rate, I'll just pay the loan back.

Now, if my student loan rate was 6.8% and if I owed $400k, I would be working a lot of weekends to pay that back. Luckily, people on this board average 300-400k per year, 200-250k after taxes, so living frugaly for a yer or 2, and the loan is gone. I am unable to safely beat 6.8% on a yearly basis.

We have very little to complain about.

 

[BLADEMDA]

One really needs to view themselves as their own company. What I care about are #1 debt and #2 interest rates.

I accumulated close around 180k combined for college and med school. I consolidated it at an interest rate of about 1.5%. So, right now my debt number is about 150k. At that interest rate, I'm gonna take my sweet time paying that back. In fact, my super safe EE bonds that I've accumualted easily beat that 1.5% as long as I hold them 20 years.

And guys, that is the trick. It is called Leverage. This is how banks make money. At the worst, if I can't beat the interest rate, I'll just pay the loan back.

Now, if my student loan rate was 6.8% and if I owed $400k, I would be working a lot of weekends to pay that back. Luckily, people on this board average 300-400k per year, 200-250k after taxes, so living frugaly for a yer or 2, and the loan is gone. I am unable to safely beat 6.8% on a yearly basis.

We have very little to complain about.

1.5 percent? Wow. That's an amazing rate.

 

[BLADEMDA]

We've spent so much time (as Medical Students) not making any money and still being able to live off of loans. I plan to live the exact same way (spend as much money per year for living as I did when I was taking loans) and contribute the entire rest of my salary to loans for the first few years.

Sure, I will be living like a medical student/resident for a couple of more years but I think it'll be worth it in the long run. Is this crazy?

Good plan. But, perhaps you could pay those loans back over 5 years so there is money for a down payment on a home, savings/F U account and a few purchases.

That said, if you have an interest rate over 6 percent then by all means pay back those loans

 

[Bostonredsox]

Mman, u say u r gonna pay the minimum on 200K at 1.7% and be aggressive on your mortgage because it is at a higher 3.9% and u view that as a headache. GREAT! Sounds reasonable.

Bostonredsox has double your student loans at 400K and quadruple the interest rate at 6.8% and electing to stretch that over 20 years. In addition he wants to get a mortgage for 400k and stretch that over 20 years as well. As mentioned in previous posts, you can knock down the loans fairly quickly. Why would you want to stretch 400K at 6.8% over 20 years?? Mman stated a 3.9% interest rate made him nervous and he got aggressive.

Oh and Bostonredsox, yes you can always contribute more without issue. If your min monthly payment is $500 and one month you opt to pay $1000, the next monthly payment will be much less and not $500. The loan companies attempt to stretch out the min payments so that the time to pay off entire loan remains at 10 or 15 or 30 years. So if you decide to contribute 5000 one month, your next few monthly min payments may be zero.

A good strategy in paying back loans is see what the min monthly payment is and just opt to contribute a little more than that via auto withdrawal. I realized that my min monthly payments were not knocking down the principal at all. My payments were covering the ongoing interest that was accumulating. I then looked at budget and time factor and began contributing a much larger monthly amount.

I don't WANT to stretch it out as long as possible, I just have to have the monthly payment low enough i can afford the house and day to day living expenses. My wife and I have had a hard road and I know for a fact she will NOT be ok living like a resident, which she sees as the worst years of our lives, for 10 more years to pay off our debt and then buy a house at 45. My eldest will be ready to start college then. This debt scares the **** out of me, and this thread has now robbed mewhat little sleep I was getting. The only thing on my side is time. I ill be a 29 year old attending when I start, just missing 28 by a month, so I have a lot of years till retirement to make money still. But I am nervous about the totals. But I can't think just about what is purely economically the best way to go, have to think happiness too and I know my family wants to live in their house. What I will probably do, which my wife will just have to get over, is setup the loans for 20 years, and pay every extra penny I can towards them to get them paid in less than 20. With a base of 240k, I can make an extra 3k a month working one extra weekend every other off weekend (so one extra weekend month, still only working 16/28 days). That's essentially paying 2 payments per month towards the loans which should get the 20 years paid in like 12. If I can get my next job at a non profit so I can get 20k per year from the govt that would also help a ton. Idk if hospitalist medicine counts as primary care thought for the forgiveness programs. I'm wondering if Ibr would be better for me. Do they factor in the kids when they calculate what you should pay monthly for your salary?

 

[BLADEMDA]

Dave Ramsey:




QUESTION: Will in Mississippi is a fourth-year medical student about to graduate in a few months. He's accumulated $162,000 in student loans and isn't sure if he should enter into forbearance or begin paying them during his residency. He will make $48,000 a year and is married with three kids. Dave suggests living on the $48,000 and starting to pay off these loans if he can.

ANSWER: The first thing is to add no more debt. The second thing is to commit to, when you come out of school and get the big doc job, continue to live on less than $48,000 a year until you pay this ridiculous student loan back. As far as what to do with it in the meantime, your first goal is to live on the $48,000. If you can't do that, then yes, put it in forbearance.

