What would you do?

[rizzmo]

My wife is currently in school working on becoming a veterinarian. Currently she has around 80k in student loan debt. This is for all her college required to get her MBA and MHRM. It looks like it will be around another 100k for her to complete her veterinarian schooling. The payments on her loans are in defferment until she finishes school.

Our current situation is as follows. We have no debt aside from her loans and our mortgage. Our mortgage is $641 a month and each month we pay an additional $641 towards principal, at this rate we have 109 more payments till we own it outright. I contribute the federal maximum to my 401k, my wife is going to school full time and so doesn't contribute to any retirement plan. My income is about $115k per year. Recently, I was offered a position in another company which I accepted. My income will now be $150k per year plus a generous bonus based on performance. This is a huge accomplishment for me, as this represents me surpassing the top for my field worldwide in terms of compensation.

I am looking for some encouragement from you guys and gals, to start paying off the student loans. I know we should pay them off, but I keep thinking investing may be a better idea ... or paying of the house earlier. My parents believe she pay off her loans with her income after she completes school, but I don't really see this as her debt, I see it as our debt. We are fairly frugal overall and I am working hard to get the areas where we consistently go over budget (food) under control.

[disneysteve]

I'm with you. It isn't "her" debt. It is joint debt. You are married. You are in this together.

Congrats on your raise. I think the most important thing is to keep your lifestyle and spending habits exactly the same (or better). I don't think I'd start repaying the loans that are in deferment, though. It probably makes more sense to reduce the amount she needs to borrow going forward. You said that it will cost another 100K for her to complete her program. You will earn at least an extra 85K per year plus bonus at the new job. After taxes, that's probably at least 60K. Use that money to pay for school so that she doesn't have to take out any more loans. Once she finishes and has an income, you can attack the student loans that will no longer be deferred at that point. Since you are presumably getting by okay on just your 115K income now, you should have no trouble continuing to do so after she graduates. You'll be earning 150K or more plus she'll have an income (I don't know what a typical starting salary is for a vet but I'm sure it is substantial). You guys will probably be able to pay off the 80K within a year or so.

Looks like smooth sailing to me.

[markusk]

My wife is currently in school working on becoming a veterinarian. Currently she has around 80k in student loan debt. This is for all her college required to get her MBA and MHRM. It looks like it will be around another 100k for her to complete her veterinarian schooling. The payments on her loans are in defferment until she finishes school.

Our current situation is as follows. We have no debt aside from her loans and our mortgage. Our mortgage is $641 a month and each month we pay an additional $641 towards principal, at this rate we have 109 more payments till we own it outright. I contribute the federal maximum to my 401k, my wife is going to school full time and so doesn't contribute to any retirement plan. My income is about $115k per year. Recently, I was offered a position in another company which I accepted. My income will now be $150k per year plus a generous bonus based on performance. This is a huge accomplishment for me, as this represents me surpassing the top for my field worldwide in terms of compensation.

I am looking for some encouragement from you guys and gals, to start paying off the student loans. I know we should pay them off, but I keep thinking investing may be a better idea ... or paying of the house earlier. My parents believe she pay off her loans with her income after she completes school, but I don't really see this as her debt, I see it as our debt. We are fairly frugal overall and I am working hard to get the areas where we consistently go over budget (food) under control.

As someone who finished medical school with over 200K in debt, I would strongly encourage you, at the very least, to pay the interest on the loans before the interest is capitalized during deferment.

What is the interest on the loans?

Depending on the interest on the student loans, I would also think about prepaying the the loans; once your wife starts working, you and your spouse will most likely be subject to AMT and you will make too much to get the student loan tax deduction (should still be able to get mortgage deduction), so there is no tax benefit to the student loans.

[disneysteve]

As someone who finished medical school with over 200K in debt, I would strongly encourage you, at the very least, to pay the interest on the loans before the interest is capitalized during deferment.

