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*Official student loan pay off thread*

Home Student Loan Management *Official student loan pay off thread*

  • Zaphod Zaphod 
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    Status: Physician, Small Business Owner
    Posts: 6323
    Joined: 01/12/2016

    I just paid my last chunk of my original $265,000! It took us 38 months since training. Grossing ~$400,000. Three kids and single income.

    It feels amazing to be completely done!

    Good luck to everyone here! I am confident we are all doing the right thing by paying off the debt!

    Click to expand…

    For clarification, we’re not all trying to pay them off, well…mostly just me it seems most of the time.

    My goal is NOT to pay the loans off asap. My goal is to fill everything else up as fast as possible, retirement accounts, taxable, RE, etc…before thinking about aggressively addressing loans. I think this is a far more prudent approach when you’ve just got out given time value of money, terminal wealth etc….In a few years hopefully it wont matter. At different time periods different things matter more. When you just get out you should definitely put something to your retirement as you’re already delayed.

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    Thanks for the clarification. I must have misinterpreted the thread title.

    I think debt affects folks differently. Some are comfortable living in debt and some feel like slaves. Taking into consideration the psychological effects of being debt free, no one will convince me it was the wrong decision to pay off the monstrous, soul-sucking debt that I had.

    How do you “fill up” a taxable account anyway?

     

    Click to expand…

    No one is admonishing any others choices, just pointing out I shouldnt be in that congratulated group. There is minimal psychological effect of the debt to myself (though it is not zero) it is simply a trade off. I trade that for more money in the end. Since money is fungible and net worth gets to zero and beyond anyway, I just prefer this way as of now especially since I am just starting out and the dollars are worth more. Later on, I may absolutely flip to the other side.

    Once I did the math, etc…worked out a plan, paying anything extra on the debt was the soul sucking part, so we’re all a bit different no big deal. If it ever really bothers me I can always liquidate the taxable and pay off the loans right? No bridges are burned and I have choices and am in control. You will never get any extra student loan money back if you decide later it wasnt as big a deal as you thought (unlikely). Im paying them down, just not rushing to do so.

    No one is trying to convince you one way is the “right” way, and there are certainly no wrong decisions, these are all excellent choices with great long term outcomes.

    As to “filling up” the taxable account, I just meant that is my priority rather than excess principal to student loans. After the SEP and HSA instead of any of my discretionary dollars going to student loans/mortgage (I do confess a very small nominal over payment does happen) it goes into the taxable account instead trying to build up that space. Cant be filled up in the same way a deferred plan can of course.

    #32898 Reply
    Liked by hatton1
    Avatar Med0000 
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    Status: Physician
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    Joined: 02/09/2016

    Cheers Zaphod!

    Just the very fact we are thinking about these topics put us all way ahead of the average person/physician.

    #32934 Reply
    Liked by Zaphod, hatton1
    Avatar ndayev6 
    Participant
    Status: Physician
    Posts: 38
    Joined: 01/10/2016

     

    I am 6 months away from completing fellowship. My wife and I started out with $290,000 combined student loan debt and have paid off $140,000 during residency/fellowship. Thanks to WCI I refinanced early on with DRB before their rates climbed.

     

    Total loan amount: $147,000

    Loan interest: 3.5% 5 yr fixed through DRB

    Yearly income: $500K

    Goal pay off date: 18-24 months

    Personal information: we live in a very low cost of living area

    Living expenses: relatively uncertain at this moment but likely less than $6000/mo

    Misc: Will be planning to max out both 403b, backdoor Roth, my DBP

    #32957 Reply
    Liked by hatton1
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 370
    Joined: 02/22/2016

    Isn’t delaying debt payoff just another variant of market timing? I read WCI’s post about building up a large amount of investable assets early on and allowing that to do the heavy lifting of growing your retirement account, and while that sounds appealing, so does having my loans paid off.

    My thought is to kill the loans now while the markets are relatively high compared to historical values, and then when the inevitable correction comes, I’ll be putting more money in at lower costs than I would be right now (I would be putting the money there regardless since my loans would be paid off). Granted, I’m timing the market since I’m expecting rates to keep going up and don’t think the stock market can rise indefinitely (I hope the overall trend is up, but fully expect some lean years through the next 20-30 as well). I suppose if the markets were low right now compared to historical averages I would probably be paying the minimum on my loans and plowing all excess cash into my taxable account.

    Different strokes for different folks, and all that.

    #32963 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
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    Joined: 01/12/2016

    Isn’t delaying debt payoff just another variant of market timing? I read WCI’s post about building up a large amount of investable assets early on and allowing that to do the heavy lifting of growing your retirement account, and while that sounds appealing, so does having my loans paid off.