 

[Bostonredsox]

Dave Ramsey:




QUESTION: Will in Mississippi is a fourth-year medical student about to graduate in a few months. He's accumulated $162,000 in student loans and isn't sure if he should enter into forbearance or begin paying them during his residency. He will make $48,000 a year and is married with three kids. Dave suggests living on the $48,000 and starting to pay off these loans if he can.

ANSWER: The first thing is to add no more debt. The second thing is to commit to, when you come out of school and get the big doc job, continue to live on less than $48,000 a year until you pay this ridiculous student loan back. As far as what to do with it in the meantime, your first goal is to live on the $48,000. If you can't do that, then yes, put it in forbearance.

Agree absolutely. I could not support my family on 48k so I put them into forebearance.

 

[BLADEMDA]

Dave Ramsey:


Don't Get Doc-itis
QUESTION: Jeremy in Chicago has a wife who just graduated from medical school with $200,000 in student loan debt. Jeremy is also back in school full time, and he wonders if he should drop out of school to help pay back these loans. Dave thinks they should live on her income and pay these loans off while Jeremy finishes school.

ANSWER: Why don't you guys live on nothing and throw most of her income at the student loan and you stay in school? It's what I would do. I'd live on beans and rice. Don't go buy a new BMW because your wife's a doctor. You've got a mess on your hands—$200,000 of a mess. Don't act like this house is making money. You guys aren't making any money. You've got a mess to clean up here. If I were in your shoes, I would avoid doc-itis, which is as soon as you graduate from school, you go buy a bunch of crap you can't afford to go with your big student loans. Don't do that. Drive beaters, live simply, live frugally, and spend the next two or three years cleaning up this mess. That's exactly how I would do that.

 

[BLADEMDA]

Drowning in Student Loans
QUESTION: Amanda in San Diego and her husband are just starting Baby Step 2. They are both lawyers and have $400,000 in student loans. They have a 10-year-old car and only have $1,000 in their emergency fund. At what point do they push pause on the student loans when they need a car and the college fund?

ANSWER: So at this stage of the game, you've paid $200,000 or so to go through law school, not pass the bar, and be a full-time mom. Wow.

Really, what we're saying is that five years from today, both of you are lawyers and hopefully are making over $200,000 as a pair. That has to be our way out. Otherwise, that rock over your head—that rope is starting to feel like a thread now. Basically, we're saying until your son gets to preschool age, you are driving this car and you are not doing anything toward his education. When you start making $200,000, $225,000, $250,000 as a pair five years from now, you keep your lifestyle down where it is now. We pay off $400,000 in debt in two, three, four years and then we can talk about—in the meantime, if you have to buy another $2,000 hoopty or something because this one lays down, we can work that in. But we're not going to be saving for college for this young man until he's probably eight years old.

Here's what I'm doing in my head. He's four, and you start work. Four years of paying $100,000 on student loans. After that, he's eight and you're debt-free. That's how I did that. Your first year you're working might not be $100,000 down on the student loans, but it will average across the four years because every year you make more, you keep living on $50,000. You keep dumping every dollar you make on the student loans. I think that's the thing. I think his college savings is delayed, and you driving anything more than a get-by beater of some kind is delayed until we clean this mess up.

If something crops up and someone's ill or there's some kind of a bump in the road down through here, you may want to beef up your $1,000 emergency fund a little bit, but you don't need $25,000 lying in an account right now—not with this mess.

Somewhere listening in our 5 million listeners right now is a 21-year-old young woman who is getting ready to sign up for $200,000 worth of student loan debt to go to law school, because everybody knows that's the only way to go to law school and everybody knows that lawyers make a lot of money, so what's the big deal? She can pay it all back. Talk to her for a minute.

The thing you can't see coming is the look in the eyes of a 1-year-old. You can't see that coming when you're 22. You look in that 1-year-old's eyes, it gives you a whole different set of priorities.

I think you're going to be fine, but I think you're on an eight-year plan. That's what it sounds like to me given the constraints and the situation that you're facing. That's how I would live it out if I were in your shoes.

Here's the other thing. She hasn't passed the bar yet. She graduated. Not everybody graduates from law school that starts law school. Not everybody who goes to med school and goes $100,000 in debt finishes. As a matter of fact, let me help you with this. Most of them don't finish. Most people don't make it. Did you know of the people that attend the average college for undergraduate—the average university for undergraduate nationally—that less than 60% graduate? The average graduation rate is 52%, 54%, 57%. That means almost half of the people that start college—and you know you can't go to college without a student loan!—do not complete college. What do they get from their education? Debt. That's all they got. They didn't get the diploma. They didn't finish the degree. Almost half the people that go to college don't finish. Almost half the people that join a university don't finish. Maybe this is something to think about. Maybe Congress should think about this. This is who you're loaning money to. Half of them are not going to have "good jobs," and you're loaning them money. And they've never yet had a job, Congress. Maybe the federally insured student loan program is a really stupid idea. Loaning 17-year-olds money, 50% of which are going to fail at their goal. Wow. Something to think about, America. I think we've got a problem.

