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Saving while in Med School

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  • Saving while in Med School

    Should I be saving while in med school? I would technically be saving borrowed money. So shouldn't I be paying back whatever loan $ I have leftover?

  • #2
    You can't really save if you don't have any income. While money is likely sitting in your checking account from the student loan disbursement ("income"), saving or investing this money is probably not the right thing to do for a few reasons.

    1) Putting it in a savings account making ~1% doesn't beat paying off a loan rated at 4-8%.

    2) You might be able to argue your long-term return in the stock market via a low-cost index fund could beat the interest rate on your loan (depending on exactly what it is), but its still a gamble. Its the same conversation anyone with debt has regarding paying off loans vs investing. A risky venture which I would recommend against, given #3 below.

    3) Maybe most importantly, I'm pretty sure the MPN you signed to secure the loans from the federal government (assuming these are federal loans) forbids use of the loans for investing/savings. I don't remember the details, but I remember having the same question when I was a medical student and that was the bottom line conclusion I came away with. In addition, contributing to an IRA requires earned income (which you don't have - unless you have a part-time job). Others on this forum who are smarter and better informed than me might have some additional clarifying commentary on this point, but in general I would say payback what you don't need and take the guaranteed return. Once you start making your own money after medical school, you should be able to more easily (and ethically) decide which basket to put left over funds in each month.

    If you have loans or borrowed money from some other source, you might have some further flexibility with savings/investing, but that can get kinda dicey depending on the source of the funds.


    • #3
      I wouldn't worry about saving while in med school; instead, I'd worry about keeping your total expenses as low as possible.  The less you need to borrow, the less you'll have to repay later.

      Saving is for residency, when you actually have an income.


      • #4
        They are federal loans. So I should re-read my MPN! I wasn't thinking of contributing to an IRA so much as I was thinking of putting the leftover money in a savings account.


        • #5
          Return whatever you don't need/use. Why would you borrow at 4-8% interest rate to make at best 1% on that money sitting in a savings account?

          Focus on building your knowledge and acing your exams, that is the best investment at this stage of your life.


          • #6
            Would give the same advice as above. Keep the expenses to a bare minimum while still allowing for a few ways to have fun while in school. We didn't know to follow this advice and now have >$200k in loans that we owe. Without knowing anything about your situation, I would suggest getting some roommates to keep rent low, bike to school or drive a reliable beater if you need an automobile, no pets, no kids, no over the top government funded luxuries, and you should be fine!


            • #7
              Save. Always save. Anyone making even a $1 a day should aim to save 0.50 cents. That mentality can scale to infinite money.


              • #8
                Thanks everyone! I am 26 and borrowing money to live off as my parents are not helping and my SO is not making enough to support both of us. We live together and share living expenses, but we already have pets. I will owe ~$240k before interest when it's all said and done.


                • #9
                  We had a husky during the first 2 years of med school, and then added a second one just before starting the third year. They do provide an always friendly face when you come home which is great! But they also can come with hefty bills, so keep 'em healthy!


                  • #10
                    Funny you're asking this question. I was at a similar crossroad years ago regarding excess student loan money. I opted to return money at 2.265% interest which I accumulated during my first two years of medical school. I believe the initial rate was higher but you could do in-school consolidation for a lower rate so I did.  Fast forward a couple years when I took out money to complete my last two years of schooling and the in-school consolidation option was no longer available so subsequent loans were 6.8%. To this day, I kick myself for returning money at 2.265% interest just to turn around and borrow money at more than three times that rate later. The loan officer tried to talk me out of returning money at such low interest but I was ************************ bent on doing so because 1) I didn't need the money for tuition, etc. and 2) I didn't trust myself to not spend it on crap.

                    TL;DR: Keep interest rates in mind prior to returning the money and if you're consistently taking out too much in student loans, take out less going forward.


                    • #11
                      Emily, don't kill yourself trying to pinch every penny in school and in residency.  The amount you can put away now pales in comparison to what you can put away later.  What you should be doing now is developing good spending habits that will carry forward through the rest of your career.  That doesn't mean you should be eating ramen and staying home and not going out with friends so that you can fill your Roth IRA and brokerage account and have your loans paid off before graduation-- there's more to life than that, IMO.

                      But at the same time, if you're going into a lower paying specialty like pediatrics and/or or you intend to get married to a nonworking/very low earning spouse, and/or plan on working part time once you have kids, etc., you should probably be setting the bar very low for yourself now, and living very frugally, which includes paying back all of your excess unsubsidized loans and trying to save for retirement.

                      Will you be pursuing loan forgiveness, or will you be paying them off?  Forgiveness can actually create a perverse incentive to run up as much forgivable debt as possible.  If you're going to have a ton of debt and likely pursuing forgiveness, you should run the numbers to figure out if it's even worth paying anything back now.

                      My wife did make a couple of loan payments back to her lender while in school since she had so much excess.  Meanwhile, many of her classmates (with the same tuition and loans as her) were having to sign up for additional private loans because they were so spendthrift, even when they had family support.  But she didn't live an incredibly frugal lifestyle, and we even ended up using some of her excess loan money as a down payment on our house.


                      • #12

                         The loan officer tried to talk me out of returning money...
                        Click to expand...

                        When my wife inquired as to how to make a payment, the people she spoke with were completely thrown off, looked at her like she had a third eye, and her loans were at 6.8%.

                        It was as if noone had ever asked the question before.  Totally bizarre.  :lol:


                        • #13

                          Should I be saving while in med school? I would technically be saving borrowed money. So shouldn’t I be paying back whatever loan $ I have leftover?
                          Click to expand...

                          You should just take out less the following semester. It's okay to take out the tiniest sliver more than what you need until the end of the semester since sometimes disbursements can be delayed, but most of the "saving" you should do in med school should come from minimizing your borrowed amount, which is done by tempering your lifestyle.

                          If you've got some extra tens of thousands, give it back. If it's only a couple thousand, keep it in high-interest savings for an emergency like a delayed disbursement.

                          You can't contribute to an IRA without earned income, anyway, and borrowing at 6.8% to fund investments is generally ill-advised as it is.


                          • #14

                            Thanks everyone! I am 26 and borrowing money to live off as my parents are not helping and my SO is not making enough to support both of us. We live together and share living expenses, but we already have pets. I will owe ~$240k before interest when it’s all said and done.
                            Click to expand...

                            The best way to save in medical school is to borrow as little as possible.  THEN, when you are a resident and start earning a paycheck, set up a budget that will teach you to save and still make payments towards your loans each month.  When you finally hit attending level salary, you'll be used to the concept of saving and can pay off your loans right away (before upgrading your lifestyle).  How much to save?  A minimum of 20% is a good rule of thumb.  Paying down loans doesn't count towards savings.  Saving for a vacation and then spending it all doesn't count either.  Savings should be money you put away and don't touch for the long haul.  It's easier to teach yourself these important habits at a younger age.  Come back to this site often and read about all the mistakes others make and how costly they can be.  It will keep you focused on doing the right thing each year.