    My thought is to kill the loans now while the markets are relatively high compared to historical values, and then when the inevitable correction comes, I’ll be putting more money in at lower costs than I would be right now (I would be putting the money there regardless since my loans would be paid off). Granted, I’m timing the market since I’m expecting rates to keep going up and don’t think the stock market can rise indefinitely (I hope the overall trend is up, but fully expect some lean years through the next 20-30 as well). I suppose if the markets were low right now compared to historical averages I would probably be paying the minimum on my loans and plowing all excess cash into my taxable account.

    Different strokes for different folks, and all that.

    Click to expand…

    No its not really timing at all. Its simply understanding the one rule that underlies all capital markets, the time value of money. Money today is worth more than money at some point x in the future. Start adding in inflation, differences between compound and simple rates, fixed vs. perpetual terms and it starts to become more concrete. Further you get to be in control of a lot of those variables to be able to set them to your liking.

    There is nothing wrong with going after paying off your loans whatsoever, and if thats what you’re doing than great. If you can do both, even better of course.

    You can never go back in time and recoup the gains the market had whilst your dollars were not invested. You can only invest them presently. Now while you may believe the market is highly valued (and it might be), people have thought that every year loudly and proudly since the recovery began, theres no reason it cant go up anyways. Interestingly, I went through JPMs yearly market outlook pdf this am and the CAPE right now is almost exactly at the level of the 25 year average fwiw (not much). I try not to worry about right now or even 5-10 years in the future when Im assessing the valuation of the market (never been a great indicator btw) I try to think if this will look expensive in 30-50 years from now and I seriously doubt it. Even double digit percentage moves will be small potatoes over the very long term. So right now I am of the mind that markets are indeed cheap compared to their price 30 years from now, its all about perspective.

    Your loans are simple in comparison. There is a principal, a rate and a term. You know exactly how much they cost (total interest paid over term), and that is exactly the maximum you can keep yourself from overpaying.

    A little valuation trivia, what was the PE of the market in 2009, high or low? It rose as high as 122 in June 2009, which was not exactly an expensive or terrible time to be buying the market. The point is all of these tools have limitations and context and cant really be assessed properly or applied uniformly without that understanding. Obviously the above happens during each recession as prices are still relatively high from a trailing twelve month perspective as earnings take an absolute beating. Similar issues with CAPE, share count and zombie companies contributing to numbers to fool you both ways.

    #32980 Reply
    Zaphod Zaphod 
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    Joined: 01/12/2016

    Isn’t delaying debt payoff just another variant of market timing? I read WCI’s post about building up a large amount of investable assets early on and allowing that to do the heavy lifting of growing your retirement account, and while that sounds appealing, so does having my loans paid off.

    My thought is to kill the loans now while the markets are relatively high compared to historical values, and then when the inevitable correction comes, I’ll be putting more money in at lower costs than I would be right now (I would be putting the money there regardless since my loans would be paid off). Granted, I’m timing the market since I’m expecting rates to keep going up and don’t think the stock market can rise indefinitely (I hope the overall trend is up, but fully expect some lean years through the next 20-30 as well). I suppose if the markets were low right now compared to historical averages I would probably be paying the minimum on my loans and plowing all excess cash into my taxable account.

    Different strokes for different folks, and all that.

    Click to expand…

    Not delaying, just paying as agreed.

    #32981 Reply
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 370
    Joined: 02/22/2016
    Earnest refinancing bonus

    But that only works for you if the market goes up in the time it takes others to pay off their loans. If it goes down then you’re left with less money than you invested, and you still have your loans.

    I’m taking the gamble that the market stays the same or goes down over a 2-3 year period from when I started paying off my loans (or grows less than the rate of my loans). And honestly, I’m still investing almost $100k per year between tax deferred accounts, HSA, backdoor Roths, and taxable accounts, so it’s not like I’m abandoning investing while I pay my loans off, I’m just prioritizing loan payoff because I am guessing on what the market will do in the short term (hence my market timing comment). Otherwise I would be investing all but loan minimums. As it stands, my loans will be gone in another 8-10 months and then I’ll be plowing $13-15,000/month into investments (and hopefully when market is lower than it is now).

    #33020 Reply
    Zaphod Zaphod 
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    But that only works for you if the market goes up in the time it takes others to pay off their loans. If it goes down then you’re left with less money than you invested, and you still have your loans.

    I’m taking the gamble that the market stays the same or goes down over a 2-3 year period from when I started paying off my loans (or grows less than the rate of my loans). And honestly, I’m still investing almost $100k per year between tax deferred accounts, HSA, backdoor Roths, and taxable accounts, so it’s not like I’m abandoning investing while I pay my loans off, I’m just prioritizing loan payoff because I am guessing on what the market will do in the short term (hence my market timing comment). Otherwise I would be investing all but loan minimums. As it stands, my loans will be gone in another 8-10 months and then I’ll be plowing $13-15,000/month into investments (and hopefully when market is lower than it is now).

