Student Loan Debt Qs.

[CHH1023]

Hi all,

I'm finishing up my master degree this semester, and I took out about 16K worth of federal loans (0% while in school, 6.8% afterward) for my degree. I recently found out I got in a PhD program for chemistry for this fall with 23K stipend for the first year, tuition waiver, and insurance etc. The cost of living is fairly low, so I should be able to save some money each month.

Should I go ahead and start pay off my loans from my master degree while I'm still working on my PhD, or, should I wait until I'm done with my PhD? or should I use the extra money for investments? I currently have an emergency fund saved up (approx 3 months worth of expense) and monthly contribution to my IRA.

I do not have any credit card debts, and I paid off my auto loan last year, I think I'm doing pretty well so far.

I will be 30 or 31 by the time I'm done with school, and I would like to start a family with a person and have 2 or 3 children.

[DRILLINDK]

I'm no financial expert, but I would defer your loan payments and just pay the interest each year on your loans while your in school. Continue to buildup an emergency fund. It's a tough job market out there right now and who knows whether you'll need to live off your emergency fund for awhile in search for a job.

[disneysteve]

Can you continue to defer them at 0% while you are in your PhD program? If so, I'd do that. If not, at least pay the interest so that it doesn't get capitalized to the loan principal.

[CHH1023]

Originally Posted by disneysteve

Can you continue to defer them at 0% while you are in your PhD program? If so, I'd do that. If not, at least pay the interest so that it doesn't get capitalized to the loan principal.

I could defer it for another 5 years but why though? I hate being in debt.

[Like2Plan]

Originally Posted by CHH1023

I could defer it for another 5 years but why though? I hate being in debt.

Would that be at 0% interest while being deferred?
You are in a pretty good financial situation right now. Plus, you are motivated to not have any debt. But, you don't have a full time job and you still have education expenses. What happens if you miscalculated your financial needs or something unforeseen comes up? Then, you might find yourself in a posture where you have to borrow money and pay a higher interest.
What if you continued to save the money that you don't need and then when you are done with your education and you have a job you use the money you saved to pay the student loan with a lump sum amount?
If your loan is deferred at 0% interest while you are in school, maybe you could come up with the entire loan payoff amount before they started adding in the interest?

[DRILLINDK]

Originally Posted by CHH1023

I could defer it for another 5 years but why though? I hate being in debt.

If its at 0% interest rate, it FREE money! You could use that money to fully fund a 401k, IRA, continue to build EF, or just put in a CD or let it sit in checking account.

[CHH1023]

Originally Posted by Like2Plan

Would that be at 0% interest while being deferred?
You are in a pretty good financial situation right now. Plus, you are motivated to not have any debt. But, you don't have a full time job and you still have education expenses. What happens if you miscalculated your financial needs or something unforeseen comes up? Then, you might find yourself in a posture where you have to borrow money and pay a higher interest.
What if you continued to save the money that you don't need and then when you are done with your education and you have a job you use the money you saved to pay the student loan with a lump sum amount?
If your loan is deferred at 0% interest while you are in school, maybe you could come up with the entire loan payoff amount before they started adding in the interest?

I have been putting a small amount of money aside each month via Smarty Pig, because I want to be able to pay 20% of my loans off as my first payment. I could increase the amount taken off while I'm still in school.

The main reason why I wanted to pay off my debt as soon as possible, because there is always a chance I might end up getting a job offer oversea and I don't want my student loan debt limits my opportunity.

[disneysteve]

Originally Posted by CHH1023

The main reason why I wanted to pay off my debt as soon as possible, because there is always a chance I might end up getting a job offer oversea and I don't want my student loan debt limits my opportunity.

This doesn't really make any sense. What difference does it make if you pay off the loans now or you defer them at 0% but set aside your spare money in savings and then use it to pay off the loans later? Either way, you end up in the same place. By saving, however, you give yourself more flexibility and protection than if you send the money to the loans right away.

[Like2Plan]

Originally Posted by disneysteve

This doesn't really make any sense. What difference does it make if you pay off the loans now or you defer them at 0% but set aside your spare money in savings and then use it to pay off the loans later? Either way, you end up in the same place. By saving, however, you give yourself more flexibility and protection than if you send the money to the loans right away.

Disneysteve,
Wouldn't the OP actually be worse off if starting the loan payoff now? I am assuming the 6.8% interest would start to accrue if OP was actively paying off the loans vs deferring?

[disneysteve]

Originally Posted by Like2Plan

Disneysteve,
Wouldn't the OP actually be worse off if starting the loan payoff now? I am assuming the 6.8% interest would start to accrue if OP was actively paying off the loans vs deferring?

That's true. It would be worse to start repaying now.

[CHH1023]

Originally Posted by disneysteve

That's true. It would be worse to start repaying now.

I was focusing on my net worth more than my cash flow. I just dislike the idea of borrowing money, I do not want to make the same mistakes as some of my friends.

[disneysteve]

Originally Posted by CHH1023

I was focusing on my net worth more than my cash flow. I just dislike the idea of borrowing money, I do not want to make the same mistakes as some of my friends.

I totally understand where you're coming from. I've been there myself, having graduated med school with $102,000 in student loans and anxious to repay them as quickly as I could. It is important to realize, though, that paying them back too quickly can sometimes backfire.

If you can defer them at 0%, it makes sense to do so. That will have no effect on your net worth at all if you are using that time to build your savings. If you have 20K in debt and 20K in savings, your net worth is the same as if you have $0 debt and $0 savings. That being said, don't underestimate the value of cash flow planning.

[CHH1023]

Originally Posted by disneysteve

I totally understand where you're coming from. I've been there myself, having graduated med school with $102,000 in student loans and anxious to repay them as quickly as I could. It is important to realize, though, that paying them back too quickly can sometimes backfire.

If you can defer them at 0%, it makes sense to do so. That will have no effect on your net worth at all if you are using that time to build your savings. If you have 20K in debt and 20K in savings, your net worth is the same as if you have $0 debt and $0 savings. That being said, don't underestimate the value of cash flow planning.

hmm, okay I will do that. I do want to get a single bedroom apartment soon (got tired of having roommates, ugh) and I know that I might end up with less extra money each month.

[flipyourdebt]

There's no reason to defer it if you have extra money and you are happy with your savings. Go ahead and start paying on your SL right away. You can always defer it later if the need arises.