Hi, Thanks for taking the time to read this. I am currently 22 and working full-time. I want to go back to school to complete prerequisites in order to apply to PT school. I currently have $15,000 that I've saved, $5,000 of which I want to put into a Roth IRA. I will be able to save about $2400 more before I head back to school. I have $9,000 in Perkins loans at 5% which I will start paying off in June. Prequisites will cost me $5,000 for one year. The following year I should pay about $2,000 for my remaining courses. I am hoping to enter a low-cost DPT program that would cost either $11,000 or $16,000 a year for three years.

My job has offered me the option of working part time while I attend school next year. My take home pay will be about 1,000 per month, and my expenses would be 800 for rent, food, public transportation and incidentals.

Right now I think that I should invest in a Roth IRA, defer my Perkins loan when I start school again in September and lower my 401k contribution. (My employer does not match for 401k but makes a one-time payment of 3% of my salary or 1140 for this year. I am currently contributing 7%.)

Does this sound like a good plan? Any other suggestions? I hope to work more in 2013-2014 when I will only be taking two classes while waiting for DPT school decisions. Any insight would be helpful.

Why would you borrow money to put into a retirement account at age 22? You're not going to make enough to eat next year without borrowing more money, yet you want to put 1/3 of your current savings into a retirement vehicle?

My food costs are accounted for next year, as I specified, so I will be making enough to feed myself and will not need to borrow any money next year.

I am no expert by any means. If I were in your shoes, I would try to tackle the debt as fast as possible. I would not make minimum payments, but rather pay as much as I can. Graduating with no debt at 22 is a good feeling. I say this from personal experience. I just graduated a year ago. Kill the debt, then invest.

At the end of the day, you seem like you have your finances in order. Do what works for you and your budget.

Thanks!
-Steve
http://www.ourwallets.com

Do your perkins loans accrue interest while you're in school? I can't remember but I think they don't.

Are you planning to borrow more at all to pay for school? If so, I'd use the money you have saved to pay tuition so you don't have to borrow, instead of investing it in retirement.

I think it depends. For one thing, on the interest rate (which is 0% if it's deferred). Also how likely it is you'll be maxing out your retirement accounts in the not too distant future.

It really depends on the interest rates. It makes no sense to pay off debt early if you can make that money work for you and produce a better return. If the student loan interest rate is low enough (or zero) then it is probably better to invest. I also would not repay debt any faster than I had to if I were going back to school. It is better to maintain a more liquid position at that point.

"Feeling good" about paying off debt is fine. But the price of that good feeling is the opportunity cost of what you could have done with the money instead. That is often ignored but it should not be.

Thanks for the replies. The Perkins loan would not accrue and realistically I don't think I would be able to max out the Roth IRA in the coming years...

I plan on borrowing money to pay for my graduate degree, around 50-60k (and that's the best case scenario). The gov't is no longer subsidizing loans which is why I thought I'd let this one be...

???

The government is most definitely still subsidizing loans. Stafford, Perkins. The max for grad school is around $20k a year for Stafford, with about half subsidized (meaning, not accruing interest while you are in school). I think Perkins is around $5500/year max.

At least, this is current as of right now, as my husband is a grad student. It was the same when I went to school in 2006-2008.

I don't understand putting your money toward retirement when you're about to be so financially vulnerable. Personally I'd rather have a large emergency fund.

I don't disagree with what "doinghomework" is saying. The opportunity cost is very important. Let's say
1. I had 50K in debt at an interest rate of 3%.
2. I invested in a mutual fund that gave me a 9% guaranteed return. It MUST BE guaranteed to me.
3. I am profiting 6% (maybe 3-4%) after taxes.

However...
1. I had 50K in debt at an interest rate of 3%
2. I invest in a mutual fund that gave me no guarantee, but maybe I could get 9%
3. The mutual fund tanks and I loose half my money.
4. I loose my job 3 months later.
5. My investment went south, I lost my job, and am in debt.....

That is why I like to pay off my debts early. This philosophy might come from reading and listening to so much of the Dave Ramsey show. At the end of the day, do what fits your budget and plan best.

-Steve
http://www.ourwallets.com

Again, thanks for the replies.

Given new legislation, the government will no longer subsidize loans starting in July 2012.

This article may be of interest: http://www.usnews.com/education/best-gr ... an-subsidy

That article states that the government will no longer subsidize loans for *graduate students*. That would indicate that undergraduate loans will still be subsidized.

It's been over a decade since I went to college, but my understanding from back then is that nobody should pay for a graduate degree - one should typically get said degree paid for via a teaching assistant or research assistant position.

But that is not even close to being a fair comparison!

Let's say instead
1. I had 50K in debt at an interest rate of 3%.
2. I invested in a RISK-FREE mutual fund that gave me a 2% guaranteed return.
3. I am breaking even after taxes (assuming 33% total tax bracket) but I have a MUCH better position in terms of liquidity.


However...
1. I had 50K in debt at an interest rate of 3%
2. I took my available cash and applied to to the loan.
4. I loose my job 3 months later.
5. I still have the debt but my available cash is locked up in that loan. I lost my job, and I still have that monthly payment

I have a lot of problems with Dave. But in this case his seeming complete ignorance of the crucial role of liquidity and therefore its value are what matter.

Risk and liquidity have a quantifiable value. Ignoring that with some qualitative argument that an investment might lose money does not make sense.

I agree with the above. Be very careful about giving up liquidity to pay off low interest fixed rate loans...you can never get the money back once you pay it off.