Student Loans or House Down Payment?

**casl18** · 04-07-2011, 10:25 PM

My DH is currently in graduate school studying to be a PA. We have no CC debt, but are racking up student loans (tuition only) as we speak. He has two years left. By the time we're through we'll have around 60K.

When we're done 32K will be unsub. loans. So right now the unsub. loans accumulating at a 6.8% interest rate.
The remaining 28K will start gaining interest 6 mo. after graduation.

We expect our annual income to be anywhere from 75K-90K once he is graduated. Right now, our income is within a $100 of our expenses. We make about 20K a year. We're doing our best not to take out any "grad plus loans."

We have 40K saved up in a MMA with a 1.1% interest rate, but we're hesitant to drop it all or any of it because we'd like to be able to have a good down payment on a house. For a starter home we're thinking around 150K. Should we put more toward student loans or continue to hold onto it?

What would you do? What would DR do?

**Greebo** · 04-07-2011, 11:44 PM

DR would tell you not to buy a house when you have BS2 debt - so student loans FIRST - as FAST as you can - live in a rented shack if you have to - then get your FFEF in place so that when you save up and buy a house, you're prepared for the thousands of extra expenses everyone pretends don't exist when they're ramping up to buy a house...

**kita** · 04-08-2011, 12:33 AM

Dave wouldn't let you take out any student loans...I am a little more relaxed but I would say...don't take out any unsub loans. I think these are the loans which are really killing people.
So at the end you have about $8000 in the MMA and $28K in sub loans. If you are making $79K and still live like you do on $20K (congrats on that...not easy, I am sure), in one year you can pay off the sub loans, still have $8000 in savings and ready to really save up a down payment on a house.

**joyofsix** · 04-08-2011, 06:46 AM

Originally Posted by kita

Dave wouldn't let you take out any student loans...I am a little more relaxed but I would say...don't take out any unsub loans. I think these are the loans which are really killing people.
So at the end you have about $8000 in the MMA and $28K in sub loans. If you are making $79K and still live like you do on $20K (congrats on that...not easy, I am sure), in one year you can pay off the sub loans, still have $8000 in savings and ready to really save up a down payment on a house.

I agree, that is what I would try to do.

**casl18** · 04-09-2011, 10:33 AM

Thanks for the advice everyone! We hate paying rent! Feels like such a waste of money, but what you have all said makes sense.

We've discussed it a little more and feel good about paying the unsub. as we go along. We're also heavily thinking about going through HRSA (health loan repayment program). If you promise two years of working in an underserved area they'll pay 60K of student loans, so that seems like a hard deal to pass up.

And, yes, kita, it is difficult to live on 20K a year. But, we're determined to "live like no one now so we can live like no else later"

**mndtrp** · 04-10-2011, 06:15 PM

Renting is not wasting money. You have zero to very little cost in upkeep, while keeping a roof over your head. Houses are expensive. Even if your house doesn't need any improvements, things still fall apart. Tools are needed, lawn mowers, hoses, countless other things that you don't need in an apartment.

**scottp999** · 04-10-2011, 09:58 PM

Originally Posted by mndtrp

Renting is not wasting money. You have zero to very little cost in upkeep, while keeping a roof over your head. Houses are expensive. Even if your house doesn't need any improvements, things still fall apart. Tools are needed, lawn mowers, hoses, countless other things that you don't need in an apartment.

Great post! People need to change the way they feel about renting. We are programmed to death about how owning a home is the american dream (This is what the debt pushers want you to believe). If you have a mortgage the bank owns part of your home, and you rent from them. No one ever adds to their cost basis the huge amount of interest you pay, especially on a 30 year note if you don't accelerate the payoff. Even if you have paid off the mortgage, property taxes, maintenance, insurance, HOA, etc., are always still there. Also in this economy houses have become much less liquid than people got used to a few years back, and in many areas are still going down in nominal value at the same time the currency is decreasing in real value (a double whammy).

There is nothing wrong with renting. The wealth effect bandwagon that people fell in love with and used leverage to hop on between 2000 and 2007 was really a false wealth effect from distortions in the price of funds, government intervention in the market, and confidence artists in the banking and real estate areas including appraisers, tax assessors, contractors, furniture dealers, etc., etc.

The things you own can end up owning you! Good luck!