Student loans are often essential funding for a higher education. With the increase in college tuition cost, student loans can be quite formidable. Even with some financial aid and scholarship, I still had to borrow $29,025 total in student loans for my college tuition and expenses between the years 2002-2006: $17,125 from the Federal Direct Stafford loan at variable interest rate, interest free while at school with a 6 month grace period after graduation; $10,300 from the school at fixed 5% interest, interest free while at school with a 9 month grace period after graduation; $1,600 from a commercial bank at 7% interest immediately accruing even during time in school.
My family was poor and I had no other source of income or assets to pay for college, so I needed loans to cover whatever amount not paid for by scholarship and grants. At the time of college application, I mostly applied to highly ranked schools near where I lived, with a few “safety” schools. Among the schools to which I was accepted, I chose the one that had the best reputation, without consideration of the cost. I was also accepted to my state school, which offered me a financial package at the time that would have given me a free ride, i.e. no need to take out any loans; I chose not to attend it, however, because reputation seemed more important. I felt I was more likely to succeed by attending a higher ranked school with a better reputation, and that the money can be made later. On retrospect, I probably could have attended my state school, avoided the loans, and still done just as fine.
So by choosing to attend the school I chose, I had to borrow a cumulative $29,025 over my four years of college, as stated above. After enrolling in college, I did not immediately seek work on campus, because I wanted to see I could handle my academic work, which was by far my main priority. My considerations were that one of my grants I needed required me to maintain a GPA of 3 (equivalent to a B average), and that the high school I attended was not the best high school for college bounds to say the least (it had a graduation rate around 60%, with only 33% attending college, and was widely considered the worst high school in the state). After first semester, in which I got all As and A-pluses for a 4.0 perfect GPA, it became apparent that I could do some part time work on campus without suffering academically. I immediately sought a job on campus, applied and got one in the science library working about 10 hours per week for $7 per week. By sophomore year, the rate went up to $7.25/hr, and I was able to pay off the $1600 loan from the commercial bank, which annoyed me by having a relatively high interest rate of 7% that was accruing while at school. I was able to pay off this loan, because I essentially saved every penny from my earnings, and spent nothing for nonessential things.
By the time I graduated, I had $27,425 total in student loans. I went on to medical school on a full Army scholarship, by signing a HPSP contract that requires me to serve 4 years after residency as an Army physician. The student loans were deferred for another 4 years while I was in medical school, interest free. In addition to full scholarship, the Army also paid me a $1200 monthly stipend while in medical school, and increased it every year. I was an aggressive saver and spent money only on essentials: food, rent, basic clothing, and transportation. By seeking the lowest versions of the essentials, I was able to save quite a bit from the monthly stipend. By the time I finished medical school, I almost had enough to pay off all my student loans.
I waited, however, till the grace period was about to be over, because of the time value of money. I decided to pay off in full the $10,300 from the school at fixed 5% interest, because it assures me a 5% return on my money by paying it off. Although 5% annual return is not much, a bird in hand is worth two in the bush. As for the $17,125 Federal Direct Stafford loan at variable interest rate, which was only 1.725% for 2010-2011, I decided to pay it off by enrolling in the standard repayment program, which means a monthly deduction of $161.21 for ten years, a total of 120 payments. I decided that this was a more sensible plan than paying off the full balance at full, because 1.725% APY is just too low to pass, for even risk free US government bonds offer significantly better returns. Even the average rate of inflation at 3% per year is significantly higher. It seemed reasonable that the money should be invested instead. When the federal government decides to raise the interest rate on my Federal Direct Stafford loan significantly (which they will give notice well in advance), I will pay it off in full.
I am now in residency at an Army hospital, and was able to pay off my loans for several key reasons: the initial amount was not too great, the interest rate was relatively low, I found good paying jobs, and, most importantly, I was an avid saver. In the end, I feel the loan was worth it because it allowed me to attend a good medical school and become a physician, although I probably could have arrived at where I am by taking significantly less loan, or even none at all.
