Student loan question

[Bugsinrugs]

Thanks Look. He is a smart guy but money is new to him. At his brothers graduation celebration he wanted to pay the dinner bills. We pulled him aside and told him to stop he too generous. That was our responsibility anyway.

[jhynesrockmtn]

Congrats to your son. I'd encourage him to pay off the loan. Get that out of the way. At his age and with real estate values where they are, I think he'll be fine to let the market cool and/or correct. I would not be buying a house in this market in most places. The bidding wars are making people do crazy stuff.

[1990C4S]

My son is in a similar situation in Boston. Half that amount of debt at a lower interest rate.

He had a $33k per year 'bonus' for three years that they converted to a $100k housing loan at 0%. Forgivable if he stays on for three years.

He used the loan to buy a house and has manageable loan/mortgage payments.

If your son uses some fiscal common sense he will be fine regardless of what he decides with that income.

A good financial planner would be a big help for your son, get a long term plan to work towards. And look at refinancing the loan based on the reduced risk he now presents.

[Seahawk]

Originally Posted by jhynesrockmtn

Congrats to your son. I'd encourage him to pay off the loan. Get that out of the way. At his age and with real estate values where they are, I think he'll be fine to let the market cool and/or correct. I would not be buying a house in this market in most places. The bidding wars are making people do crazy stuff.

I would concur. Even in my part of the world it is a bit odd. My son was sworn into the Virginia Bar yesterday and is now making 6 figures. He is very good with money, always has been, and will continue to rent and save for at least a year before he makes and long term financial commitments. His apartment is less than 10% of his gross.

Originally Posted by 1990C4S

If your son uses some fiscal common sense he will be fine regardless of what he decides with that income.

A good financial planner would be a big help for your son, get a long term plan to work towards. And look at refinancing the loan based on the reduced risk he now presents.

Absolutely.

From another thread: https://www.thebalance.com/free-budget-spreadsheet-sources-1294285

Before he goes to the FP, (which I think is essential given his projected future income) he needs to know his budget, the puts and takes...an honest assessment of his obligations and spending.

Great that you folks are working this now.

[pavulon]

Anyone able to kill all of their student loans in less than a year might be want to consider how many people have to wear their student debt every day, week, month and year for 20-30 years. It is a soul crushing experience.

[MRM]

Bugs, your son is in a unique situation that requires specialty advice from someone who has expertise in working with newly high net worth individuals. He is very young, had a very high income, and is emerging from his starving student days with debt that is significant but dwarfed by his immediate future earnings. Ordinary rules of financial planning don’t apply to people like him. He needs to have a plan to maximize the value of his income, savings and investments rather than the more typical advice of paying down debt, establishing a savings account, live below his means, and start a retirement account, etc. The dynamics of financial planning remain the same, but a 30 something making mid-six figures who will soon be a 40 year old earning seven figures or close to it had different needs and should start planning that way from the beginning. He’s going to need tax advice, personal finance advice, investing advice, and everything in between.

He’s making so much money that he doesn’t need financial planning to be affluent for the rest of his life, no matter what he does. His issue is going to be making the most of the money he has coming in and spending and investing it wisely. Even with his student loans, with his income he deserves to live a bit. He’s beyond the beans and mac & cheese to save money days. He’s a high net worth individual with all the privileges and problems that come with that situation. It’s not a matter of being able to retire early and well. It’s more that What he does with his money in his 30s will determine whether he retires with enough for a comfortable condo in Naples or his own island in the Caribbean. That’s a nice planning problem to have, but income at that level will cover up a lot of financial planning sins. It won’t reduce his standard of living to live smarter. That’s what a financial planner can help him do.

He should find a fee-only financial advisor who works with high net worth individuals and has a track record of working with people who rapidly transition from student debt to affluence. He needs to get referrals from people who are satisfied with their financial advisors. Ideally he will have a relationship with someone who holds his brokerage accounts who is different than his financial planner. If you want a referral, PM me and I’ll send you our planner’s information. He would be a good choice and he does not sell securities or work on any commission. That’s the type of planner your son needs to find.

