Student loan question

Bugsinrugs · 06-02-2021, 04:57 PM

To those that might offer advice. My son is a first year Anesthesiologist and making really good money. He has a student loan that’s around $300-350,000. He received a sign on bonus of $120,00 that became $75,000 after taxes. He has been paying $5000 a month that has an interest rate of 7%. Should he pay down his loan as fast as he can or should he take some of that money and invest in a house or apartments. He is currently renting. My advice is to pay his loan off as fast as possible or refinance the loan to around 2.5%. He would need to put up 20% to get the loan. He has $200,000 in the bank. He is just trying to figure out the best strategy.

biosurfer1 · 06-02-2021, 05:02 PM

at 7% interest, I would be eating bean and rice until that student loan was paid off....and having $200k in the bank when you have a $300k+ loan at 7% make no sense to me.

Sooner or later · 06-02-2021, 05:04 PM

Pay off that loan.

look 171 · 06-02-2021, 05:05 PM

Not sure if he will even quality for a home loan with 250k student loan. I have no experience with that. Buying a home during these time is a gamble IMO. Is he in a large city in CA? Personally, I pay the 200k and apply for a lower interest loan is that's possible and pay the 150k slowly. This will reduce his monthly payments and with his high salary, start saving for a home or invest that money. What he has is time on his side, lots of it.

look 171 · 06-02-2021, 05:08 PM

If he was my kid, I refi my own home (2.5% is free money) and pay off the 150k so he can make payments to me so he can get a head start on life, home or investments.

Bugsinrugs · 06-02-2021, 05:20 PM

He is renting my townhouse in the Bay Area. I agree that he should throw as much money as possible at that loan. Get that thing out of your life. He could pay it off in less the two years with the money he is making.

OldSpool87 · 06-02-2021, 05:24 PM

Paying it off is a guaranteed risk free return of 7%. Not too bad.

Bill Douglas · 06-02-2021, 05:24 PM

Quote:

Originally Posted by biosurfer1

at 7% interest, I would be eating bean and rice until that student loan was paid off....and having $200k in the bank when you have a $300k+ loan at 7% make no sense to me.

Yep, beans and rice.

944 S2 · 06-02-2021, 05:38 PM

Pay it off as fast as possible while he’s making good money!

Bugsinrugs · 06-02-2021, 05:42 PM

He can as I said, refinance that loan at 2.5% with 20%down

Tobra · Tobra's Garage

Is interest on student loans tax deductible now? That will impact your calculations.

Actually, paying off a 7% interest loan is better than an investment at 7%

Bugsinrugs · 06-02-2021, 06:05 PM

Interest on his student loan is not tax deductible.

look 171 · 06-02-2021, 06:41 PM

Even if he doesn't do anything but throwing 20%, 60k to get it to from 7- 2.XX% is a no brainer. 2.xx% is free money, imo. Get the loan off his back and start investing. How old is this punk kid

?

Seahawk · 06-02-2021, 06:48 PM

Quote:

Originally Posted by Bugsinrugs

My advice is to pay his loan off as fast as possible or refinance the loan to around 2.5%. He would need to put up 20% to get the loan. He has $200,000 in the bank. He is just trying to figure out the best strategy.

First off all congratulations to your son. Well done.

Depending on the refi fees, penalties, etc. (make sure he gets all the details nailed to the penny), I would do both: Refi and then get busy paying off the loan as soon as practicable.

I always keep a level of liquidity that I am comfortable with for emergencies, contingencies, and peace of mind. That level is his to decide, but he appears to be in very good shape, enough to make some short term financially smart decisions.

Noah930 · Noah930's Garage

Why can't he consolidate his loans to whatever the going rate is right now (3%?)? You can only consolidate once, IIRC. Unless you've taken on more loans after consolidation, at which time you are allowed to consolidate again. That would be my first move.

If he's stuck with a 7% loan, paying it off is a "guaranteed" 7% return. Not shabby in today's market. Personally, I'm not bold enough to bet that I can get better than that with my investing skills, but YMMV.

His income is probably high enough that he won't be able to claim student loan interest as a tax deduction.

Noah930 · Noah930's Garage

Personally, I think saving for retirement is more important than buying a house--particularly in a place with super expensive real estate.

Start saving now (401K, 403b, or traditional IRA--it'll depend on what his employer offers), and he'll be much happier (financially) in 15-20 years. Whether he buys a home now or waits a few years, in a place like the Bay Area, he'll always have a mortgage, until he retires. I look at home purchase as something that pays out to my kids, not me. He'll never realize the profit of owning a house until he sells and downsizes, which probably won't be until after he retires.

RANDY P · RANDY P's Garage

Apart from trying to get the best rate on the loan, I would be hesitant to leverage something like a house to pay it off. Leave the student debt on it's own.

If something goes wrong, you at least have your house.

rjp

Icemaster · Icemaster's Garage

Take 100K out of the bank and pay off a portion of the loan. Refi to the lower rate and throw as much money at it as he can afford, AFTER he makes a re-deposit of a couple grand a month or whatever into the bank.

One piece of advice I got from my ex-wife I always agreed with - pay yourself first. Yes, pay the bills off as rapidly as possible and carry no revolving debt whenever possible, but saving something should be top priority.

Bugsinrugs · 06-02-2021, 08:29 PM

Quote:

Originally Posted by look 171

Even if he doesn't do anything but throwing 20%, 60k to get it to from 7- 2.XX% is a no brainer. 2.xx% is free money, imo. Get the loan off his back and start investing. How old is this punk kid

?

He is 36. Four years of medical school. Fours years as a resident then one year fellowship in cardiac anesthesia. He knew what he wanted to do.

look 171 · 06-02-2021, 09:50 PM

The Doctors in our families, especially the specialized doctors don't start living their life and debt free until their early 40s. They do well, but the journey is a long and expensive one.

One thing I noticed that they are extremely knowledgeable in their chosen fields, but I've come across many that are poor with money management. Ones I am related to is a thoracic surgeon and the other is a children's doc. The thoracic surgeon is a dumb siht with it comes to understanding money. Hope your kid is good with it and invest well.

At 36, he has some good times ahead.