How Fast to Pay Student Loans (Medical)

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tarheel15
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How Fast to Pay Student Loans (Medical)

Post by tarheel15 »

My wife and I are both physicians in our early 30s - no kids yet.
She has 155k and I have 30k student loans at 2%.

Currently she is paying $900/month and I $300/month.
We want to pay it down faster - what are your thoughts on if and how we should do this?
We will likely be buying a home in the next 1-2 years.

Any advice appreciated.
Thanks
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bottomfisher
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Re: How Fast to Pay Student Loans (Medical)

Post by bottomfisher »

Many are uncomfortable with any type of debt hanging over their heads. If this is your mindeset, then just log onto your student loan debt servicer website and schedule higher payment schedule that work for you. Its easy and only takes a couple of minutes.

The other scenario is that 2% is very good rate for student loans. Current graduating students are unable to obtain these low rates. When I finished residency 3 years ago, I locked in 3.85% (i think). At that time I felt optimistic about the market and felt that I could make more than 3.85% with the money invested instead of paying additional money toward student loan repayment. And the market did well and so did I. I'm a bit less optimistic now so I'm more aggresively paying down the student loan instead of investing extra income into my taxable account.

So its up to you to decide whether you dislike the loan hanging over your head or whether you feel that you can earn more with your money than the 2% interest accruing.
Last edited by bottomfisher on Thu Apr 25, 2013 8:51 am, edited 1 time in total.
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danwhite77
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Re: How Fast to Pay Student Loans (Medical)

Post by danwhite77 »

I am a very debt averse person, but nonetheless I have not paid off my ~$50k in student loans because my fixed interest rate is 1.75%. If I were you, I would not pay down the loans in an aggressive manner. A few years ago, I didn't pay mine off because I realized that if I did, I would simply incur the debt again because I would have less money for a down payment on a home, and the mortgage rate would be higher than the student loan rate (I disregard the tax effect). I suppose that if you feel you'll still be able to put down an adequate down payment on your house and not incur additional mortgage as a result of paying off the loan, your analysis could be different.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
newdumbdoc
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Re: How Fast to Pay Student Loans (Medical)

Post by newdumbdoc »

Graduating in a few weeks and just learning how to manage personal finances and I would love to have the interest rates you guys are quoting. At 6.8%, I plan to aggressively tackle my debt upon finishing residency. At 2%, I don't think I would. That's less than almost every available home mortgage. I'm commenting basically to say I am jealous.
John3754
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Re: How Fast to Pay Student Loans (Medical)

Post by John3754 »

At 2% I would pay them down as slowly as possible. That's essentially free money.
suming
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Re: How Fast to Pay Student Loans (Medical)

Post by suming »

How did you get the 2%? From where?
moto112233
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Re: How Fast to Pay Student Loans (Medical)

Post by moto112233 »

John3754 wrote:At 2% I would pay them down as slowly as possible. That's essentially free money.
+1. Also, which lender did you get it from? I wouldn't mind refinancing some student loans at that rate..
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danwhite77
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Re: How Fast to Pay Student Loans (Medical)

Post by danwhite77 »

Sorry to those of you stuck with the new and higher interest rates. I consolidated back in 2004. Since then, legislative changes have made consolidating at that rate impossible. I was on one of the last lifeboats off the Titanic. If my loans were under the new rate at approximately 7% I, too, would pay them down as quickly as possible.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
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burgrat
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Re: How Fast to Pay Student Loans (Medical)

Post by burgrat »

danwhite77 wrote:Sorry to those of you stuck with the new and higher interest rates. I consolidated back in 2004. Since then, legislative changes have made consolidating at that rate impossible. I was on one of the last lifeboats off the Titanic. If my loans were under the new rate at approximately 7% I, too, would pay them down as quickly as possible.
I agree. I did the same thing, consolidating in 2005 my student loans at 2% fixed. I have just under $150k and have been in no hurry to pay it off, although I hate knowing that I have debt. If my loans were around 5-7% I would pay them off immediately.
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White Coat Investor
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Re: How Fast to Pay Student Loans (Medical)

Post by White Coat Investor »

1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
4th and Inches
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Re: How Fast to Pay Student Loans (Medical)

Post by 4th and Inches »

I have $21k at 1.625%. I'm just paying the minimum of $152 a month. I got lucky! I'm down to $1300 at 6.55% from my MBA which will be paid off in the next two months. Woot!
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g$$
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Re: How Fast to Pay Student Loans (Medical)

Post by g$$ »

at 2% fixed i would pay them down as slowly as possible.