 

[aneftp]

The student loan debate will be the "next big thing" Congress addresses.

It's a catch-22. The public hates seeing people like "rich doctors and lawyers" default on their massive student loans when they can afford it. That's how the student loan laws really got pushed through. And that's why it's hard to default on them.

But the fact is the vast majority of student loan default have and always have been "beauty school/vocational schools student loans" mainly from student who never finish. Just do a google search of all the highest percentage of student loan defaults and it's beauty school after beauty school.

They have forgiveness after 10-20 years but mainly in "pubic sectors".

 

[chessknt]

The truth is that being debt free isn't as crucial as many were brought up to think it is. Debt is a big part of our economy and helps keep things moving. If everyone refused to take out any debt our financial sector wouldn't exist and there would be no market for houses or cars.

Enjoying a nice house when your kids are young vs. when they are in high school and other intangible factors can easily outweigh the interest premiums. This is also better overall for the economy as well. Hammering a mantra of "neither a lender nor a borrower be" is not applicable in modern times. Not saying you cant get in trouble (when your total debt burden exceeds your annual income, especially by an order of magnitude or close to it, you need to seriously do something to shrink it ASAP), but having some debt is a good thing for the economy and not something to strive to avoid.

 

[D P356]

The truth is that being debt free isn't as crucial as many were brought up to think it is. Debt is a big part of our economy and helps keep things moving. If everyone refused to take out any debt our financial sector wouldn't exist and there would be no market for houses or cars.

Enjoying a nice house when your kids are young vs. when they are in high school and other intangible factors can easily outweigh the interest premiums. This is also better overall for the economy as well. Hammering a mantra of "neither a lender nor a borrower be" is not applicable in modern times. Not saying you cant get in trouble (when your total debt burden exceeds your annual income, especially by an order of magnitude or close to it, you need to seriously do something to shrink it ASAP), but having some debt is a good thing for the economy and not something to strive to avoid.

I'd disagree. Psychologically, I think it is better to be debt free. As mentioned before, If you try to 'leverage' your debt, you are playing the economic craps table. If you think being in long term debt is good, especially when you become a doc, lenders will literally jump for joy if they get your business.

 

[jetproppilot]

most of us on here are a) partners in a business, and b) have incorporated ourselves as LLC's.

math is not magic (maybe to some americans).

all of investing is more or less gambling, with higher or lower risks and rewards.

jpp, with all due respect your post is emotional and irrational. where is the math to support your advice? what is the dollar value one should pay for the emotional satisfaction gained from bringing debt to zero early?

again, here is the math to support moving funds into the "accumulation phase" in the setting of debt.

150K at 2.55%. Inflation over the last year has dependably been around 2% (check your math and sources, dhb). an ultraconservative investment portfolio returns at least 3% - closer to 5%. a low-risk return of 2-4%.

no one is advocating living as a rokkstar. no one is advocating sitting on the debt and simply paying the interest without investing along other avenues. live within your means. pay cash for everything except your (modest) house.

also - don't work too hard, spend time on the things that really matter in life.

I LOVE RETROSPECTIVE

RATIONALIZATION!!

HISTORY DOES NOT ALWAYS PREDICT THE FUTURE.

Ok Slavin, let's say you've got alotta debt but YOU'VE GOT IT ALL FIGURED OUT NUMBERS WISE....

WHAT IF YOUR "CURRENT DAY" happened to be in 2009, say, 6 months before

THE STOCK MARKET AND THE ECONOMY

TANKED??

Back then noone predicted that sh it man.

My point, dude, is when you are figuring out how cheap your DEBT is based on the economy, and How Cool Is It That I've Got A 3% Student Loan And I'm Making 6% In The Market, dude....

DO YOU KNOW HOW FAST THAT SCENERIO CAN CHANGE?

Essentially you are using your brainpower to

TIME THE MARKET instead of

PAYING OFF YOUR DEBT.

I know your intellect is parallel to a Rocket Scientist.

I'm here man, to help you

OVERCOME YOUR RATIONALIZATIONS FOR NOT PAYING OFF YOUR

DEBT..

You can spout your numbers, you can illustrate in-depth monetary protocols,

HEY DUDE!

YOU'VE STILL GOT THIS STUDENT LOAN DEBT MAN.

That's following you around like a LITTLE PUPPY, and our government has laws in place to make sure you pay them back.

What if your great plan to balance your debt was initiated 6 months before the 2009 debacle?

 

[jetproppilot]

The truth is that being debt free isn't as crucial as many were brought up to think it is.

HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!



Dude, you are spouting BU L L S H I T.

It's probably not your fault. You've probably been misguided.

But you ARE of consenting adult age......

The message you are disseminating is the beginning for people

DESTINED FOR FAILURE.

 

[jetproppilot]

I wrote this thread less than 24 hours ago and already it has 3000 HITS.

Know what that means? It means

DEBT IS A TOPIC MED STUDENTS WORRY ABOUT AND our medical schools are

FAILING BY NOT INFORMING MEDICAL STUDENTS BORROWING BIG MONEY....HOW THAT SINGLE FACT...THAT YOU ARE BORROWING BIG MONEY....