Thanks markusk. I meant to say the same thing. Yes, definitely pay the interest to prevent capitalization from occurring. It will save you a ton of money down the road.

[LivingAlmostLarge]

How married are you? Is there issues? Why would your parents tell you to not pay off the loans?

One reason to not pay off the loans, if she dies, then the student loans go away poof! The mortgage does not.

Second reason, if you get divorced, she walks away with half the half but all her student loans. If you pay off the student loans, she still walks away with the half the home equity.

[Seeker]

My wife is currently in school working on becoming a veterinarian. Currently she has around 80k in student loan debt. This is for all her college required to get her MBA and MHRM. It looks like it will be around another 100k for her to complete her veterinarian schooling. The payments on her loans are in defferment until she finishes school.

Our current situation is as follows. We have no debt aside from her loans and our mortgage. Our mortgage is $641 a month and each month we pay an additional $641 towards principal, at this rate we have 109 more payments till we own it outright. I contribute the federal maximum to my 401k, my wife is going to school full time and so doesn't contribute to any retirement plan. My income is about $115k per year. Recently, I was offered a position in another company which I accepted. My income will now be $150k per year plus a generous bonus based on performance. This is a huge accomplishment for me, as this represents me surpassing the top for my field worldwide in terms of compensation.

I am looking for some encouragement from you guys and gals, to start paying off the student loans. I know we should pay them off, but I keep thinking investing may be a better idea ... or paying of the house earlier. My parents believe she pay off her loans with her income after she completes school, but I don't really see this as her debt, I see it as our debt. We are fairly frugal overall and I am working hard to get the areas where we consistently go over budget (food) under control.

IMO, there's too little info here to really advise you well.

You say you're paying an extra amount toward the mortgage and it'll take 9 or so years to pay off the mortgage at that rate. What are your expenses? How "comfortable" are you that the new job won't belly-up? What are your ages?

What are the interest rates of the school debts? What's the interest rate of the mortgage? How much savings do you have?

Given your income and the fact that you both have a mortgage and a rather high education debt to pay in the future (is she "certain" that this is what she wants to do? Is she almost half way through this education? Is she doing well at this choosen field?), without knowing the whole financial picture, I too would be leery of changing anything.

[rizzmo]

Thanks everyone for the great comments. What do you mean by “the interest is capitalized during deferment?”

There are many small loans, as she has not consolidated them; the average interest rate is 5.5%.

[rizzmo]

LivingAlmostLarge, We have been married almost 2 years now; there are really no issues between us. DW does sometimes get “crabby” when she has a ton of school work, but then again I do the same when I have too much on my plate. There are a few reasons my parents feel this way. First, they feel that she wants to be a lifetime student. Additionally, they feel that she should be working to pay back some of the debt she has already incurred, before continuing on to vet school. Finally, they feel I have worked very hard to get where I am, both career wise and financially, and want me to enjoy it a little more.

My wife has not only worked full time since she was 16, but also managed a full time school schedule as well. Two years ago she left her HR position, because she moved two hours away to move in with me. She then she worked part time for a friend of mine until they parted ways about 3 months ago. If she stops going to school her loans will come out of deferment, so it doesn’t make a lot of sense for her to stop before she is finished. Finally, I am happy and content … I don’t know exactly what I would do to “live it up” more.

If she dies we enough life insurance to cover her loans, our mortgage, and enough to pay for me to get a top level degree (DW insisted on this, even though I don’t know if I would use it). If the loans do just go away that would be a pleasant surprise, but I am not going to plan on that being the case, better safe than sorry. I never thought of it from the divorce aspect of it, good points too, however even if we did get divorced why would I want her to be worse off.