They are fixed right? It's not a variable rate that just hasn't reset in a while?
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windhog
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Re: How Fast to Pay Student Loans (Medical)

Post by windhog »

newdumbdoc wrote,
At 6.8%, I plan to aggressively tackle my debt upon finishing residency.
Whoa! Why wait until then? Getting a 6.8% return on anything you can spare is a deal.

Please take some time to re-think your plan.

You will be making a salary now and as a house officer you do not need much more than a place to sleep, eat and change clothes. The nice apartment with the new furniture and the fancy car you have likely promised yourself and put off for the last four + years will be pretty much unused. Being a BH has much to do with living below your means, and a major life-change moving from a debt-accumulator to a salary-earner is prime time for some powerful choices.

Post-graduate training is exciting and a real chance to stretch into the doc you would like to be. Spending on a life-style will not be much fun in the shadow of that ever-growing mountain of debt, especially when you have so little time to do stuff. :beer

Hope this helps,
Paul
Last edited by windhog on Fri Apr 26, 2013 2:40 pm, edited 2 times in total.
newdumbdoc
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Re: How Fast to Pay Student Loans (Medical)

Post by newdumbdoc »

I guess we have different definitions of "aggressive." With the income we make in residency, there won't be that much to make a dent in my loans ($200k+).
bungalow10
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Re: How Fast to Pay Student Loans (Medical)

Post by bungalow10 »

newdumbdoc wrote:I guess we have different definitions of "aggressive." With the income we make in residency, there won't be that much to make a dent in my loans ($200k+).
Don't residents make ~$40k/year? It's not like you'll have time to spend any of it....
An elephant for a dime is only a good deal if you need an elephant and have a dime.
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kybourbon
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Re: How Fast to Pay Student Loans (Medical)

Post by kybourbon »

I am in this exact situation. I have decided to pay off my loans as fast as possible. I have about 9 months left starting with a total debt of around 200k.

I can appreciate the advice above. If you want to invest instead of paying off your loans, whatever. I just couldn't come to terms with the fact that in 10 years I would still be talking about student loans. Not worth it when you make the kind of income that some physicians make.

With that being said, I would be interested to know what your income is. With two docs in the family, I would assume you could get on a two year plan and not sacrifice your lifestyle too much.

My advice would be to form a monthly budget, establish realistic monthly expenses including roth (or backdoor roth) contributions and retirement matching, and then attack the rest of the debt with whats left over. The relief of the debt burden is great, and it also establishes living below your means which is a good habit to get into.

Hope that helps.

ky
"Our favorite holding period is forever" (WB)
John3754
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Re: How Fast to Pay Student Loans (Medical)

Post by John3754 »

kybourbon wrote:I am in this exact situation. I have decided to pay off my loans as fast as possible. I have about 9 months left starting with a total debt of around 200k.

I can appreciate the advice above. If you want to invest instead of paying off your loans, whatever. I just couldn't come to terms with the fact that in 10 years I would still be talking about student loans. Not worth it when you make the kind of income that some physicians make.

With that being said, I would be interested to know what your income is. With two docs in the family, I would assume you could get on a two year plan and not sacrifice your lifestyle too much.

My advice would be to form a monthly budget, establish realistic monthly expenses including roth (or backdoor roth) contributions and retirement matching, and then attack the rest of the debt with whats left over. The relief of the debt burden is great, and it also establishes living below your means which is a good habit to get into.

Hope that helps.

ky
This is a very emotional view of the situation. If you remove the "I just can't stand the thought of having loans" emotion from the scenario and just look at the math, you should realize that paying down a loan at 2% instead of putting that money towards investments making 3+% is foolish.

I have 6 figures in student loans that I'm paying 1.6% on, and you're telling me that I should pay that down instead of diverting the money into my portfolio that's making more than double that? Forget about the loans, that money is gone, and at 2% or less it was essentially free money, pay it down as slow as possible and instead let the money work for you elsewhere. If you can't be analytical about and it keeps you up at night then fine, dump cash into the loans, just realize that there's an opportunity cost for doing so, and you're robbing yourself of future financial gains in order to feed irrational emotions.

Bottom line, you have 6 figures in low interest loans, you can either pay them down the result being you have no more loans, or instead of paying the loans you can build a 6 figure portfolio that will make double what the loans are costing.
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kybourbon
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Re: How Fast to Pay Student Loans (Medical)

Post by kybourbon »

John3754 wrote:
kybourbon wrote:I am in this exact situation. I have decided to pay off my loans as fast as possible. I have about 9 months left starting with a total debt of around 200k.