Will influence YOU. and YOUR WIFE. and YOUR CHILDREN.

DEBT IS AN ANCHOR.

I know I know I know...you've heard me say that incessantly and you might be tired of hearing it...

I DON'T CARE IF YOU ARE TIRED OF HEARING IT.

I'm gonna keep telling you dudes out there, since I know alotta you dudes out there are SADDLED with 200k...300k... in DEBT...yet you're gonna finish residency and start seeing paychecks you've never seen before and you're gonna go to the bank and the banker unknown to you sees you coming and you're gonna ask for a house loan and a car loan for your Wife's Infiniti and of course the banker is gonna say "YES!" since he sees your income potential..... and at this point...seriously...I'm gonna ask you readers to

STOP. IN YOUR TRACKS. JUST STOP. RIGHT HERE.

Please reread the above never ending paragraph.

That above, never ending paragraph is a DEPICTION of your Student Loan Debt Laden Life

UNLESS

you listen to me, get a hold of yourself,

STOP THE CYCLE BEFORE THE CYCLE BEGINS,

Live modestly for a few years when the BIG paychecks are coming in,

FUNNEL ALOTTA MONEY TOWARDS PAYING OFF YOUR STUDENT LOANS

and

FINALLY

DUTIFULLY

get the monkey off your back man.

Since that monkey is never gonna go away. Until you

PAY IT OFF.

 

[chessknt]

I'd disagree. Psychologically, I think it is better to be debt free. As mentioned before, If you try to 'leverage' your debt, you are playing the economic craps table. If you think being in long term debt is good, especially when you become a doc, lenders will literally jump for joy if they get your business.

Don't misunderstand, you should not be in debt for your entire life. But having debt when you are starting out life, buying a car or getting or a mortgage or an education, a reasonably well placed debt is a good move. Rapidly paying off a 1.5% loan instead of building a retirement account or delaying a housing down-payment fund is not necessarily the best move. Even at the ridiculous 6.8%, it should not be such a high priority that you delay everything until it is gone.

 

[jetproppilot]

Don't misunderstand, you should not be in debt for your entire life. But having debt when you are starting out life, buying a car or getting or a mortgage or an education, a reasonably well placed debt is a good move. Rapidly paying off a 1.5% loan instead of building a retirement account or delaying a housing down-payment fund is not necessarily the best move. Even at the ridiculous 6.8%, it should not be such a high priority that you delay everything until it is gone.

DUDE YOU SOUND LIKE THE CHEESY CAR SALESMAN I ENCOUNTER WHEN I LAND ON THE GMC CAR LOT LOOKING FOR A NEW RIDE.

Are you a salesman? You sound like it man.

Regardless,

DUDE. STOP RATIONALIZING "THE FACT" THAT

you owe alotta money in student loans.

Just pay them off and move on with your life.

 

[pgg]

an ultraconservative investment portfolio returns at least 3% - closer to 5%. a low-risk return of 2-4%.

I have to disagree with that. Most investors these days would sacrifice chickens and do a dance to get 3-5% after taxes out of their conservative (fixed income) investments. CDs haven't returned 5-6%+ for more than a decade. The stock market has done well lately, but stocks aren't ultraconservative.


As one who took the .mil money, I owe time instead of money, and there's no prepaying that. So this is purely an academic exercise for me. But even with loans in the 2-3% range, in today's financial world, I'm of the opinion that the guaranteed after-tax "return" from early repayment is probably superior than investing to beat that rate.

Essentially, by investing instead of repaying, you're buying stocks on margin, which amplifies the existing market risk.

 

[chessknt]

DUDE YOU SOUND LIKE THE CHEESY CAR SALESMAN I ENCOUNTER WHEN I LAND ON THE GMC CAR LOT LOOKING FOR A NEW RIDE.

Are you a salesman? You sound like it man.

Regardless,

DUDE. STOP RATIONALIZING "THE FACT" THAT

you owe alotta money in student loans.

Just pay them off and move on with your life.

I think you are way oversimplifying modern finances. Debt is not an anchor if you have a means to pay it, a reason for it, and a plan. Not to mention IBR and the 10 year PSLF program makes paying loans off a bad move if you intend to work in a setting where you will qualify for those.

 

[pgg]

I agree with what you say but not this: the government tells you it's 2% that doesn't mean it's true. How do you explain the rise in prices if inflation has been at a Goldilocks 2% for the past decade or more?

It's worse than that. The barely positive GDP numbers the government releases (I think it was 0.4% for 4th Q 2012) are predicated on those optimistic/manipulated 2% inflation figures.

I say "manipulated" because I don't know what other word to apply to an inflation figure that ignores or marginalizes such trivial necessities of living like food and fuel.

If one makes the reasonable assumption that actual inflation is even a couple % higher than claimed, then in real terms, our economy has probably been stagnant or even contracting almost continuously for the last few years.

Two consecutive quarters of contraction = recession by definition.

