School loans, assets, etc.

[DocSpace]

Hi all,

New to the forum with a perplexing question regarding upcoming finance issues. I'll try to make this brief.

I will be starting medical school in the fall, with a tuition cost of $42,000/yr. Total cost of the full loan would be $66,000 with the difference attributable primarily to cost of living.

I have 3 types of loans available:
- Stafford unsubsidized: $35,000/yr automatic - 6.8%
- Stafford subsidized: $8500/yr, need based (no interest until graduation, then 6.8% compounding).
- GRAD Plus: Difference between Stafford loans and total loan amount (8.5%)

Now, through other means, I also have approximately $180,000 in assets - some tied up in securities (which can be liquified), and some in cash (Approx $40 in cash, rest in securities).

I am currently unmarried, but may be within a year or two. Fiance makes $80k/year or so, steady income. My parents, who are fairly well off and who have contributed the majority of the above assets over my lifetime, may or may not be able to contribute directly to my education over the 4 years, or after, depending on numerous economic factors and the climate.

So, my question is, based on those facts, what would you do?

The way I see it, I have the following options:
1. Take out the full loan, which, at the time of graduation, would equal approximately $302,000 with subsidized loans, or $308,000 without.
- note: obtaining subsidized loan on a need basis requires gifting about half of my assets to my parents through various channels.

2. Take out a loan for the cost of tuition only, which would pretty much limit me to the 6.8% Stafford loans, then use up a portion of my liquidity (we estimate about half, maybe less) to pay for living expenses during school - rent, books, gas, food, etc. etc. At the time of graduation, my debt would be about $220,000 ($80K less), but I will also have used up about $70,000 in assets to live off of (liberal estimate). Call it a $10-15,000 savings, with a smaller interest-accumulating loan.

3. Pay for, say, the first 2 years of school using my funds, and take out full loans for the last 2 years? I have not run the #'s on that option yet.

Any other options? I consider myself very lucky to have some cash to fund this endeavor with, however I think it's important to leave some capital available for after I graduate in order to support a down payment on a house, general living money, etc. In other words, 6.8% is probably a cheap enough loan not to take, but avoiding the 8.5% loan seems like a good idea, right?

[disneysteve]

Welcome. How old are you? What is your living situation? You are estimating $2,000/month in living expenses so I'm guessing you have your own place and that accounts for rent, food, etc. If you get married, you would then live with your wife, of course, so living expenses could be mostly covered by her at that point, which would drop that $2,000 month number considerably. Is that accurate?

[DocSpace]

Welcome. How old are you? What is your living situation? You are estimating $2,000/month in living expenses so I'm guessing you have your own place and that accounts for rent, food, etc. If you get married, you would then live with your wife, of course, so living expenses could be mostly covered by her at that point, which would drop that $2,000 month number considerably. Is that accurate?

Thanks! I'll be 27 in August. The $24,000 extra is actually not ALL living expenses, it's just the total of extra "stuff" in addition to tuition - books, fees, etc. Typical loans allow about $16,000/yr in living expenses. Call it $1400/mo in living.

We haven't talked much about her supporting us, but I suppose that's sorta how it works, right?

[disneysteve]

We haven't talked much about her supporting us, but I suppose that's sorta how it works, right?

It is in my opinion. If my wife were a full-time student, I'd plan for us to be living off of my income alone, and vice-versa. I certainly wouldn't want her to be living on loans if I had the means to support both of us. Certainly, if your wife will be making 80K, that's more than enough to support 2 people.

[DocSpace]

Certainly, if your wife will be making 80K, that's more than enough to support 2 people.

I didn't mention this was New York City - $80K ain't as much as it sounds!

I know what you're saying though... we had a brief conversation about this recently, and I think she hadn't really expected that that might be the case someday. She's used to banking practically every dime she makes, which is great when you can do it. The flip side is that in a few years I'll have the bigger income, which will be supporting both of us if she ever stops working, or will be a large contributor otherwise.

[disneysteve]

I didn't mention this was New York City - $80K ain't as much as it sounds!

I know what you're saying though... we had a brief conversation about this recently, and I think she hadn't really expected that that might be the case someday. She's used to banking practically every dime she makes, which is great when you can do it. The flip side is that in a few years I'll have the bigger income, which will be supporting both of us if she ever stops working, or will be a large contributor otherwise.

Yes, 80K won't go nearly as far in NYC but it is still a decent amount and even if it can't eliminate the need for loans, it can probably lessen the amount you'll need to borrow.

