Financial Advice: Loan vs. No Loan

[silentstriker]

OK, so here is the deal: after about a year and a half, I'll embark on medical school, which is going to cost me about $200,000 USD (including living expenses). I have two options: take the loan for some/all of it, or use my savings to pay.

I talked to a financial adviser but he seemed to be full of **** (and charged $200), so I am kind of lost at this point. Right now, I've been working for the last five years while paying for my university, so I have some money saved up ($140k). While I am finishing up my classes over the next year or so, I have managed to get a part time consultant job which pays pretty well (approx. $50/hour, but actually close to $45/hour if you take away the cost of health insurance that I'll have to pay separately), and I'll be able to add about $50k to my savings before I start (which means I can cover all or almost all of my expenses).

My savings, over the last five years have been averaging about 10%, and the loans are 6%, so it looks good on paper, but with the economy in the shape that its in, and with recession potentially in the horizon, I have no idea if its still going to be good over the next eight-ten years (the length that I'd be out of the workforce). I could use advice from anyone with more knowledge than me on the financial side.

[Shaggy Alfresco]

If you have the money to pay for it, why would you take a loan?

[silentstriker]

Originally Posted by Shaggy Alfresco

If you have the money to pay for it, why would you take a loan?

The interest on the savings has been giving me higher returns than the interest on the loan.

[alternative]

What kind of work do you do again, sure you don't sell stuff illegaly?

[James]

If you've managed to save $140k while working for the past five years while at university, you don't need our help

[silentstriker]

Originally Posted by James

If you've managed to save $140k while working for the past five years while at university, you don't need our help

Well, my choice is to be completely broke at the end, or be in 200k debt.

[dontcloseyoureyes]

Once you finish your internship you'll be right.

[SJS]

Originally Posted by silentstriker

OK, so here is the deal: after about a year and a half, I'll embark on medical school, which is going to cost me about $200,000 USD (including living expenses). I have two options: take the loan for some/all of it, or use my savings to pay.

I talked to a financial adviser but he seemed to be full of **** (and charged $200), so I am kind of lost at this point. Right now, I've been working for the last five years while paying for my university, so I have some money saved up ($140k). While I am finishing up my classes over the next year or so, I have managed to get a part time consultant job which pays pretty well (approx. $50/hour, but actually close to $45/hour if you take away the cost of health insurance that I'll have to pay separately), and I'll be able to add about $50k to my savings before I start (which means I can cover all or almost all of my expenses).

My savings, over the last five years have been averaging about 10%, and the loans are 6%, so it looks good on paper, but with the economy in the shape that its in, and with recession potentially in the horizon, I have no idea if its still going to be good over the next eight-ten years (the length that I'd be out of the workforce). I could use advice from anyone with more knowledge than me on the financial side.

From what you are saying its not clear whether the loan interest is fixed or variable. I am assuming what you are making on your savings IS variable. If both are variable, the chances are that you the rates will go down on both if and when they do.

It makes no sense to give up a 10% income option to earn(save) 6%. The only fear one has is the burden of a loan and the fear of not being in a position to pay back due to some unforeseen circumstances.

I would suggest that
1) you go for the loan but with an early repayment option. Normally such options come at a slight cost. You will find that the cost is still better than giving up your good income source today.

2) If the monthly outflow, once you start repayments, bothers you, you could reduce your loan amount by paying partly from your savings. This is to provide some buffer in case you do not get the best job in the world when you finish your studies. The idea is to pay back from your 'fresh' earnings rather than eat into your capital (existing savings)

3) Most education loans come with a moratorium - that means you do not start paying till 'so many' years after you finish studies. This gives you time to find the job of your choice.

Since you have a lot of savings which will further increase during the time you are studying, you are not at a big risk of getting into a situation where you are in debt and not able to pay back. Its more a question of choosing the best option for minimising your cash outflow. Its best in such situations not to try to outguess the future. Go with the situation as it stands (your interest gains on savings versus your possible interest outgo on loan) and trust that you will, after you have finished studies, get a job that will allow you to repay from your income itself.

[silentstriker]

Originally Posted by SJS

From what you are saying its not clear whether the loan interest is fixed or variable. I am assuming what you are making on your savings IS variable. If both are variable, the chances are that you the rates will go down on both if and when they do.

It makes no sense to give up a 10% income option to earn(save) 6%. The only fear one has is the burden of a loan and the fear of not being in a position to pay back due to some unforeseen circumstances.

I would suggest that
1) you go for the loan but with an early repayment option. Normally such options come at a slight cost. You will find that the cost is still better than giving up your good income source today.

2) If the monthly outflow, once you start repayments, bothers you, you could reduce your loan amount by paying partly from your savings. This is to provide some buffer in case you do not get the best job in the world when you finish your studies. The idea is to pay back from your 'fresh' earnings rather than eat into your capital (existing savings)

3) Most education loans come with a moratorium - that means you do not start paying till 'so many' years after you finish studies. This gives you time to find the job of your choice.

Since you have a lot of savings which will further increase during the time you are studying, you are not at a big risk of getting into a situation where you are in debt and not able to pay back. Its more a question of choosing the best option for minimising your cash outflow. Its best in such situations not to try to outguess the future. Go with the situation as it stands (your interest gains on savings versus your possible interest outgo on loan) and trust that you will, after you have finished studies, get a job that will allow you to repay from your income itself.

Yes, I won't start paying until I am done my studies - however, I won't be able to work while studying. I can work for the next year and a half before I enter medical school. I am not really worried about not paying back the loan, as if worst comes to worst, I can still go back and continue the career that I have now. Thank you for your advice.

[bugssy]

you got it all sorted mate......

go put your 140k on black and double it then you will have enough and some more for spending.

[FRAZ]

10 % is not gonna stay like 10 % and it is supposed to go down !
Don't play with interests at all please . I invested 100000 in mutual funds and in the past two months I have my balance at 98000 and I lost 2000 straight up .
Forget about the gains and what I would like to suggest to you is to try and get some student loan . Cuz once your incoming income will be less than the outgoing payments then you will be mentaly disturbed ( which you don't need to be) and you may lose your concentration at your studies . So forget the ****ing interest income and just study ...... Get a loan and a proper life .

[FRAZ]

or be like me when I took money from my dad for my tuition and instead I made a down payment to buy a home and delayed my study venture cuz you never know when you are gonna die . Education is adventure tbh !
Now I have a lil business and a side job and a home with enough equity in it and a wife and a life and I am about to finish my part time designation and I have a proper life overall !

[FRAZ]

My email you already got ! And it's just 150 bucks (gst & pst excluded) , (.9899 currency conversion applied)

[James90]

Originally Posted by bugssy

you got it all sorted mate......

go put your 140k on black and double it then you will have enough and some more for spending.

Awta.

[Smudge]

Never mind financial, you need spelling advice, SS.