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Student Debt Mgmt Strategy for soon-to-be-married med student

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  • Student Debt Mgmt Strategy for soon-to-be-married med student

    Hello, this is my first inquiry on the WCI. I am a first-year med student, about to start my second semester. I am getting married this upcoming Saturday. My fiancée (an RN) and I have talked lots about finances throughout our relationship, though we could use some specific advice. She was fortunate to leave school debt-free. She fully supports my desire to become a physician, as I do her desire to advance in her nursing career. 

    Here is my current loan balance breakdown: 

    • Undergrad:

      • Stafford-subsidized ($2,940.26 @ 5.6% interest)

      • Stafford-unsubsidized ($2,438.82 @ 6.8% interest)

      • Direct loan-subsidized ($3,831.02 @ 4.5% interest)

      • Direct loan-subsidized ($4,626.18 @ 3.4% interest)

      • Direct loan-subsidized ($4,704.99 @ 3.4% interest)



    • Master’s

      • Direct Loan-Unsubsidized ($23,190.05 @ 5.84% interest)

      • Direct Grad PLUS ($35,807.41 @ 6.84% interest)



    • 1<sup>st</sup> Semester Med School

      • Direct loan-Unsubsidized ($10,517.72 @ 6% interest)

      • Direct Loan-Unsubsidized ($11,401.22 @ 6% interest)

      • Direct Grad PLUS ($17,738.55 @ 7% interest)



    • Total Loan Balance: $117,196.42


    I know it’s ugly, and I wish I could have arrived to where I am now with much less debt. However, I see it as water under the bridge now, and my goal now is to minimize the debt load upon my graduation.

    Of note, that total loan balance could increase by the start of this upcoming second semester by ~40K. This is because I accepted ~$80K for the whole first year, and about half of it disbursed for my first semester. I am in a position to prevent the disbursement of the incoming loans if I fill out a form and give it to my financial aid office prior to January 2, 2018.

    Here’s my question: my fiancée has ~160K in Vanguard. She currently earns ~80K, but will be changing jobs to where I am, where the average nursing salary is ~$60K. My school tuition is $56,080/year (not including living expenses). We are wondering whether it’s a better idea to pay off the total current loan balance, and then take out loans just for tuition for years 2,3,4 of med school, or to leave the current debt as is and pay for years 2,3, and part of 4 out of pocket.

    As a possible scenario, let’s assume I allow my current debt to grow to ~$157K by allowing the $40K for the second semester to disburse.

    • If we leave the current debt at ~157K, but then pay for years 2,3, and the second semester of year 4 out of pocket, I calculated the debt will be $236,764.49 upon graduation

    • If we pay off $117K now, then we’ll be left with ~$40K of debt (second semester disbursement). If we leave that $40K there for 4 years, and take out tuition loans for years 2,3, and 4, then I calculated the debt will be $246,579.39 upon graduation.


    I would like your advice because I thought that a good general rule is to pay off existing debt asap, though I’m wondering if in my situation it could make sense to leave current debt as is. I can show how I crunched the numbers too in this thread if you wish.

    Thank you!

     

     

  • #2
    [i'm self deleting this b/c it was about waiting until you were actually married, I initially missed the line where you said that's happening in like 3 days -- good luck]

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    • #3
      Congrats on the upcoming nuptials!

      As painful as it seems now, that $160k your wife has saved (hopefully invested?) would probably be best left alone as that's a great start to a nest egg given the amount of time it can compound.

      Perhaps you can cut down on your student loan disbursements to tuition cost or just above tuition ($52-60k per year) and live off of your wife's income to minimize your loan burden.

      You will graduate with a lot of student debt this way but you'll also be in a fantastic position for your overall future and can pay off dect in the 2-5 years after competing residency.

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      • #4
        Congrats! I would keep the 160k invested. Take what you need for tuition for your second semester ( so probably not the total 40k you are scheduled to get). Try to live on half your wife's salary and use the other half to pay half the tuition each year ( so only take out 30k/ year for the next 3 years). Should keep your loan balance more manageable while allowing a fair standard of living. Good luck!

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        • #5


          1. I would tell your fiancé to keep her money safe for a couple years to see how things shake out before she considers paying off your loans. Personally I’m not sure how I would feel asking my new to be bride to deplete her life savings to pay off my heavy loan burden in week 1 of the marriage. Now if everythjng is hunky doory as u land a plastic surgery residency after three years of solid marriage than revisiting that decision seems more reasonable. I don’t know. Maybe that’s just me.

          2. Agree with the above that going forward I would only take out loans to cover tuition and have her income cover your living expenses

          congrats and good luck tough!

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          • #6
            “Though”. .. not tough.

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            • #7
              Thank you all for your the well wishes and responses!

              Comment


              • #8
                congrats on getting married!

                once you are married, your debt is now her debt.

                have her knock out all the undergrad debt after you get married.

