Hello!
I have been doing some thinking about where I should put my money during residency and wanted to see what your guys' opinions were. A little background: I am an anesthesia intern with 160k of federal loans (with a weighted interest of 5.9%) and make 53k per year. I matched in the city where my parents live, so I have been/plan on living at home for much of residency. While this may not seem like the most glamorous option, I feel like I have the opportunity to really maximize my money during residency and set myself up for success; I live in a city where rents have ballooned in the past 5 years, and I have seen many interns paying anywhere from 1,000 to 1,500 a month for rent. Thus, I have the potential to invest/pay back my loans by not having rent to pay. I have been considering two options for how to approach my loans and investments during residency:
Option 1:
Benefits of option 1:
Graduate from residency with less than 100k of student loans, still have some money tucked away in a Roth IRA. Low risk.
Option 2:
- Note that maxing out a 401k would be roughly the same per month ($1,500) as would paying back my student loans through the private First Republic loans (10 year, 2.95% APR).
Benefits of option 2:
Maximize my tax deduction benefits in residency (via Roth IRA and 401K) and minimize my REPAYE payment (by minimizing my Adjusted Gross Income), therefore maximizing the interest subsidy that REPAYE offers. Correct me if I'm wrong, but I know your REYPAYE payment is based on your AGI. See calculations below (assuming I max out a 401k):
My Adjusted Gross Income: $53,000 – $18,000 (401k) – $5,500 (Roth IRA) = $29,500, which would make my REPAYE monthly payment $97 (based on what the studentloans.gov website calculator says).
For my federal loans at my interest rate (160k at 5.9%), my monthly interest would be $786.61/mo or $9,439.41/yr. The difference then between my REPAYE payment and accrued interest would be $786.61 – $97 = $689.61, thus making the interest subsidy I'd receive $344.80/month, or $4,137.66/year, making my total yearly interest accrual on my loans $9,439.41-$4,137.66=$5,301.75. This would effectively make my loan interest rate almost half it was before $5,301.75/$160k=3.31% (instead of the 5.9% I would have had otherwise).
What do you guys think? I'm tempted to go with option 2, but I wanted to see if you all had any ideas! Thanks for reading!
I have been doing some thinking about where I should put my money during residency and wanted to see what your guys' opinions were. A little background: I am an anesthesia intern with 160k of federal loans (with a weighted interest of 5.9%) and make 53k per year. I matched in the city where my parents live, so I have been/plan on living at home for much of residency. While this may not seem like the most glamorous option, I feel like I have the opportunity to really maximize my money during residency and set myself up for success; I live in a city where rents have ballooned in the past 5 years, and I have seen many interns paying anywhere from 1,000 to 1,500 a month for rent. Thus, I have the potential to invest/pay back my loans by not having rent to pay. I have been considering two options for how to approach my loans and investments during residency:
Option 1:
- Refinance my federal loans privately now: I'm not sure if you all are familiar, but First Republic Bank has a student refinance loan that has a few different options. The one that I was looking at is a 10-yr, 2.95% APR loan that would put my monthly payment at $1,541/month. No prepayment, origination, or annual fees.
- Max out a Roth IRA $5,500 ($458/month)
Benefits of option 1:
Graduate from residency with less than 100k of student loans, still have some money tucked away in a Roth IRA. Low risk.
Option 2:
- Go with REPAYE and defer trying to pay down my federal loans until after residency ends.
- Max out both a Roth IRA ($5,500) and get close to maxing out a 401k (~$18,000/yr or about $1,500/month)
- After graduating, refinance privately with First Republic (or whoever else) at that time (they currently have a 5 year, 1.95% APR that I could foot as an attending, but who knows if that will still be around in 4 years).
- Note that maxing out a 401k would be roughly the same per month ($1,500) as would paying back my student loans through the private First Republic loans (10 year, 2.95% APR).
Benefits of option 2:
Maximize my tax deduction benefits in residency (via Roth IRA and 401K) and minimize my REPAYE payment (by minimizing my Adjusted Gross Income), therefore maximizing the interest subsidy that REPAYE offers. Correct me if I'm wrong, but I know your REYPAYE payment is based on your AGI. See calculations below (assuming I max out a 401k):
My Adjusted Gross Income: $53,000 – $18,000 (401k) – $5,500 (Roth IRA) = $29,500, which would make my REPAYE monthly payment $97 (based on what the studentloans.gov website calculator says).
For my federal loans at my interest rate (160k at 5.9%), my monthly interest would be $786.61/mo or $9,439.41/yr. The difference then between my REPAYE payment and accrued interest would be $786.61 – $97 = $689.61, thus making the interest subsidy I'd receive $344.80/month, or $4,137.66/year, making my total yearly interest accrual on my loans $9,439.41-$4,137.66=$5,301.75. This would effectively make my loan interest rate almost half it was before $5,301.75/$160k=3.31% (instead of the 5.9% I would have had otherwise).
What do you guys think? I'm tempted to go with option 2, but I wanted to see if you all had any ideas! Thanks for reading!
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