$300,000 in student loan debt

41 Replies

Hello from Connecticut!

I have a hate-love relationship with Connecticut. I hate the state because it's WICKED expensive to live in. I love this state because it offers over 300+ bird species that migrate through! Yes, I'm an Audobon die-hard, so hello fellow birders and investors.

Here's why I am here at BP: 

My wife just got accepted to University of Bridgeport's Medical School!!!!!! Awesome, yes, she's going to be a Naturopathic Doctor, she's following her dream and is blazing a trail as she does it and inspiring other's too. But what about all this student loan debt though? AGH!!

We MUST have a solid financial plan in place now, because in four years ALL of her student loans will kick in 6-months after she gets her N.D. degree. All of her student loans. We're looking at over $300,000. We've deferred her undergraduate and graduate degree loans too. They're gonna kick in and they're gonna kick hard I'm afraid.

So while she is at school, we'll get a living loan at $15,000 2x's a year. That's $30,000. Her current job paid her take-home last year at $32,500. So we will be $2,500 short.

We will need more CASH for the next few years.

We will need A LOT MORE CASH IN FOUR YEARS!

Four-Year Plan:

Buy a Duplex that accepts FHA loan (no more than $200,000) in the New haven County because it's close to her school. Gives us 21 towns to look at. After all expenses, collect the $200 cash flow and put it in our savings account. $200 a month, multiplied by 12 months = $2,400

$2,400 multiplied by 4 years = $9,600

We can use the $9,600 to buy another duplex once she graduates and makes income again.

The goal is to use duplex income to pay off all of her student loans.

Our deal analysis is just like how BP teaches:

Cash flow has to be >$200 a unit after ALL expenses and Cash on Cash return has to be >12%

Expenses

-Principal & Interest

-Property Taxes

-PMI

-Home Insurance

-Water/Sewer

-Garbage

-Vacancy 5%-12%

-Repairs & Maintenance 5%-10%

-Capital Expenditures 5%-1-%

-Management fees 0% (I will manage all of our properties now & moving forward)

We are 3 weeks in on the Duplex search in New Haven we are learning QUICK that cash flow and a FHA loan do NOT get along. Very few duplexes accept FHA and when they do, they're out of our $200,000 budget cap.

We are hungry though, so we are hunting hard! We will find that perfect duplex, I just hope it falls from grace in time before her school starts in August. :)

Thanks all,

Elizabeth

@Elizabeth Susan Ademi . Are you accruing interest on the graduate and undergrad loans while she’s in med school? I doubt any duplex income will be near enough to pay this off.

I’d recommend not buying anything because it’ll be more debt. Your total debt will be in excess of 500k..

Purchasing an asset with debt to pay off other debt, especially with 300k in student loans, is very risky. It looks good on paper, but a single unexpected expense will ruin you.

@Elizabeth Susan Ademi Are you buying this to live there?  If you said that I missed it.  That would be the only way buying something makes sense in my opinion.  If you can either cut or drastically reduce your living expenses by living in one of the two units.  Buying a duplex as a straight up investment that cash flows 10k in 4-5 years when you are facing 300k in debt is like asking a towel to keep you dry from a fire hose.  I know you want to keep stacking and buying more duplexes, but I don't think taking on more debt is the answer here.  That 10k can evaporate quickly in 5 years with a few things going wrong.  Is your plan doable??  I mean I guess it is, but I would hope that her future income would be sufficient enough to warrant this debt and pay it off.  That would be plan A in my opinion.  Plan B would be to begin investing once you know that plan A is taken care of.  I wouldn't rely on investing to take care of the debt until you have significantly better financial footing.  Things could go south very quickly.  Best of luck.

@Bob Woelfel  I think I left out the big idea: we will live in the other half of the duplex!!! This isn’t just an investment, this will also be our home. I am analyzing the duplexes as straightup investment properties though, just in case we do have to sell, we can sell quick. Also, if all goes well in time, we can rent out both sides eventually and move on to whatever else we want. 

@Nathan Rude  So whatever business expenses that the rent from the other unit doesn’t cover, we will cover. For example, vacancy fees ($175), maintainence fees ($175) and cap. ex. ($200) fees straight into the business savings account each and every month. $550! So in a year we will have paid to the duplex $6,600. We do have a savings account specifically for three months of holding costs just in case. 

@Caleb Heimsoth So this is what BP calls a house hack. Buy a duplex and rent out the other half. 

Do you still recommend I dont buy a duplex?

Originally posted by @Elizabeth Susan Ademi :

@Bob Woelfel  I think I left out the big idea: we will live in the other half of the duplex!!! This isn’t just an investment, this will also be our home. I am analyzing the duplexes as straightup investment properties though, just in case we do have to sell, we can sell quick. Also, if all goes well in time, we can rent out both sides eventually and move on to whatever else we want. 