                It will feel good to eliminate all of these from undergrad and wont break her accounts 

                 

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                • #9
                  I would keep your wife's nest egg invested as well.  You can use her income to help you from increasing your loans during medical school.  My wife and I had a similar situation.  We lived very modestly even though I had a good salary and tried to use as much of my salary as we could to keep her from taking out student loans during medical school.  As long as you manage your current borrowing, you will be in good shape entering residency.

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                  • #10
                    if you invest all the money, and there is a big dip in the market, you will kick yourself for not at least tackling some of these.

                    paying off loans is guaranteed return (with no headache), something that the stock market cannot give.

                    at least throw some at the loans. To invest all of it is foolish I think.

                     

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                    • #11




                      if you invest all the money, and there is a big dip in the market, you will kick yourself for not at least tackling some of these.

                      paying off loans is guaranteed return (with no headache), something that the stock market cannot give.

                      at least throw some at the loans. To invest all of it is foolish I think.

                       
                      Click to expand...


                      And in 30 years they will most definitely be kicking themselves over the powerful compounding theyve lost over decades while worrying about a simple interest inflation assisted debt. All the psychological good feelings will be gone when that amount of opportunity cost is examined.

                      Looking at an investment decision based on next months performance is beyond foolish and the opposite of what people on this site should be doing. Unless they were also planning to retire at the same time, it doesnt matter. When weighing these sorts of decisions your long term best interest is whats important.

                      Theres no 'return' to paying off a loan early. Its an avoidance of a finance charge. Its finite. People have been saying the same for the last five years and the losses to those strategies have been large, and will of course continue to compound until passed on to their heirs where it can compound some more.

                      That said theres nothing wrong with paying off the loan, but irrational fears and not doing the actual math are probably the worst reasons you can think of.

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                      • #12
                        I disagree with Zaphod.

                        once you start paying the loan, then it becomes contagious to keep paying it off

                        sure, your argument is sound and makes sense but I still would hold with my argument because paying loans off will more likely adjust spending, budget, etc.

                        At least this was the case for me, I payed all the loans off first, sure I lost in some opportunity cost,

                        I can live with that.

                        the freedom from debt is truly priceless. ( I agree with Dave on this one)

                         

                         

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                        • #13


                          I still would hold with my argument because paying loans off will more likely adjust spending, budget, etc.
                          Click to expand...


                          Tackling loans piecemeal with the first few years' of attending-level paychecks will help reinforce good financial habits. A one-time payoff with money that wasn't (isn't still?) the OP's will do no such thing. The OP would best spend some time learning more about financial topics from this site, etc., over the next few years to set his/her family up for success in early attending-hood.

                          The OP is in a very optimal situation in which he and his fiance can start their new lives with a plan to take on less debt, live more comfortably than otherwise, AND have a huge leg up with peers in terms of nest egg. That's an awesome place to be.

                          Furthermore, I suspect her money is already invested if it's at Vanguard and may incur capital gains if sold to pay off OP's loans.

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                          • #14




                            I disagree with Zaphod.

                            once you start paying the loan, then it becomes contagious to keep paying it off

                            sure, your argument is sound and makes sense but I still would hold with my argument because paying loans off will more likely adjust spending, budget, etc.

                            At least this was the case for me, I payed all the loans off first, sure I lost in some opportunity cost,

                            I can live with that.

                            the freedom from debt is truly priceless. ( I agree with Dave on this one)

                             

                             
                            Click to expand...


                            I agree more and more with this approach the longer I do this.

                            We have aggressively paid off even relatively low interest debt. I get way more personal satisfaction out of freedom from debt than from a larger amount in my taxable.

                            Definitely at the point in our financial lives where non-mortgage debt is going to be a thing of the past for us. It's an amazing feeling and it makes me want to just go after the house next.

                            (keep in mind all of this is with the $$$ left over after 401k max x 2 + 6% match, 457b max x 2, backdoor Roth x 2, HSA)

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                            • #15




                               

                              the freedom from debt is truly priceless. ( I agree with Dave on this one)

                               

                               
                              Click to expand...


                              Thats totally fine to disagree, but to not acknowledge the truth of the situation is wrong. I agree this isnt really his money whether theyre married or not. In the not small likelihood they ever get a divorce, he may be on the hook again.

                              Please, can we not say 'priceless'. It has a very real and calculable cost. The mental aspect is simply a way of looking at it, and obviously this feeling and continued believing in that method is simply rationalization/justification of an action thats already occurred. I can say the same, its meaningless as a justification.


                              I agree more and more with this approach the longer I do this.
                              Click to expand...


                              This changes depending on your stage in life, as you age investing and building a nest egg decreases in importance as the years to compound are less and the nest egg is already healthy. Its totally appropriate to annihilate debt at that stage. This person is just beginning and it really depends on stage of life. I am basically just advocating for a truthful/honest evaluation of the choices instead of the usual "just pay it, it feels great".

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