Student loans and investing

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xilex
Posts: 67
Joined: Sun Mar 02, 2014 4:02 pm

Student loans and investing

Post by xilex »

Hi - I have about 150000 of student loans at 6.8% interest rate. I've been paying with income-based repayment, about 350-500 a month. I am on the MD path, making about 3300 (post-tax) a month right now, usually have several hundred left over each month (200-1000), have about 3.5 years left of residency, and I should have a few extra hundred each month with each subsequent year of residency.

The older posts I've read here seem to suggest given the high interest rate it would be better to pay off the loans first, versus investing in anything. I was planning to max out a Roth IRA each year, but not sure what to do with the remaining money. If you recommend paying off student loans, assuming I have a sufficient stash of emergency funds, would I pay as much as I can afford toward student loans? Thank you in advance for your advice.
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zebrafish
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Re: Student loans and investing

Post by zebrafish »

You may need some cash towards the end of residency to move/relocate. You need an emergency fund.

Your student loans have very high interest rate. Some here will tell you that you should do a Roth, because you'll never get that Roth space back in the future. I see the validity of this point.

Personally, I would:
1) Meet emergency needs, consider whether you'll need savings at end of residency and plan out how you'll save this
2) Pay off student loans as much as possible
3) Consider doing a yearly Roth, but I would not do any investing beyond this with the high loan interest rate; one could also justify no Roth and everything towards the loans

Might want to see if there are any options to reduce your student loan interest rate.

And, it will get better. Enjoy the relationships you make as a resident, even if the work is painful. This is one thing that, looking back, I'll never have again-- I'll never be as close to a set of work colleagues. I miss the camaraderie (but not the sleep deprivation).
Topic Author
xilex
Posts: 67
Joined: Sun Mar 02, 2014 4:02 pm

Re: Student loans and investing

Post by xilex »

Thanks for the advice. I definitely have enough aside for emergency funding. Most of the loans are unsubsidized federal loans locked at 6.8%, so I can't really do much to decrease it. What is the rationale to try to pay it all off now versus paying minimum and paying it off quickly once I am finished with residency?

I agree with you that the camaraderie is valuable (I really miss the days of undergrad, lab), but I made a really bad choice and fully regret how I set up my rank list and hate coming to "work" every day, having second thoughts if I even chose the correct specialty. Will see if I can enjoy my job in five years.
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zebrafish
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Re: Student loans and investing

Post by zebrafish »

xilex wrote:What is the rationale to try to pay it all off now versus paying minimum and paying it off quickly once I am finished with residency?
Well, I think you could make the argument that you fund a Roth now. But the rest of the money you have-- a guaranteed ~7% return on every dollar you put on the debt is a pretty good return.

I highly doubt you could earn a better return with taxable investing minus capital gains. If your interest rate were 1%, then you could invest the extra money, but you're paying about 7%...
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