By Alaina Trivax, WCI ColumnistAfter more than three years of allocating all our extra money toward student loans, we quit making extra payments on my husband’s medical school loans in the fall of 2023. When Brandon, a PM&R doctor now working in private practice, was in residency, we just paid the minimums on his student loans—and while doing so, watched the interest rack up. We refinanced during his fellowship year to get a lower payment. Laurel Road, I think it was, offered us a “training rate” of $100 per month, which got us through that expensive final year of training. We refinanced again in 2022 and now have an interest rate of 2.05%, down from 4.2%.
He started as an associate partner in July 2020 and entered a full-time partnership contract in January 2024. We began our student loan payoff journey with a balance of over $330,000, and despite stopping those extra payments, we’re hopefully just a couple of months away from paying them off in full!
Our Goals
Paying off our student loans is listed as one of our top priorities in our financial plan, just below maxing out our retirement accounts and HSA/FSA options. When Brandon started as an attending, we used his expected salary numbers and calculated our other expenses, estimating that we could pay off the loans in about five years.
Believe me, we have plenty of other things we’d like to do with our money. We want to move to a bigger home with an acre or two of land; Brandon wants to upgrade his Jeep Compass to a full-size pickup truck; we want to get a side-by-side ATV to help us do farm chores at my mom’s property. And we want to travel more—though, that’s the one thing we’re not delaying as much. We have decided to prioritize that regardless of the student loan situation; we can always buy more things, but there will only be so much time to make memories.
We’re actually tracking ahead of our five-year payoff goal. The loans will be paid off by the of summer 2024, despite having stopped making extra payments this past fall.
More information here:
Are Student Loans the New Mortgage for My Generation?
Should You Pay Off Debt or Invest?
Why We Pivoted
For the first three years of Brandon’s time as an attending, we kept a detailed budget and totaled up any extra money each month to send as an additional student loan payment. The monthly amount varied slightly as our family grew (and childcare expenses increased!). Still, we nickel-and-dimed every line item to find extra money to pay down those student loans as quickly as possible.
Brandon approached me last summer and suggested we stop making these extra payments and send the money to a high-interest savings account instead. We had a whole sit-down meeting about this. I’m talking hired-a-babysitter-and-took-our-laptops-to-Panera meeting. Brandon had researched a few savings and money market accounts and came prepared to discuss how much we could earn in interest by doing this.
Our student loan interest rate is around 2%, while the money market account currently yields 4.4%. But please forgive the clickbaity headline. Technically, the funds are still allocated for student loan payoff. We’re just trying to make some extra money on them while accumulating the total payoff amount. The fact that got me on board: we could earn enough interest to reduce our repayment timeline by a month or two. That’s compelling.
I Don’t Really Like It
Honestly, I am not the biggest fan of the plan. I don’t like that we’re not sending this money directly to the loans. It seems like we’re overcomplicating the process. The money market account is separate from our regular checking account; after I close out our monthly budget and tell Brandon how much extra money is available for student loans, he sets up a bank-to-bank transfer. I suppose it’s not much more work than setting up an additional payment to the student loan provider (and it is not one of my financial duties in our family anyway, so I guess it’s not my problem). It just seems like another account to manage and more opportunity for complications.
We have a chart on our fridge where we cross off student loan payments as they are completed. It’s set up as a game board with 100 squares, each equaling $3,150. I was not pleased the first time Brandon crossed off some squares to account for cash that we had set aside in that money market account and allocated for student loans. No payment had been made yet! In my mind, the money doesn’t “count” as a student loan payment (and should not be crossed off the chart) until it’s been used to actually PAY the student loan!
This is what hangs on our refrigerator.
Coloring in a chart on our fridge like it's a game obviously isn’t the important thing here; rather, I worry that having the funds on hand makes it too easy to use the money for other purposes. We talked a little about this when we first established the plan, and we already have had a few instances of needing to use the money. Brandon’s practice is pursuing a real estate investment for the company and he can buy in as a partner; we’re using some of the money we had set aside for student loans to join that real estate venture. We now have a specific amount in that account earmarked for that purpose.