@Nathan Rude  So whatever business expenses that the rent from the other unit doesn’t cover, we will cover. For example, vacancy fees ($175), maintainence fees ($175) and cap. ex. ($200) fees straight into the business savings account each and every month. $550! So in a year we will have paid to the duplex $6,600. We do have a savings account specifically for three months of holding costs just in case. 

@Caleb Heimsoth So this is what BP calls a house hack. Buy a duplex and rent out the other half. 

Do you still recommend I dont buy a duplex?

Correct and correct 

@Elizabeth Susan Ademi I think that certainly changes things a little bit...at least it would for me.  I think if you can reduce your living expenses or even potentially eliminate them then this certainly makes a lot more sense.  For those willing to do it I can't think of too many scenarios where a house hack doesn't make sense.  Best of luck.

$300,000 to be a naturopath?  That's crazy.  What kind of income will she generate?  Why not an MD?  She can practice traditional and non-traditional medicine. 

There are much less expensive ways to get a medical degree.  Plus, why would you get a loan for living expenses?  Work more, get a second job.  Whatever it takes to avoid more debt.

@Angela Smith Hi Angela! Thanks for taking the time to respond. My wife already has $80,000 in student loan debt. The addition of $200,000 is an educated guess. We think we may need the $30,000 x 4 years = $120,000 plus, she will go to school for about the same amount = $120,000. The $80,000 plus $240,000 is around $300,000!! She chose N.D. school because it is her passion for life, don't ask me! :D I see what you mean with two jobs. Could cut or remove the additional living-loan completely. Must be true love if I married into this, HAHA! Thanks again for the two-job idea, I was hoping not to but realistically, it seems like a must when I look at these huge numbers.

Hi @Elizabeth Susan Ademi - PayScale says that the average salary for a Nueropathic Doctor is $73,219.  Does that sound right to you?  If so, I would very strongly consider the merit of taking on $300k in debt in order to achieve this level of earning potential and perhaps explore cheaper ways of attaining this education.

Rather than thinking about how you can mitigate a poor financial decision through real estate, I respectfully suggest that perhaps it's better to not make the poor financial decision in the first place.

I know this is not "your" decision, but if your wife shares your interest in real estate, I would encourage her to consider her life choice like a real estate deal.  Let's say your wife takes on the debt and goes on to earn a $75,000 median salary that after taxes nets generously to $60,000 (80%).   Now let's say that your living expenses are $30,000 per year and that the loan expense is $2,000 per month (My $30k student loan is $200/mo, so just a guess here).  That means your total expenses per year are $54,000.  Your net income is $6,000.  Is it really worth taking on $300k of long term debt to net $6k of active income?  I'm making a lot of assumptions here, but hopefully the basic point comes through that these numbers just don't add up if indeed there is just a $75,000 average salary to look forward to.

Trust me, I know all about following your dream, but I also know about becoming a slave to a dream that eventually becomes a nightmare.  I think you should both take a deep breath, read Rich Dad, Poor Dad, and think this one though very carefully.

She has $80K in student loans and you are estimating another $30K/yr for 4 years.  How did the new loan go from $120K ($30Kx4) to $240K?  Is half of that for living expenses and the other half for tuition?

You mentioned her income, but not yours. How much do you make a year? What do you have for savings? If you aren't working, it will be hard to get a mortgage especially if your household has no income.

@Mike Roy Thanks for your response!!

Yeah, that Naturopathic Doctor salary sounds about right but we can go higher than that eventually ;) So to reconsider her dream-job would destroy her. We are determined to make this work! To mitigate a "poor financial" decision and to "become a slave to a dream-turned-nightmare" sounds like a really depressed and pessimistic approach.

 I'm interested Mike, what is your story with becoming a slave to debt?!

I think we are capable of living below our means for however long it takes to pay off the debt. We're open to sacrifices and limitations. Luckily for us our hobbies are free: hiking and birding! Also, we both have supportive, understanding and loving families.

@Theresa Harris So these are ROUGH estimates of the new loans. My wife has a friend who is graduating from University of Bridgeport with the N.D. degree and she is the one who gave us these numbers: $120,000 for the actual degree and $120,000 for the LIVING EXPENSES. $240,000 in total.

My take home last year was about $28,000. Current savings is $13,000. This savings we want to use for our house-hacking duplex. $9,000 for the down-payment and closing costs on a FHA loan and property no more than $200,000 and the $4,000 in holding costs in case the duplex craps out on us or vacancy becomes an issue.

