[justaliv3]

Background story: Wife is in Med school but has taken a year off to have our first child! Which means that the $71000 (+$4000 in accrued interest) we have in loans will be pass the 6 months of grace period and we'll have to make payments until the May time frame when my wife will be again in school. I'm saving up tons of money to hopefully pay for the last 2 years in cash ($34000 a year). Because of this year off, the $4000 in accrued interest will be compounded in December. I want to save for the last 2 years but I don't want the $4000 to be added to the principle. Should I pay the $4000 in interest to keep it from compounding and take our a $4000 loan for the next year of med school or keep saving for the last two years in cash and not worry about the compounding interest? I can't do both. Thanks for the help.

 

[Zoolook]

Without knowing the rate you're paying and rate of your likely future loan, it's hard to answer, but $4,000 interest on a $71,000 loan (which I assume wasn't taken out all at once) seems like a lot given where rates have been for the last 3 years.

Regardless, the interest on the interest is likely to be a lot lower than any new loans you take out, so I'd focus on ensuring the last few years are paid for and deal with the existing loan afterwards, at least with the information provided.

 

[CPA-Kim]

Without knowing the rate you're paying and rate of your likely future loan, it's hard to answer, but $4,000 interest on a $71,000 loan (which I assume wasn't taken out all at once) seems like a lot given where rates have been for the last 3 years.

Regardless, the interest on the interest is likely to be a lot lower than any new loans you take out, so I'd focus on ensuring the last few years are paid for and deal with the existing loan afterwards, at least with the information provided.

Agree............................

 

[justaliv3]

Without knowing the rate you're paying and rate of your likely future loan, it's hard to answer, but $4,000 interest on a $71,000 loan (which I assume wasn't taken out all at once) seems like a lot given where rates have been for the last 3 years.

Regardless, the interest on the interest is likely to be a lot lower than any new loans you take out, so I'd focus on ensuring the last few years are paid for and deal with the existing loan afterwards, at least with the information provided.

You are right the loans were not taken all at once. One ($34000) is at an interest rate is 6% the other is at 5.4% ($37000) with the Unsubsidized federal loans. Thanks for the help.

 

[ambroseya]

I also do not know the situation of where in pregnancy/child age you are. If you can't do both, that means your liquid capital is pretty low; if your child has not been born yet, I would definitely hold onto it if for nothing else than unexpected medical expenses at birth. Some children are not born perfectly healthy, and in today's society they are blessed with good enough medical care that most can still come through overwhelming odds - however, it makes sense to have as much liquid capital as possible at that moment of the unknown. Even with good insurance, many NICUs are still overwhelming - my healthy child that needed a 10 day NICU stay with no actual interventions (oxygen, heat, medication, etc) still racked up a seven figure hospital bill before the insurance - We were blessed with the way it worked out after insurance but did take out a short term loan from a family member to handle everything that happened - one that we're still paying back.

 

[justaliv3]

I also do not know the situation of where in pregnancy/child age you are. If you can't do both, that means your liquid capital is pretty low; if your child has not been born yet, I would definitely hold onto it if for nothing else than unexpected medical expenses at birth. Some children are not born perfectly healthy, and in today's society they are blessed with good enough medical care that most can still come through overwhelming odds - however, it makes sense to have as much liquid capital as possible at that moment of the unknown. Even with good insurance, many NICUs are still overwhelming - my healthy child that needed a 10 day NICU stay with no actual interventions (oxygen, heat, medication, etc) still racked up a seven figure hospital bill before the insurance - We were blessed with the way it worked out after insurance but did take out a short term loan from a family member to handle everything that happened - one that we're still paying back.

I'm so sorry that happened to you ambroseya. I hope the child is ok. I'm in the military and our insurance is pretty extensive. I'll definitely be holding onto some cash since I won't have to pay for school till May 2015.

 

[Zoolook]

You are right the loans were not taken all at once. One ($34000) is at an interest rate is 6% the other is at 5.4% ($37000) with the Unsubsidized federal loans. Thanks for the help.

OK, so taking the average of those on $4,000, you're looking at about $20 a month additional interest if it's compounded on top of the approximately $345 or so interest you're already accumulating.

If you can get the new loans at a lower rate and/or the interest is deferred for a number of years, pay the old one first. If it would be a higher rate that the average of your older ones, pay the tuition from your cash reserves.

Either way, don't drain your reserves until after you've covered any medical on your baby, but it seems you wouldn't have to make that call immediately anyway.