[vash]

living in San Francisco, i kinda feel it's a muddied waters type of situation. sitting on the sidelines you can watch the dreams of owning a home escape you right before your eyes as the market gets more and more expensive. I've been in the area for a long time, and i really haven't seen housing prices drop significantly..it may stall, but it ratchets back up in the long run.

i honestly don't know what i would do in this situation. personally, i put every extra bit of money i had into paying off my student loan. i got that monkey off my back in about 2 years. i was told it is one of the loans that defaulting on, is a damn near impossibility. there is no forgiveness. i didn't want to test that. beans and rice.

[Esel Mann]

Originally Posted by pavulon

Anyone able to kill all of their student loans in less than a year might be want to consider how many people have to wear their student debt every day, week, month and year for 20-30 years. It is a soul crushing experience.

Debbie Downer, wow just wow! The ability to pay off student debt within a year or so often comes at great sacrifice. Taking on student debt is a choice that is made. There is nobody holding a gun to anyone's head forcing them to take on student debt. Similarly making the necessary sacrifices to pay off the student debt in a year or so is yet another choice that is made. Or in the case of many, not made.

Choices can come with good consequences, bad consequences, or a blend of both. Bottom line is the choice is made by the individual and nobody else.

So why on earth would someone, other than the individual, want to consider any choices another individual has made or not made???? To consider such reveals an excuses driven person, not a results driven person. Stop making excuses.

Here's a big atta-boy to you for kicking in the teeth those who made the choice to sacrifice in order to create such an ability and pay their student debt off in a year or so....

[pavulon]

Originally Posted by Esel Mann

Debbie Downer, wow just wow! The ability to pay off student debt within a year or so often comes at great sacrifice.

Have you done any cardiac anesthesia? Let's hear about it!

If you had, you'd understand that an honest mistake or lapse in judgment can spell big, big problems in being able to make payments on a $300k nut at 7%.

[look 171]

Originally Posted by Bugsinrugs

Thanks Look. He is a smart guy but money is new to him. At his brothers graduation celebration he wanted to pay the dinner bills. We pulled him aside and told him to stop he too generous. That was our responsibility anyway.

You know, I will have to disagree with you on this. Let him pay for his brother's graduation. It makes him feel good about doing so, especially if money is new to him. This happens only once and it creates a stronger bond between the two. He's making great money so managing it will be something he has to learn with your and other professional guidance.

Best of luck to your kid. Money management is a totally animal compare to his field which is black and white to an extend. Too many opinions from everyone (friends) who always seems to offer bad advice. As they say, a little knowledge is dangerous. With you around, he will be looking at you for guidance. When I made my big purchases, I always go home and get my dad out of the house to have a cup of coffee and talk it over. This was each and every single purchase. I am not looking for approval but just want to share with him and maybe he see a mistake that I may have missed even though I know I was going to buy the investment properties anyway.

[Seahawk]

Originally Posted by look 171

When I made my big purchases, I always go home and get my dad out of the house to have a cup of coffee and talk it over. This was each and every single purchase. I am not looking for approval but just want to share with him and maybe he see a mistake that I may have missed even though I know I was going to buy the investment properties anyway.

Perfect. My Mom was always there as well.

I can still see him get out the yellow legal pad, draw a line down the middle and put a plus sign on one side of the line a negative symbol on the other.

Ready, begin.

I still do it, years after they have both passed. We just did it a few months ago before we bought the house in South Carolina. Not just money, btw: personal and emotional pluses and minuses, the whole gamut gets discussed, including, as was mentioned, risk associated with the income stream being interrupted.

Again, the fact that you guys are walking this dog now bodes well. MRM hit all the highlights: Doctors make horrible accountants and pilots

[john70t]

I would suggest paying it down asap.
Suze Ormand (yeah I know tv personalities) is fanatical about the emotional freedom of being debt free.
Some people thrive on juggling multiple risks and ventures at once, some get slowly worn down by them.