I think the two of you need to have some serious discussions and do some detailed projections of expenses once you go back to school. She needs to accept the fact that once the two of you are married, there is no more "her" money and "your" money. Everything becomes "our" money, especially if one of you doesn't have any income.

[zetta]

You might also talk about whether you two want a pre-nup -- to protect HER interests. Perhaps something with a sunset clause, where if the marriage fails within X number of years and without children you owe her something for supporting you through med school blah blah blah.

[DocSpace]

You might also talk about whether you two want a pre-nup -- to protect HER interests. Perhaps something with a sunset clause, where if the marriage fails within X number of years and without children you owe her something for supporting you through med school blah blah blah.

Good idea - I'll keep that in mind.

[Runaway Finances]

I would recommend NOT living off the school loans. First, you should develop a spending plan. Keep the cost of living as low as possible. You may not know what kind of practice you are planning on after med school, but that enters into the equation. For example, if you are a family practice physcian or internist then you may end up being on salary through some large practice. Your ability to pay back loans is tougher because your income is most likely lower than if you did some kind of practice that does surgical procedures (eg. orthopedics, general surgery, etc.).

Keeping your loans down to a minimum will help you be able to pay off your loans quickly once you are out. I wouldn't worry too much about using up your savings as your ability to replace savings after you are out of school may be significant if you are disciplined in your spending. It sounds like your fiance is disciplined, and I'm guessing you are too.

What gets most people in trouble with school loans is they live off the loans and they have no controlled spending plan.

[anonymous_saver]

Is there a way for you to earn some income while in medical school? Even if it were 10 hours a week, that could dramatically help. I do not like the idea of you taking out more loans for living expenses.

[disneysteve]

Is there a way for you to earn some income while in medical school? Even if it were 10 hours a week, that could dramatically help. I do not like the idea of you taking out more loans for living expenses.

Nobody likes it, but I can assure you very few med students (especially those who are single) get through med school without borrowing to support themselves. I had supportive parents who helped out as much as they could but I still borrowed tens of thousands to cover living expenses.

[mom-from-missouri]

I've had several family members go through med school. Most found that working didn't work out--they already put in such long hours studying and doing their internship they were lucky to get 6 hours sleep a night. Also their hospital schedule changed often, making it hard to schedule a job.

However, one worked in the medical library at the university, and one would sit for apartments and pets--gave him a place to crash at night and he fed the animals. Made a few bucks off of that.

[blankcheck]

You mentioned a significant trait about your fiancee: she "banks" every dime when she can. This is a blessing and a curse.

First the curse: She may secretly hate the idea of supporting you while you are in school. It's her money, you already know you can get loans, you have some assets, etc. However, if you approach this reasonably, you can tap into the blessing:

She has a (potentially) financially sound mind! If you're going to be married, then it's appropriate to look at the long term picture. Relay the topics of future income (you will likely make more at some point), and the reduction of debt would allow you both to snowball your assets, even if her saving is a bit stalled during med school. Seriously, even as a resident, if you have 2 incomes you will be in incredible financial shape.

Perhaps the best compromise would be for you to take out the loans for tuition only, live off of her salary for all other expenses etc., then use your assets as appropriate to take huge chunks out of the loans over the course of a few years. Of course, I don't know your actual budget, rent, etc so this is pure speculation on my part.

Oh, for what it's worth: you are entering an excellent field, and I wish you the best of luck. I was in a very similar position a few years ago, (except I had only $10,000 in assets when I started med school), ended up with approximately $60,000 in student loans (so lucky with the timing, my highest loan is still just 5%), got married at the end of med school, started paying them off right now as a resident, AND my wife's assistance allowed us to have a fair down payment on our current house.

YOU CAN MAKE IT WORK

[am_vanquish]

I'm not sure if this will apply to you or not. I know there's a difference between RN/MD, but DisneySteve (an MD) mentioned that he missed out on a similar program:

I recently posted a similar question about my wife, who's getting her RN. Between our own savings/income & her parents' college savings, we could pay cash for all tuition & expenses. However, several local hospitals offer a loan repayment program, but only if you have outstanding student loans. So we're taking out a loan putting it in the bank. After she graduates, we'll take our shot at letting her future employer pay for about 60% of the outstanding loan. Then we can pocket that for our house down-payment. I understand your situation may differ, but I'm justing try to add some extra consideration. Also, aren't there some tax advantages to having student loan repayments?