We’ve also had to exercise some discipline to avoid viewing the account as a sort of slush fund for unexpected purchases and expenses. After Brandon’s first year as an attending, we miscalculated our tax bill and had to take out an advance on his bonus. Since then, we’ve worked closely with our accountant to ensure our withholdings are correct. But we’re still a little scared. The backup plan for this coming year is to use some of the funds from that account if needed. We’re also prioritizing travel with our family—taking a family trip to Mexico this winter and then planning a few beach trips with extended family for next summer. We are setting aside a little money for these and expect to cash flow the balance of these trips. We do have a separate emergency fund for the more day-to-day emergencies and big expenses—appliance repairs and replacement, unexpected vet bills, etc. Still, we are getting pretty comfortable knowing that extra money is there “just in case” we need it for these trips or for emergency expenses.
I’m not sure I like that.
That account is earning a good deal of interest, though—enough to shorten our student loan payoff timeline by a few months. That fact is really the only reason I’m willing to stick with this plan. We are ready to be done with these loans. With the money in that account, an upcoming bonus, and our regular monthly payments, we can probably pay them off by July 2024.
More information here:
What Happens When You Actually Have to Use Your Emergency Fund?
With Our Expanding Family, We’ve Had to Break Our Financial Plan – Twice
A Good Exercise in Disagreement
Brandon and I are usually on the same page regarding financial management, so this has been a new experience to navigate. I can only think of one other issue where we couldn't get on the same page: establishing sinking funds for recurring household expenses.
During his training and early attending years—when our budget was tighter—I would save a little money each month for expected but infrequent household expenses. Things like annual insurance policy renewals, household appliance repairs, and upcoming vacations—expenses that we knew were coming and we knew would be more than a few hundred dollars at once. For example, cash-flowing our $450 umbrella insurance policy renewal wasn’t feasible during his fellowship year. We needed to be saving for that in advance. And if the dryer needed repairs that same month? We’d have been air-drying our clothes for a little while.
I never could get Brandon to understand the rationale of this savings strategy. I’m not sure if it’s his background coming into play—the first time he ever experienced significant financial scarcity was his fellowship year, so the idea of not having enough money to pay the bills isn’t something he thinks about often. Now that he is more established in his career and we have greater financial flexibility, these sinking funds aren’t as necessary. We really can cash flow most of these unexpected or recurring household expenses.
We’ve learned that it’s OK to disagree with each other about financial matters as long as our family’s overall financial health isn’t being harmed. As far as our choice to quit paying extra on our student loans and send the money to a savings account instead, we’ll stick with that plan for now. Using the money as a cash account for something other than our student loans, the real estate opportunity, or a tax bill will be a major red flag to reassess.
And When They’re Gone . . .
Once those student loans are gone, we’ll convert the account into a savings account for a down payment on a house or property. We’ve looked at a few pieces of land in the past few months—we’re not quite ready financially but want to see what’s out there. I’m sure buying a new home (or building one!) will bring at least one new disagreement for us to explore.
Either way, we won’t have to play this student loan game ever again.
Is it the right move to not pay extra on the student loans and instead send those funds to our savings account? What other strategies could you use?
With a 2% loan and current interest rates I have to agree with your current plan. We moved 2022 and got a 3% mortgage which I quickly paid off once the old house sold. Now and then I kick myself thinking of the 5 year 5%+ CDs I could have gotten last year instead and even that if we decided to become landlords (lots of empty homes this town especially once interest rates rose) we could be doing that with cash that only cost us 3% to have on hand. Or I could more easily convince spouse to let me buy one or both of the neighboring homes to expand my garden and maybe add a pool to our list of responsibilities.