Run the loan numbers through a mortgage calculator, and determine what extra he'd be paying at the end of it all. You may be surprised.

If there is another investment for that money making more than 7% guaranteed he'd be staying ahead.
If not..

[Noah930]

MRM's post above about sudden increase in salary brought up a good point. When I was a resident or fellow, there was a financial planner who came in to talk to the group of us (and indirectly sell his services too, of course). He claimed that if he could get us to save 20% of our pre-tax income for retirement, he could guarantee that we'd be able to retire in 20 years. Except for in California. He wasn't taking on any more clients from California.

His point was if we could live on a resident's salary, why couldn't we afford to save (for retirement) once we were collecting an attending's salary? Once making that kind of money, if we were able to set aside 20% of our attending-level salary for retirement, then we'd 1) save a lot, 2) use time (and compounding) to our advantage, and 3) get accustomed to living at a certain level (below our max financial ability). With 20 years of compounding, we'd have a nice nest egg at the end. It was food for thought.

[Esel Mann]

Originally Posted by pavulon

Have you done any cardiac anesthesia? Let's hear about it!

If you had, you'd understand that an honest mistake or lapse in judgment can spell big, big problems in being able to make payments on a $300k nut at 7%.

Debbie Downer, your reply has zero to do with the fact I called you out for attempting to minimize any person who through choice made great sacrifice to pay off their student debt well before the loan(s) term.

as to being a cardiac anesthesiologist, nope not I. but i do know some cuz there are lotsa doctors where i live. Despite initial debt burden it didn't take them 20 years to pay it off. their two biggest financial complaints/concerns are insurance and cost pressure from what insurance/gov is willing to pay.

Please feel free to call me FoS cuz no amount of Debbie Downing is gonna ruin my day!!! Lol.

[Flat Six]

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.

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?

Originally Posted by Seahawk

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.

Originally Posted by Noah930

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.

^^ Some darn sound advice here . . . .

[ficke]

I would not pay down the loan fast at all, Now is the time to incur debt, not pay it down, buy a house, used air cooled Porsche?
I think we are heading for real inflation and possible partial student loan forgiveness. It would be nice to be on the right side of those things.

[MRM]

It’s important to consider the scale of this young man’s income. He’s grossing between $40,000 and $50,000 per MONTH. At 7% his $300,000 loan incurs about the equivalent of two weeks’ salary. He is not in a position where he should be eating beans and Mac and cheese. He’s in a category beyond just setting up a 401(k) (that he’ll max out in less than a month) or keeping an emergency fund.

He needs advice on how to manage an income stream that will soon build to $100,000 a month, selecting disability snd life insurance that makes sense without wasting money, managing his cash cushion with bond ladders, investing to minimize taxes, and a million other things that go with great wealth. And he’s doing it having gone from zero income to the top 1% overnight. His biggest risk is the opportunity cost on the savings that will be inevitable with his income.

[pavulon]

Originally Posted by Esel Mann

Please feel free to call me FoS cuz no amount of Debbie Downing is gonna ruin my day!!! Lol.

The ignorant are rarely unhappy. Good luck.

[Bugsinrugs]

Thanks for all the terrific advice. I’m going to forward all of these to my kid. Just a quick response to Look. My boy has a history of money burning a hole in his pocket. He would be the first one to throw down his money to pick up a check. I’m trying to get him to be a little more tight. Being generous is great but one had to pick their spots. Once again thanks everyone.

[MRM]

He can pick up the check the rest of his life and not see the rounding error on his account. His risk is messing up the big income stream he has coming in and not taking care of the dollars, not the pennies. He is living in a world where he earns in the Hundreds of dollars snd spending in a world where others live in the single dollars. He needs to learn the difference between a thousand dollars snd a million. Regular common sense financial planning advise is inadequate for him. As Tabs would say, you need to expand your horizons. He is a high net worth individual. He needs to start saving, spending snd investing like it.