 

[jetproppilot]

I think you are way oversimplifying modern finances. Debt is not an anchor if you have a means to pay it, a reason for it, and a plan. Not to mention IBR and the 10 year PSLF program makes paying loans off a bad move if you intend to work in a setting where you will qualify for those.

Dude....

Do you realize how much you sound like a

HEROIN ADDICT

looking for the

NEXT FIX?

You, RATIONALIZING WHY YOU CHOOSE TO NOT PAY YOUR LOANS OFF.

YOU, accusing me of

"WAY OVER SIMPLIFYING !!"

 

[chessknt]

Dude....

Do you realize how much you sound like a

HEROIN ADDICT

looking for the

NEXT FIX?

You, RATIONALIZING WHY YOU CHOOSE TO NOT PAY YOUR LOANS OFF.

YOU, accusing me of

"WAY OVER SIMPLIFYING !!"

Iintelligent leveraging of credit to achieve goals with reasonable debt is an important life skillset that isnt taught by the financial aid department (and in some cases, by parents). Your archaic (sorry) notion of finances works for you because your income is enormous, but for the vast majority of America debt is a crucial part of life that needs to be managed intelligently, not avoided.

Are you even familiar with PSLF? For people who want a career in academics they do themselves a disservice paying off anything more than the bare minimum possible on their federal loans.

 

[kazuma]

Not to mention IBR and the 10 year PSLF program makes paying loans off a bad move if you intend to work in a setting where you will qualify for those.

IBR with PSLF is a smoke and mirror gimmick. There is no way the gov will forgive millions in loans to help the "rich" 1%er doctors out. Where is that money going to come from? We'll see in 2017 when the first cohort is eligible, but I'm not holding my breath.

 

[chessknt]

IBR with PSLF is a smoke and mirror gimmick. There is no way the gov will forgive millions in loans to help the "rich" 1%er doctors out. Where is that money going to come from? We'll see in 2017 when the first cohort is eligible, but I'm not holding my breath.

I agree it is not guaranteed, but why even implement in the first place? I have minimal faith in our government but that seems a tad too malicious with no gain to ever be implemented.

Speculating on what the government is going to be doing in the future is beyond the scope of this thread, as of right now this is an option that should be considered viable until proven otherwise (and the money pocketed in keeping minimal payments should also be sued/saved wisely, obviously). The point is that rushing all loan payments above all other financial priorities is not inherently the best plan, especially when it comes at a cost to intangibles. For some it may be, but to put a blanket statement out decrying all others as stupid and foolish is entirely inaccurate. It is very situation-dependent.

 

[Bostonredsox]

IBR with PSLF is a smoke and mirror gimmick. There is no way the gov will forgive millions in loans to help the "rich" 1%er doctors out. Where is that money going to come from? We'll see in 2017 when the first cohort is eligible, but I'm not holding my breath.

This is how I see it. The goverrmnent wil write one round of loan right-offs then ban physicians from being eligible for the program as our huge debt numbers will quickly bankrupt the govt. There is no way they are forgiving any debt unless its the 20k per year route for working in an underserved primary care area. thats why I am planning standard repayment.

 

[Draxula]

A+ post. This should be on the front page instead of the current debt article that's on there

 

[johncunningham]

I'll play. First, I agree its not one size fits all. But, thinking that DEBT is evil is just plain silly. I was very lucky to graduate from med school in 2004 and locked in a rate of 1.625% for 30 years. Dumb luck yes, but wonderfully below the rate of inflation. It actually gets cheaper every year... Don't believe me? Well, during internship, that $672/month really stung. But now? I honestly don't even notice it leaving the checking account. My balance has gone from ~180k in 2004 to ~145k now. 2012 interest ~$2200. Short money. I smile every quarter when I review the net worth and see how cheaply I was able to finance med school. I have no intention of paying that note off even one day before it's finally due in 2034. Again, dumb luck, good timing... But why turn away the gift?

As for mortgages. My wife and I recently bought our "forever" house 1.3MM in a hood full of 2-3.5MM houses. That stings a little, the neighbors have more money... Whatever. I still drive a subaru and my wife a chevy. We put 30% down and financed the rest at 3.25% again over 30 years. Here's the best part, it appraised for 1.4 the day we bought it. Do I care, not really, I'm planning on being buried in the backyard (not really, but you get the idea). Oh yeah, I forgot to mention, we have the net worth to pay off the mortgage. It would mean liquidating retirement accounts, 529's, which we would never do, but we could if we really got pinched. Or, we could just move.

Parting thought, I've laid myself out in the above paragraphs. Interest rates are as low as their going to be in my lifetime. My student loan rate is an absolute freak of modern finance, but everyone who graduated and consolidated 2003-2005 literally hit the interest rate jackpot. Inflation is coming. Buying a good house on a good lot, in a good school system, for a good price seems like a no brainer to me. Does that mean over leverage? Of course not, but everyone needs a place to live.

John

 

[nap$ter]

I LOVE RETROSPECTIVE

RATIONALIZATION!!

HISTORY DOES NOT ALWAYS PREDICT THE FUTURE.

Ok Slavin, let's say you've got alotta debt but YOU'VE GOT IT ALL FIGURED OUT NUMBERS WISE....

