Student Loans and Real Estate

[Andrew Emery]

Hey everybody,

I am entering the final year of my undergraduate education this fall and am hoping to embark on my first real estate investment upon graduation. A major obstacle standing in my way is the amount of student loans I will have to pay back. I currently have a very well paying internship that I am pretty confident will result in a full time offer for next summer. Because of this internship, I am in a position where I can potentially pay for the 2012-2013 school year's tuition up front. What I am wondering, is if I should pay off as much tuition as possible with money earned this summer (along with previous savings) or to let the same loans I have used the previous years disburse and use that money to supplement a real estate investment after I graduate, despite the additional interest I will need to pay (mix of subsidized and unsubsidized at around 6.5%)

I have heard mixed opinions on this matter, and I feel that making loan repayment a priority instead of just paying the minimum monthly balance when I gradate will force me to miss out on the wonderful opportunity that is real estate investment.

I just feel that this could be the only way to turn the financial disadvantage of paying for my own education into a great investment tool.

Any advice is greatly appreciated.

[James H.]

Originally posted by Andrew Emery:

Thanks for the advice guys,

2 more quick things- I've heard that 36% is a pretty standard debt to income ratio limit, would you agree?

Also, in terms of loan consolidation, I've heard both yes and no. What would you advise?

Well, there is a front end DTI and a back end. I can't remember which is which, but one is the ratio of the mortgage to your income and the other is all your recurring debt and obligations (such as child support, car payment, not the gas bill). You can go up to about 42% for the total vs income.Depends on if you are doing FHA, Conventional or VA. And there are some mitigating factors. Its easily googled, but you should check with your mortgage officer and get pre-approved.

I vote nay to consolidate SL's. You pay the same interest as it is a weighted average of the combined loans. You might save half a point. But if you leave them separate, you can pay smaller ones off sooner, freeing up your DTI. If you consolidate, the whole enchilada counts against your DTI until it's all paid off.