I can appreciate the advice above. If you want to invest instead of paying off your loans, whatever. I just couldn't come to terms with the fact that in 10 years I would still be talking about student loans. Not worth it when you make the kind of income that some physicians make.

With that being said, I would be interested to know what your income is. With two docs in the family, I would assume you could get on a two year plan and not sacrifice your lifestyle too much.

My advice would be to form a monthly budget, establish realistic monthly expenses including roth (or backdoor roth) contributions and retirement matching, and then attack the rest of the debt with whats left over. The relief of the debt burden is great, and it also establishes living below your means which is a good habit to get into.

Hope that helps.

ky
This is a very emotional view of the situation. If you remove the "I just can't stand the thought of having loans" emotion from the scenario and just look at the math, you should realize that paying down a loan at 2% instead of putting that money towards investments making 3+% is foolish.

I have 6 figures in student loans that I'm paying 1.6% on, and you're telling me that I should pay that down instead of diverting the money into my portfolio that's making more than double that? Forget about the loans, that money is gone, and at 2% or less it was essentially free money, pay it down as slow as possible and instead let the money work for you elsewhere. If you can't be analytical about and it keeps you up at night then fine, dump cash into the loans, just realize that there's an opportunity cost for doing so, and you're robbing yourself of future financial gains in order to feed irrational emotions.

Bottom line, you have 6 figures in low interest loans, you can either pay them down the result being you have no more loans, or instead of paying the loans you can build a 6 figure portfolio that will make double what the loans are costing.
Your persistent error comes from not factoring in risk or inflation. There is no guarantee of investment return, however there is a guarantee of risk. Just like you, most don't account for risk when discussing paying off low interest debt. Just because you refuse to acknowledge it doesn't mean it isn't real. Emotion has nothing to do with it.
"Our favorite holding period is forever" (WB)
John3754
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Re: How Fast to Pay Student Loans (Medical)

Post by John3754 »

kybourbon wrote:
John3754 wrote:
kybourbon wrote:I am in this exact situation. I have decided to pay off my loans as fast as possible. I have about 9 months left starting with a total debt of around 200k.

I can appreciate the advice above. If you want to invest instead of paying off your loans, whatever. I just couldn't come to terms with the fact that in 10 years I would still be talking about student loans. Not worth it when you make the kind of income that some physicians make.

With that being said, I would be interested to know what your income is. With two docs in the family, I would assume you could get on a two year plan and not sacrifice your lifestyle too much.

My advice would be to form a monthly budget, establish realistic monthly expenses including roth (or backdoor roth) contributions and retirement matching, and then attack the rest of the debt with whats left over. The relief of the debt burden is great, and it also establishes living below your means which is a good habit to get into.

Hope that helps.

ky
This is a very emotional view of the situation. If you remove the "I just can't stand the thought of having loans" emotion from the scenario and just look at the math, you should realize that paying down a loan at 2% instead of putting that money towards investments making 3+% is foolish.

I have 6 figures in student loans that I'm paying 1.6% on, and you're telling me that I should pay that down instead of diverting the money into my portfolio that's making more than double that? Forget about the loans, that money is gone, and at 2% or less it was essentially free money, pay it down as slow as possible and instead let the money work for you elsewhere. If you can't be analytical about and it keeps you up at night then fine, dump cash into the loans, just realize that there's an opportunity cost for doing so, and you're robbing yourself of future financial gains in order to feed irrational emotions.

Bottom line, you have 6 figures in low interest loans, you can either pay them down the result being you have no more loans, or instead of paying the loans you can build a 6 figure portfolio that will make double what the loans are costing.
Your persistent error comes from not factoring in risk or inflation. There is no guarantee of investment return, however there is a guarantee of risk. Just like you, most don't account for risk when discussing paying off low interest debt. Just because you refuse to acknowledge it doesn't mean it isn't real. Emotion has nothing to do with it.
Of course you're correct that paying the loan is a guaranteed 2% nominal return, whereas investing in the market guarantees nothing. However, lets say that it takes you 2 decades to pay down the loan, and instead of paying down quickly you put the money into total stock market index instead, what is the risk of total stock market returning less than 2% over 2 decades? Of course that risk exists, but it's a fairly small risk and if one is adverse to risk of that magnitude then they probably shouldn't be investing at all. Reguarding inflation, inflation is in your favor when it comes to not paying loans as the real value of the loan is inflated away over time.

Also, the OP mentions wanting to buy a home within the next few years, and unless they can get a mortgage for less than 2% their money would e better spent paying down their mortgage than paying down their student loans.
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