What if your great plan to balance your debt was initiated 6 months before the 2009 debacle?

we're not talking about a 5 or 10 year repayment strategy. the nice thing about a locked in, set in stone, unchangeable (lucky) low apr of 2.55% and a 30 year repayment plan is that we can ride out the acute bumps in the market.

for those of us lucky enough to consolidate in 2004-2005, paying off the debt early is wasting free money.

jpp - it wasn't the plan. i didn't have a choice at the time whether to take loans for med school. no silver spoon here.

were my apr 6.8% i would do as you suggest and pay it off. but it's not. it's 2.55%.

so i'll stand.

 

[Arch Guillotti]

I could pay my debt off today if I had to but I choose not to. I have other things to tend to. I have a relatively low amount at a pretty low APR so I am not too worried.

 

[excalibur]

Even at the ridiculous 6.8%, it should not be such a high priority that you delay everything until it is gone.

WOW!!. Speechless.

You guys sound like drug addicts. 3.5% is not enough to worry about, 6.8% doesn't even do it for me, 22% APR credit card debt is what I need to get my fix.

 

[excalibur]

for the vast majority of America debt is a crucial part of life that needs to be managed intelligently, not avoided.

The above statement violates one of the major rules that this thread has been preaching

1. IF YOU CANT AFFORD IT, DON'T BUY IT.

Once you start borrowing, for many it becomes a drug. You see the things you can get on borrowed money. Also, once you borrowed money at what may be considered a low APR, and got the things you "needed" like a house or car, one may start feeling like they can "afford' more nice things.

Here is a very important point that has already been alluded to...

IT IS VERY DIFFICULT TO GO BACKWARD IN LIFESTYLE. Once you have DirecTV, it is difficult to try and go back to basic cable to save $125/mo

If you owe money, and you continue upgrading on borrowed money...YOU'RE GOING BACKWARDS.

The other major rule that I read somewhere and try to adhere to. What separates the wealthy from everyone else?

2. THE WEALTHY GAIN INTEREST WHILE THE REST PAY INTEREST

The "game" that some here are trying to play is that they are trying to say that they are going to gain more from their investments than paying their debt off.

Another problem is that some here view as paying off debt as losing money instead of viewing paying off debt as a guaranteed return. You pay off your debt sooner you save the money that would have been lost in the extra years of interest.

Again people who are holding on to debt on this thread are stating that they "feel" like they will make more in their investments than the interest they would ve saved from paying by eliminating debt eraly.

APR of 1.5% on student loans, maybe you are right. Hold on to that debt. That is probably the best move. How high is the cutoff? 5%?? 6%??

In 2004 I came across some money and invested $3000 in a traditional IRA. It mimicked the S and P 500. $3000 was the max contribution back then. I really didn't have enough to contribute more each year, and I was young and really knew NOTHING about investing. Anyway, I let it sit and checked on it occasionally. In 4 years I gained $1200 for a total of $4200. In October 2008, it started looking bad. By April 2009--6 months time--the earnings I accumulated over 4 YEARS were GONE!. I then started losing some of the original investment and it went down to like $2600. But you know what did not change one bit?? My student loans! They were still there sitting at 5.5%.

NOTHING IS GUARANTEED IN THE STOCK MARKET OR IN INVESTMENTS.

 

[pjl]

I forsee a market crash happening in the near term (5 years) in both our incomes, and general economy. Despite this I will continue to not pay off my loans that are at 4% or less. Anything higher I would have already written a check for. There are simply too many investment opportunities during that crash for me to have six figures less money for investment.
I understand completely that I may fail miserably with my investments, and end up worse off than if I had just paid off my loans. I am ok with this, mostly because my family of 4 could live at my current lifestyle for a number of years without receiving a dime in income, and my investment options are better than most through personal connections. In the terms of this forum, my FU account is fully funded, and fertile.

4% is my number, everyone else will have their own number. What is dumb is trying to tell everyone to pay off loans/not buy houses/live the life you do (or wish you had).
Everyone needs to realistically evaluate themselves honestly, and plan accordingly.
1. How much uncertainty are you willing to put up with?
2. Do you know enough about investing to "beat" your loan interest rate (post tax)? When you look back over 1, 2, 5 years, have you done that? If you haven't beat that over the past 2 years you are not skilled in investing and should just pay off the loans. This has been a very forgiving time as the market "recovers."
3. Are you going to invest the money or spend it? I personally view "spending" the money you would have paid off your loans with as a incredibly poor choice, but to each their own. Is spending today worth living below your current means should your ability to earn diminish?

 

[Shimmy8]

Appreciate this thread, but for those of us graduating right now aren't the IBR type options with PSLF being brushed aside too easily?

I'm graduating this year with about 250k at 6.8%. Wife is an RN, she'll work full time and we don't plan on having kids until residency is over. We live modestly and will rent a small place. We can make a serious dent in those 4(5) years, but I see myself potentially ending up in an academic setting. If that's the case, maxing out IRA and 401k for both of us and keeping on IBR would make a hell of a lot more sense.