However as he reminds me when I lament this (since home mortgages are >5% now even with our credit rating, and non home mortgages for rental properties even higher of course) “that’s a young man’s game.” We’ve won the (money) game, let’s quit playing.
And honestly as you’ll see this summer it is so nice to know that even if our income somehow dropped a great deal, with no monthly loan payment we won’t have any issues.
Alaina nice post 🙂 You really should sell those charts! I’d buy one!
Yes, mathematically you are coming out ahead not paying off student loans faster, even at highest tax brackets. Isn’t that fact comforting to you, that you are optimizing the amount of money you make so easily by not paying off student loans faster? I’ve always been fascinated with the psychology of paying down debt vs. invest. Since our jobs as physicians are so stable, that debt is very unlikely to bankrupt you because of loss of income. I am usually the one to invest if the interest rate post-tax is higher than the debt.
Maybe try framing it this way- you would be “losing” money if you paid off that student loan debt faster. Get that dopamine hit by making money, not “losing” money by paying low interest rate student loans. Also you mentioned yourself now you have sort of an extra cushion on your emergency fund. Borrowing from the analogy of paying off your mortgage faster, you are choosing to be “cash rich” rather than “student loan debt” poor. You are more financially vunerable if you pay off those student loans faster!!! Just imagine the surprise tax bill next year you can’t afford to pay because it all went to Laurel Road next year, and paying penalities for underpayment, etc. Acutally, sounds like you don’t have to imagine it- you mentiond it already happened to you!!! Just think, not paying down those low interest rate loans not only make you more money, but also more financially durable to handle financial emergencies.
Hope that frame helps!
Totally appreciate the perspective! The psychology really is interesting, and so individual to each person.
And, you CAN have one of the debt-payoff charts! I got it from https://debtfreecharts.com–lots of options to explore.
-You’re so close! This post gave me (good) flashbacks to when I was in the final stretch of paying off those student loans. I hope you have a nice celebration planned, babysitters and all.
-Would also buy one of those pay off charts- great way to game-ify reaching a big debt payoff goal!
-This is one of my favorite columns- so very relatable to us early/mid career doc families. Keep up the great work!
Why are you putting the money in a 4% HYSA when treasuries are 5.4%? The tax adjusted yield can be as high as ~6.5% if you’re in a high-tax state.
If you are in a low tax state, put it the BOXX ETF to get treasury rates at LTCG instead of ordinary income.
It may be more psychological comfort to pay off the loans when the interest rate is lower than saving account. To get higher return, sometimes you have to swallow higher risk and psychological discomfort. Or sometimes people rather forego higher gains to pay off the loans first just so they could sleep better.
Alaina,
Congratulations on being almost done. As another young to mid-career physician with small kids, I love your articles and appreciate the perspective it gives, especially as I try to better understand my wife’s perspective. They are some of my favorites outside Dr. Dahle’s. I haven’t done the math but would think once you factor in taxes it may not be worth the added stress it gives you. On the other hand as Dr. Dahle would say, you are so conscientious about all of this and the fact that you are so disciplined and thinking about this stuff means that either way you’ll end up winning the game.
Thank you for the kind words! We’re hopefully just a month or two away from having these loans completely paid off. Much longer, and I do think we’d have to reevaluate the “cost” of the stress. The plan looks good on paper and the math adds up nicely, but there’s also a lot to be said for watching the balance of our student loan account tick down.
You’re not alone. I feel this. I am using the same method of stockpiling my student loan money though for a slightly different reason… student loan pause plus the save program means that my loans are at an effective interest rate of 0.7% despite being a second year attending. I haven’t dipped into the fund but some days it feels like I didn’t get very far. Then there are days like today when the $300 monthly interest deposits and the $76 pay out to the feds comes out and I realize I’m still coming out ahead and it will shorten my timeline by a few months and it’s just a few transfers. I too love your chart and may start one!
I would agree that the psychological benefit of paying off debt is worth it to some people, kind of like when people pay off their 3% mortgage when they could get better results elsewhere.