    Click to expand…

    Youre not really choosing an either or situation, and neither am I as Im paying them down scheduled (more theoretical i guess).

    It actually works because it only matters if the market goes up enough to have kept up with inflation and the term is much longer than the loans, thats the great part. My loan terms are shorter than my investing horizon, its almost impossible for it to not work. Remember we’re comparing simple to compound interest and the loans suffering from inflation. On a long enough horizon the rate of return could be less than your loan interest rate and you still win. The only time horizon Im thinking about is 30+ years so todays prices or a drop (which would be super welcome) dont matter to me or this trade off.

    It doesnt really matter too much what you do, in a few months you’ll be putting a ton more than the already large amount you are into the market and will be very wealthy regardless. This is a tiny matter of degree. Neither of us are really gambling at all, just taking different paths.

    #33021 Reply
    Liked by nachos31
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
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    Joined: 01/12/2016

    deletes duplicate

    #33023 Reply
    Live Free MD Live Free MD 
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    Status: Physician
    Posts: 98
    Joined: 01/03/2017

    I am really impressed with everyone who is filling up their tax-advantaged accounts and paying off debt in residency.  Now THAT is being ahead of the game.

    Sports Medicine Physician. Athlete. Big Mountain Enthusiast. Blogger at http://www.LiveFreeMD.com

    #33150 Reply
    Avatar Scarftheverb 
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    Status: Resident
    Posts: 36
    Joined: 01/10/2017

    Is it worth it though? It takes a disproportionately large sacrifice to make much of a difference at that income level.

    #33159 Reply
    Liked by Craigy
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6323
    Joined: 01/12/2016

    Yes it is probably worth it x100. Also, it likely does not feel disproportionate especially since you keep such a higher overall percentage of your income. Not too forget you dont (or I didnt) have much time to be enjoying any money not spent anyway. Much harder older, more money, and more time to do fun stuff.

    #33172 Reply
    Avatar Cytogal 
    Participant
    Status: Physician
    Posts: 17
    Joined: 08/25/2016

    2.5 years out of training.

    Total loan amount: $394,000 when finished training, now at 280,000

    Loan interest: was varied from 2.9-7.9%, now all refinanced through First Republic (thanks WCI) now at 2.95% fixed

    Yearly income: $210K

    Goal pay off date: 2020

    Personal information: HCOL

    Living expenses: 4-5K/month (no kiddos)

    FYI- when paying government loans through direct payment, they hold all the control about where your payment is being applied.  When I took a hard look at the details, and got out of the autopay, I realized they were putting more money towards the lower interest loans.  I called them, and they did not have an explanation.  I was able to refinance these and not have to deal with it, but definitely felt I was being scammed.

    Love the thread, very motivating!

    #33231 Reply
    Liked by hatton1, Zaphod
    Avatar Raddoculous 
    Participant
    Status: Physician
    Posts: 7
    Joined: 01/12/2017

    Graduated medical school with just over 160k in debt. Went for government consolidation but realized that the weighed interest rates for each loan would be averaged. My loans were in two very different bins: subsidized federal loans before the Bush fixed interest rate hike to 6.8% and those after the rate hike. So, i consolidated 45k of loans at the lowest interest rate (1.75%) and left the other 120k alone. The majority of these were at 6.8%; some at 6.5% and 4.5%.

    My intent was to pay off the high interest loans during residency. But, life happens. Got married. Had two kids. Bought a house.

    Wasn’t eligible for deferment and so put loans into forbearance. AFter 3 years the total had increased to 185k. I attempted to refinance but interest rates were quite poor as a resident with a less than stellar debt to income ratio. So, we started making payments on the high interest loans.

    By the end of fellowship the total was 140k. Now 6 months into practice we have just paid off the last high interest loan and are left with 42k of loans at 1.75%–on which I will make only the minimum payments for the foreseeable future.

    We made a little money when we sold our house to take a job across country but that was more than eaten up by costs of relocation and 20% down on another house. However, this one is a small starter house in a low cost of living area and our mortgage is just over 1k/month.

    Next up is saving 30k for a practice buy in at the end of first year.

    #33383 Reply
    Avatar homanga 
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    Status: Resident, Physician
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    Joined: 01/10/2016

    Not meant to be a look at me post but definitely feels that way.

     

    Graduated residency 6 months with approximately 30k in loans (low cost of living area plus med school and working wife certainly didn’t hurt) all at 6.8%.

     

    Made my final payment today, so officially student loan free. Obviously in a much more blessed situation than others and I have plenty of colleagues working on their 3-400k numbers but it feels good nonetheless.

     

     

     

    #33388 Reply

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