Not saying that's what we'll do, as I hate the idea of dead in theory/emotionally, but something we have to talk about and decide.

Good convo here though, appreciate all the posts.

 

[chessknt]

WOW!!. Speechless.

You guys sound like drug addicts. 3.5% is not enough to worry about, 6.8% doesn't even do it for me, 22% APR credit card debt is what I need to get my fix.

I dont understand why you are evoking that emotional argument? It is a matter of math, the difference on 200k at 3.5% vs 6.8% over a 10 year repayment plan is 37300 vs. 76200, or a net loss of 38k. Is 38k over a 10 year period to live a better lifestyle a drug addiction?

The ENTIRE POINT of borrowing money is to buy something you can afford, you just cannot pay in full at once. It takes something unachievable in the near term, makes it happen now, and charges a premium for it.

You could work for 10 years and buy a house free and clear, or you could take a mortgage out now and have your kids grow up in a neighborhood in a home they will remember instead of an apartment, and pay interest for that intangible benefit. Simply saying you shouldn't buy it because you cant pay for it in cash is the kind of thinking compatible with a biblical monetary system.

Appreciate this thread, but for those of us graduating right now aren't the IBR type options with PSLF being brushed aside too easily?

I'm graduating this year with about 250k at 6.8%. Wife is an RN, she'll work full time and we don't plan on having kids until residency is over. We live modestly and will rent a small place. We can make a serious dent in those 4(5) years, but I see myself potentially ending up in an academic setting. If that's the case, maxing out IRA and 401k for both of us and keeping on IBR would make a hell of a lot more sense.

Not saying that's what we'll do, as I hate the idea of dead in theory/emotionally, but something we have to talk about and decide.

Good convo here though, appreciate all the posts.

Absolutely. I have no idea why everyone doesn't do IBR and just apply any extra you want to pay per month to principal (which is done by writing the loan servicer). This stops interest capitalization and, on subsidized loans, pays off any accrued monthly interest not covered with the IBR-determined payment.

 

[PonyUp]

I have $129k+ in loans.

3 haven't matured and are worth $8500 apiece, so $25,500 won't start accruing interest until December of 2014 according to my servicer.

As for the $100k that's growing by 6.8% a year, I don't have enough cash to cover but I do have around $67k from day trading in college. I abhor being in debt at all, and hate making payments more than anything.

In college, interest rates were low enough to make arbitrage work for many of my colleagues, and if I was paying 1.5% on my loans, I would consider that damn cheap money. But that's not the reality for anyone that's graduating now or in the future. I'm blessed to have done undergrad for free so all of my loans are from medical school.

Now, I do have a fiancee that will be my spouse in 2 months. We're filing jointly this year, and she has a nest-egg worth $100k in dividend-bearing assets and some common stock.

My question is the same one everyone else has...personalized debt management.

1. Do I give up the minimal but existent good debt tax writeoff by paying off my interest bearing loans in a $67k chunk and then selling off some of her nest egg to eliminate the $100k of loans that are actively accruing, then pay down the $25k principal that isn't accruing with my resident salary.

2. Go into forebearance, lock in a low payment per month, but pay back more than I need to each month, thus minimizing liability in the event of catastrophe, and still giving me the "pay it all off" option.

3. Some other permutation.

I understand that selling off some of her stocks is a horrible option, and sacrifices a bit of "future." As for my chunk of change, it's all in cash or vanguard/fidelity mutual funds. But I can guarantee you that none of the above are going to cover the 6.8% consistently.

Thoughts? Liquidate to minimize harm?

 

[pjl]

In your shoes, I would forbear through residency, paying extra as able, and see wha tthe market is like when you finish. Paying a ton off during residency makes a much bigger hit to your quality of life than it will be when you get a big boy job. Having the insurance of 100k gives you options if life changes dramatically.

 

[BLADEMDA]

I'll play. First, I agree its not one size fits all. But, thinking that DEBT is evil is just plain silly. I was very lucky to graduate from med school in 2004 and locked in a rate of 1.625% for 30 years. Dumb luck yes, but wonderfully below the rate of inflation. It actually gets cheaper every year... Don't believe me? Well, during internship, that $672/month really stung. But now? I honestly don't even notice it leaving the checking account. My balance has gone from ~180k in 2004 to ~145k now. 2012 interest ~$2200. Short money. I smile every quarter when I review the net worth and see how cheaply I was able to finance med school. I have no intention of paying that note off even one day before it's finally due in 2034. Again, dumb luck, good timing... But why turn away the gift?

As for mortgages. My wife and I recently bought our "forever" house 1.3MM in a hood full of 2-3.5MM houses. That stings a little, the neighbors have more money... Whatever. I still drive a subaru and my wife a chevy. We put 30% down and financed the rest at 3.25% again over 30 years. Here's the best part, it appraised for 1.4 the day we bought it. Do I care, not really, I'm planning on being buried in the backyard (not really, but you get the idea). Oh yeah, I forgot to mention, we have the net worth to pay off the mortgage. It would mean liquidating retirement accounts, 529's, which we would never do, but we could if we really got pinched. Or, we could just move.