Also, not all HYSA are paying 4%, some have promotions that are paying 5 to 5.5%, and come with FDIC coverage, so that might be more competitive for some people.
It isn’t logical to pay off low interest student loans early to then likely borrow at 6-7% for a bigger home with an acre or two of land.
However, I did the same thing and paid off my loans in 3-4 years out of training when they were similar low interest rates something like 2%. I also paid off my low interest mortgage 2.75% early as well. Both were suboptimal finances moves, particularly with how well the stock market has done over the past 10-15 years. Save for a bigger down payment and consider that $80k a lower rate mortgage.
Clearly investing and not paying off loans is mathematically better, but many (most) would rather spend the money. You have a list of things to buy too so behaviorally makes sense to pay off debt. Easier to splurge when you feel that you’ve already paid things off. Also monthly cash flow is much easier when you don’t have any loan payments.
With only $80k left though I’d consider leaving it if you are planning on borrowing money to buy a house.
I feel your dilemma. At a different life stage, we are in a similar conflict / choice / strategy to paying off our low interest mortgage.
I have two thirds of what it will take to pay it off in a post tax account. Part high interest, part bonds. I know that the account is earning more than we pay in interest each month. All the same, once we hit the total, I will probably pay it off. But I do hear both sides of the choice.
Your chart is great! I have a suggestion that might work for both of you: Rather than coloring in the squares that represent the amount in savings, go to finish line and using a plain pencil, ‘just’ lightly cross hatch the squares from the finish line backwards to represent the amount you have in savings. At some point the cross hatched squares will meet the colored-in squares.
Cool idea! Love it.
Love that idea! Just differentiating the savings v. the actual payments might make enough of a difference for me to stick this out.
• Spellcheck. (“Excercise”). (How can anyone, especially a columnist, skip it?)
• Did you pay for the refrigerator chart?
Thanks for the correction, will fix. As I’m sure you know if you’ve been reading this for long, we all make mistakes. The nice thing about blogging as a medium is that it can be rapidly fixed.
Regarding the “sinking funds”…. My husband and I basically have a floor for our joint checking acct that acts as a day to day expense emergency fund…. Is that what you’re referring to? As our lifestyle has increased this number has, but in the beginning we would set an alert, say if it dropped below $5k. It’s what we would use for repairs, etc. Our emergency fund is a break only if necessary stashed in a CD.
A 2.2% spread on the $78,000 remaining balance is less than 1 month’s payment. So you’re not shortening the life of the loan by any considerable amount. The moment you use those funds for anything other than student loan repayment, you’ve increased the length of repayment.
I recently talked to a young anesthesiologist, who has been doing locums anesthesia since he finished his fellowship. He is doing amazingly well and is likely make $700,000 his first year out.
Because he has no wife and no children and the Locums pay for his room and board and travel, he has been able to mass $360,000 in cash, which is exactly the same as student loan debt.
He said he would rather invest that money, than pay off his student loans all in one lump sum because he is in the SAVE program.
Here is an anonymous text about the situation:
“Having graduated med school in 2019, they paused interest due to COVID a few months in and not that much interest has accrued. I then did four years of residency and one in fellowship and those years counted, remarkably, even though I didn’t make payments those years. So sixty more minimum payments and my debt could be cleared. Now, I’m not sure to continue 1099 vs W2 to work for a non profit hospital and if I should pay back loans or invest. The situation is very much like that moral dilemma article you sent me.”
Before he sent this, my advice was to pay off the debt (it is at 6% now that interest has been reactivated). I mentioned he could simply accumulate a similar amount of cash again in the subsequent year.
But, his situation is interesting in that he has a huge chunk of cash that he could invest, and by paying minimums he may be able to get this debt forgiven?
Sorry about the typos…I posted this before my AM coffee…(mass vs amass, and will likely make, not “is likely make”)….