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Management of a small windfall as an intern with significant student loans

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  • Management of a small windfall as an intern with significant student loans

    Hi everyone,

    First post here. I'm a first year anesthesia resident with about 363K in federal loans, 9k of that being interest, accruing at 6.4% making 0 dollar payments this year as part of REPAYE. At the end of this year, I'll be receiving about 30K tax free, and then about 12 months later will receive another 15K. I'm trying to figure out what the best move to do with this is. I've maxed my roth this year and have an emergency fund. Not planning to pursue PSLF. Loan repayment seems like the obvious choice, but not sure if its smarter to put it all into loans (vs investing it) as the initial 30k would only be 21K toward the principal after paying off interest, and on top of that would miss out on the approximately $950 interest subsidy I'm getting monthly as part of REPAYe this year. .


  • #2
    Did you do 2019 and 2020 Roth IRA?


    • #3
      I don't know anything about your student loan repayment program, but I would look at the situation in reverse. If I had $333K in loans, would I borrow an extra 30K to invest if I could have part of the interest subsidized? That is essentially what you are doing when you invest the money instead of paying down your loans. I agree with contributing to a roth, but beyond that, I would apply it to your loans. You aren't going to get a much better rate of return then a guaranteed after tax 6.4% rate in the market.


      • #4
        I like Dave Ramsey here. You already have step 1 with your emergency fund. Then Step 2 is Attack debt with everything you have. Therefore, I would put this into the loans.


        • #5
          Anesthesia makes $300-500k?

          Those loans suck. They do. I know you hate them. In 10-20 years your problem is going to be what to do with all your money and you'll hate your tax bill far more than those loans.

          Max your tax protected space, preferably with Roth money. Beyond that, you need to figure out the interest subsidy rules. $950x12 is $11,400 each year. Do you lose all of the subsidy if you lump sum into the loans? If so you're foregoing $22,800 in interest you wouldn't pay to reduce your loan balance by $22,200.(45k-22,800)

          Maybe I've got that wrong. I usually stay out of these loan questions. Best of luck!


          • #6
            lump sum will not affect subsidy


            • #7
              Originally posted by Panscan View Post
              lump sum will not affect subsidy
              WCI ran a post that would disagree -

              I've heard/read differing things from different sources and have never ran the experiment myself, so I don't know that anyone has definitively proven this true or false otherwise!


              • #8
                That was not my experience when I made extra payments. I received the entire subsidy, while paying down principal. Perhaps it depends on your servicer.

                For me, it always gave me the calculated subsidy every month regardless of if I had paid a bunch extra or not.


                • #9
                  Since you stated in your post that you have already contributed to your Roth (no need for bd as a resident), I would consider all avenues before deciding (a lot can happen in the next 10 mos, especially since the world as we know it is about to end). Do you have children and are there 529 benefits available in your state? If you have children, do you have adequate term life ins? Do you have any other 5-yr goals that you might need the $ for (car replacement, for example)? I'm not sure you'll be able to reach a firm conclusion this long before the event, but nice to go ahead and organize your thoughts.

                  Of course, by the time you receive the 1st amount, it will be time for your 2021 Roth contribution.
                  Last edited by jfoxcpacfp; 02-27-2020, 09:15 AM. Reason: Final sentence
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