Parting thought, I've laid myself out in the above paragraphs. Interest rates are as low as their going to be in my lifetime. My student loan rate is an absolute freak of modern finance, but everyone who graduated and consolidated 2003-2005 literally hit the interest rate jackpot. Inflation is coming. Buying a good house on a good lot, in a good school system, for a good price seems like a no brainer to me. Does that mean over leverage? Of course not, but everyone needs a place to live.

John

Nice move on the home. Also, your interest rate on those loans is phenomenal.

 

[Mman]

The truth is that being debt free isn't as crucial as many were brought up to think it is. Debt is a big part of our economy and helps keep things moving. If everyone refused to take out any debt our financial sector wouldn't exist and there would be no market for houses or cars.

Enjoying a nice house when your kids are young vs. when they are in high school and other intangible factors can easily outweigh the interest premiums. This is also better overall for the economy as well. Hammering a mantra of "neither a lender nor a borrower be" is not applicable in modern times. Not saying you cant get in trouble (when your total debt burden exceeds your annual income, especially by an order of magnitude or close to it, you need to seriously do something to shrink it ASAP), but having some debt is a good thing for the economy and not something to strive to avoid.

While I agree that debt can be a financial tool, you are incorrectly taking the view that debt is good for the economy (which it is on a macro level view) and transferring it to a micro level view of an individual.

From an individual point of view, debt is not good. It can be less bad or more bad depending on rates and things. But you or I having debt doesn't help the economy. We are a large nation. You could make it rain with hundreds every weekend at the strip club and have big monthly payments on your Benz and your mansion and your boat and it won't make a dent in the national economy. Won't even change your local economy.

From an individual point of view, it is great when everybody else has debt and is spurring the economy on and you are saving and not going into debt. But your debt isn't helping anything.

 

[pgg]

I forsee a market crash happening in the near term (5 years) in both our incomes, and general economy. Despite this I will continue to not pay off my loans that are at 4% or less. Anything higher I would have already written a check for. There are simply too many investment opportunities during that crash for me to have six figures less money for investment.

Another market timer is born!

2. Do you know enough about investing to "beat" your loan interest rate (post tax)? When you look back over 1, 2, 5 years, have you done that? If you haven't beat that over the past 2 years you are not skilled in investing and should just pay off the loans. This has been a very forgiving time as the market "recovers."

Past performance predicting future returns?

 

[pjl]

But PGG I am better than those other guys...

Negative past performance does increase the likelihood of negative future performance. It is the converse that is not always true.
For most, myself included, an honest look at how well you have done in the past is important. As physicians we tend to believe we are smarter than average and will do better at investing. I know I am not better than most, and have consulted some very successful people for the bulk of my investing.
I am proud of my overall returns in my meager Roth IRA account which I use to satisfy my fantasies about being good at investing. I am not proud of certain investments within that account, but that is the way of it.

 

[Perrotfish]

nvm

 

[F0nzie]

I agree with Jet 100%.

Going into debt for 12 years to earn a 300k salary makes sense. But once your debt gets you where you want to be, you need to get rid of it.

The same basic principle applies to starting a business and going into debt from the start up costs. It's like jumping off of a cliff and building your wings on the way down.

Jet said it nicely-- debt is an anchor. How are you going to fly with debt as an anchor? Unlike other unpredictable variables which may be either rainbows or thunderstorms, debt will always be there.

I've paid off 30k in loans from moonlighting this year and I'm still a resident....in Psychiatry!!! I am not making a lot of money but I am saving it.

Yes, the psychological freedom from closing off several of those accounts is priceless. You cannot place a dollar amount on this.

 

[kazuma]

I agree with Jet 100%.

Going into debt for 12 years to earn a 300k salary makes sense. But once your debt gets you where you want to be, you need to get rid of it.

The same basic principle applies to starting a business and going into debt from the start up costs. It's like jumping off of a cliff and building your wings on the way down.

Jet said it nicely-- debt is an anchor. How are you going to fly with debt as an anchor? Unlike other unpredictable variables which may be either rainbows or thunderstorms, debt will always be there.

I've paid off 30k in loans from moonlighting this year and I'm still a resident....in Psychiatry!!! I am not making a lot of money but I am saving it.

Yes, the psychological freedom from closing off several of those accounts is priceless. You cannot place a dollar amount on this.

That is some impressive moonlighting income, I'll be lucky if I net 2-3k on in house gas moonlighting this year. What kind of moonlighting are you doing? Congrats on paying off a significant amount of debt while in residency.

 

[Avefenix]

JET

Here's my plan for your concern with debt

Loan Repayment Programs

The Physician Education Loan Repayment Program (PELRP) provides loan repayment funds to physicians who agree to practice in a Health Professional Shortage Area (HPSA), and provide health care services to recipients enrolled in Medicaid, and the TX Children's Health Insurance Program (CHIP).

160 K for 4 years + Keep your Salary = Win Win

Can keep my "ROKKSTARR" house and sports car.

Enough Said

BADA BING.