[rizzmo]

Seeker, currently our expenses come to about $3,000/month … down $500 from a year ago, and hopefully we will be at $2,500 by next year (baby steps here). I am extremely comfortable with my new employer; additionally my previous employer said that if things don’t work out, I am welcome to return. Our mortgage is at 6.25%. We don’t have much in the way of liquid savings, we keep 2-5k in our checking account, have another 8k in a car note to my brother, of which my parents have that amount set aside in a savings account in case I need to call it in or he defaults. We have stocks that are semi liquid ~25k. Finally, we have about 30k in home equity, and 8k in prosper for non liquid stuff. I know our EF should be higher, much higher, even though my job is very secure, it is still no excuse. DW went to school to get a Master’s in Human Resource Management (MHRM), but it turn out to only be another year to also get her Master in Business Administration (MBA) as many of the classes overlapped. She worked in HR for a bank and when she tried to leave them she had a very bad experience. She always thought HR was the good guy, fighting for the employees’ rights. This experience taught her different, long story short, her reputation was severely hurt; they stuck her with 10k bill, due the day she left, among other things. Ok, so HR not so much anymore. My wife really doesn’t have the cutthroat personality it takes to succeed as an MBA person, she only got the degree, because she believed it would help make her more money and more marketable working in HR. Choice #3 was Veterinarian. Actually, it was her first choice but she used to pass out at the sight of blood and didn’t think she could do it. I told her I used to be the same way with needles, but after working around them for a while I was fine. So she started coming with me to trauma surgeries, and with enough exposure she overcame it.

[disneysteve]

Thanks everyone for the great comments. What do you mean by “the interest is capitalized during deferment?”

With some student loans, even when they are in deferment, although you don't need to make payments, the loan still accrues interest. When the deferment ends and repayment begins, the accrued interest is added - or capitalized - to the loan balance. That increases your total debt and increases your monthly payments.

For example, if you borrowed $10,000 and during the deferment period, $1,500 in interest accrues, when repayment begins, your balance will actually be $11,500. However, you can pay the interest as it accrues so that it doesn't get added to the loan balance.

[rizzmo]

So in your example, if say the payment was 100/m on 10k, if we did not pay the interest off before, our payment would be 115/m since the 1,500 interest would be added to the pricipal before the loan was given an amoritization shcedule?

[disneysteve]

So in your example, if say the payment was 100/m on 10k, if we did not pay the interest off before, our payment would be 115/m since the 1,500 interest would be added to the pricipal before the loan was given an amoritization shcedule?

Yep. You end up paying interest on top of interest. Remember, compounding is good when you are earning the interest. Compounding is bad when you are paying the interest.

[LivingAlmostLarge]

Did your wife get into vet school year? Is she already volunteering at a vet's office or working as a tech? It's really competitive.

How old is your wife? What will happen if she goes to vet school 4 year program and wants to have a baby during the time?

Okay I admit that's me. A slacker. I don't really want to work and I want to stay at home with the baby. Yes I have a graduate degree, but at least I didn't create debt with it. Still I probably should have just worked instead of going to school.

But hindsight is 20/20. Is your wife sure she wants to work full time to pay back $180k in school loans as a vet? And not stay at home with kids at all?

If so, I'd lean towards working, paying off the student debt, and then seeing where life takes you.

[Scanner]

Good point.

I know a medical doctor couple where they went through their residencies together and then she got the "I wanna baby" syndrome that women typically get in their 20's, got pregnant, and now he (an anethesiogist, her a pathologist) has to carry a lot of the burden.

I heard stories too that the senior medical directors came down hard on her too - that basically she pushed out other people from that residency slot so she could have a baby.

Sexist of them? Probably yes.

But you know what. . .last time I checked, women get pregnant from ages 13-50ish.

I think we need to start growing up as a society and addressing these issues. You are a woman? Yes, you can be anything you want. That doesn't mean you should be anything you want though.

[tripods68]

Is your wife sure she wants to work full time to pay back $180k in school loans as a vet? And not stay at home with kids at all?

I'm with you. It better to make sure she does not want a baby anytime soon. At least have a serious discussion about it. That's steep price to pay for a career without end results.