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Discussion Starter #1
I was listening to Dave Ramsey today and when someone asked whether they should pay off debt or get new student loans, Dave said to stop going into debt and finish school without debt and hold off on the old student loans. My wife is in med school and the cost is 33000 a year (just tuition). I would prefer to pay off the older student loans to keep interest from acruing and capitalizing and then attack the new debt. I'm only able to pay 22000 a year towards debt. What is the best advice? Should I start saving for a year just to pay for the next year of tuition all the while having interest accrue on the student loans?
 

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That's a tough one. I tend to like the way you're doing it right now better. In an ideal world you could do both. I think the answer will depend on how much the interest rate is on the old student loans, and if it's calculated annually or what.

I'm guessing you're in the US from the cost of med school, and the fact you're paying on the loans while still in school. Here in Canada, as far as I know, we don't have to repay our student loans until 6 months after we've graduated. I'm hoping an American with more experience will answer this.
 

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I thought you didn't have to pay on the loans while you were still attending school. Did they change that?

Dave's point is that, once you take away borrowing as an option, you are forced into finding creative ways to pay for college.

My first choice is to NOT stop your wife's college education. If she is actually going for her doctorate now - is actually in a program - it is too difficult to stop then try to get into another one or the same one again. I mean there are students that chase programs all over the country looking for one they can get into. If she is already in a program and you're settled there, stay.

The second thing to consider is, once she graduates there are programs she can get into that will either forgive or help her pay off her loans. For instance, if she takes a job in a rural area, part of her loans can be forgiven. For that reason, I don't think you should pay off the loans early.

She needs to take full advantage of whatever scholarships or payment assistance she can get. Many schools have work-study programs and if you're employed, there might tuition assistance through your employer, too. Just because you qualify for loans, that doesn't mean you shouldn't use every single means available to reduce your bill. Be sure to fully take advantage of tax breaks and even a Cloverdale college fund which can be used immediately to make the money you do have protected from taxes.
 

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I'm fairly certain you still accrue interest on the loans, although you don't have to make payments while still in school. Since your wife is already going to school, it's too late to save up and pay with cash. So, if any new loans you take out are going to be a lower interest rate than your old loans, pay on your old loans first. If the new loans are a higher interest rate, pay as much upfront while letting the interest pile up on the old loans.

However, since this is a DR forum, and all answers have to apply to DR, you should probably do what he says and not what I say.
 

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I would put the old loans on hold and pay up the current tuition in cash as much as possible. Be creative. Otherwise, you will have a humungous debt upon graduation from med school $33,000 x how many years? You'll be very unhappy.

Once graduated - your loans will be minor in comparison to the fellow students. (except the ones where daddy paid it all- brats! lol)

And since you can pay $22,000 toward the debt each year plus a professional wife earning a clinician's salary, you'll be able to pay off the old loan pretty darn quickly. So don't fret about that interest on the old loans and do fret about paying that current tution up front. that's more imporant and a better investment. IMO
 

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Discussion Starter #6
Thanks for the replies. So I only got unsubsidized Stafford loans at 6.8%, this means interest accrues but does not capitalize until my wife is done with school. What I've been doing is paying off my loans (I only have $10000 left and will be done in Oct this year!) then I was going to start paying off the loans my wife gets while completing her MD program. This would save us from having the interest on the loans capitalize after my wife finishes the program. Would it be a good idea just to pay the interest on the loans and then save the rest of the money to pay cash for school?
 

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At 6.8% I would let the interest accrue and pay cash for the rest of your wife's school. That's a sweetheart of an interest rate for up here in Canada. Not sure about the U.S.
 

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I'd have to side with Dave on this one.

Think of it this way..if you take out new loans, you will be adding large chunks to the principle which will accrue interest while you are trying to pay off the ultimate balance. If you pay cash and defer the old loans, there will be no more huge principles accruing interest.

Sure you'll save some interest by paying those old loans now, but a year's worth of interest on those loans is probably way less than the $33,000 principle balance you would be borrowing per year (not to mention the interest on that).

Plus if your wife is in med school, she;ll probably make decent money in a few years after residency, so you guys will have that much smaller of a balance to knock off with her good income.
 

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Would it be a good idea just to pay the interest on the loans and then save the rest of the money to pay cash for school?

YES big fat yes

but please tell us if you've already made up your mind
 

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Discussion Starter #10 (Edited)
Frugal Nurse you've been a great help. And yes I'll do this plan. It seems like the way to go.

Here's another quick idea. What would you think about putting the money I'm saving for a year into either a Money market, ESA or buying Treasury Bonds to make a bit of iterest that I'm saving for the year. And then once I cash out I'll pay the tuition. Any problems you forsee?
 

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I am liking the MM fund for better interest. that just might work nicely. Smart move.
You want something that you can liquidate easily and without penalty , of course.
I don't know enough about the other things to say anything intelligent about it.

I think you have a great plan. I know it seems nice to whack that school loan out - but by adding more debt to do so doesn't make sense. Avoid making new debt. When wife is Dr. wife, she'll make a decent salary to pay back the school loan.
 

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Many employers/hospitals that recruit physicians out of residency will agree to pay off their student loan debt as a part of their employment agreement.
 

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I agree your wife has to finish. Medical school is too much to start and stop I would assume. I'd agree to start saving to pay cash for college. Putting the money in an ESA or Cloverdell doesn't really do anything other than let you take out any gains you've made tax free so long as they're used to pay for qualified education expenses. If you're saving one year for the next year's tuition, you're gambling in an ESA because it's so short term, unless you find a fund with CDs or something that fits your time frame, all to save how much in taxes? Doesn't seem worth it to me. I'd just sit on it in an MMA. I'd also try to make sure you're paying the interest on your loans, at least $2,500 each year, because in most all cases (depending on your income though, which may be high if you have 22k extra a year) you can deduct that amount right off your gross income on your tax return.
 
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