@Elizabeth Susan Ademi That's a ton of debt. Can't say I'd recommend buying more stuff and hoping to pay it that way. How much will her job pay after she graduates? I didn't catch what you did for a living? If her job will not make her some significant coin after she graduates then she should stop now and find a career path that will support you guys.

I recommend you have a serious discussion about her "dream".  The pursuit of this dream (at $300k of debt) may destroy your relationship.  Financial troubles are a major cause of divorce.  When the bills come due and you can't keep up with them, there will be bitterness.  Also, there's more ways to live out this dream.  Neither of you have high paying jobs that would keep you where you are.  Why not look at other schooling options that can be afforded.  I guarantee, the university is not so much interested in her success at they are in her tuition payments. 

Reality and truth hurt a lot. Many have already spoken up about it but at less than 100k combined income after she graduates with that much debt is going to kill you guys. a duplex in an expensive area is not going to help as you're mostly going to bank on appreciation than cashflow. Can she turn Naturopathic medicine into more of a hobby or side business than a practice? She can at least still enjoy the benefits and promote it to others without that crippling debt

I agree with @Angela Smith . It's not an easy pill to swallow but sometimes it's necessary. There are million things that will happen in the next 4 yrs, some good , some bad, so it's risky to assume those numbers go as planned. Taking on that much debt without working a job (at least part-time) is insane. 

@Matt P.

What is a better scenario in your opinion: Continue to pay rent at 830+ a month OR buy a duplex, pay $500 to $600 to our own duplex's business savings account each month. After utilities, we are breaking even or in the minus a bit.

Regardless, we are paying $$ out. We'd like to pay $$ out to something that will support us through our life instead of just helping my landlord pay their mortgage. You know what I mean? But please, I opened this conversation so I can get different perspectives!

@Elizabeth Susan Ademi If I were you I would somehow convince my wife to just get a bachelor's and then get a job to start earning. If I was you in this scenario I would be trying as hard as I could to maximize my earnings. Maybe that's a different job and maybe that is working 2 jobs idk. I agree with you that it would be smart for you to buy something instead of paying rent every month, where I disagree is going several hundred thousand in debt to "chase my dreams". If you guys both had decent jobs you could potentially house hack a new duplex/tri/quad every year. That's a fairly tried and tested way to getting a small portfolio of rentals in a few years. Your head is in the right spot, just don't let your wife get a 300k degree to be a bird doctor or whatever it is lol. This is all just my opinion of course. Good luck.

Hi @Elizabeth Susan Ademi - I've never been a slave to debt, but I do know about chasing your dream job, attaining it, and coming to the realization that it's still a soul-sucking job like any other.  I thought I had my dream job when I worked for a professional baseball team, and I sacrificed a lot of time and lost income to reach that goal.  At the end, I was earning six figures working in the game I always loved but I had become so burned out to get there that I ultimately resented it and quit.

I'm not trying to be pessimistic. I'm all about chasing your dreams and pursuing meaningful work. I think most of us here invest in real estate so we have the freedom to do this. However, I have learned the hard way that it's far easier to follow your dreams and have a positive impact on the world when your net worth is on the plus side.

Mike

@Elizabeth Susan Ademi   I tend to agree with the others.  While I did say that most often it does make sense to house hack, I was also surprised at the salary quoted for this type of medicine.  What you are seeing from the other posters is the conversation shifting to a place where most people don't think this makes sense and most aren't even talking about the house hack.  This website and forum is filled with people that are for the most part more educated about finances then the general population and I think you should take a serious look at the responses.  
 

Going after your dreams is important, but at a financial cost so great that it could indeed affect your relationship in the future.  When I see a number like 300k for a 75k salary I almost fell out of my chair.  Now I realize that not all of that 300k is student loan debt, but the reality is that's the debt you will accrue to get the 75k salary.  I really can't think of any scenario where that makes sense.  Only you can decide where you go from here and I honestly do not envy your position.  For the incomes you both will have this debt will be a rope around your neck.  I sincerely wish you the best of luck.

@Mike Roy ...same thing for me.  I worked in professional baseball for 14 years.  Progressed to a point where I had my 6 figure dream job, made a lot of memories and got to do a ton of cool stuff.  At the end of the day though it was still a sales job working for someone else.  My summers were 1/2 gone before they started because of schedule commitments and you miss a ton of nights putting your kids to bed.  The coolness of being at the stadium on game day and all of those experiences only last so long when you have people at home that miss you and need you.  I left two years ago and other than the people and my friendships there are very few things that I miss about it.  In my 20's I thought I would do it forever.  Things changed in my 30's.  I'm just thankful I didn't rack up a bunch of student loan debt to get there.

If I was determined to follow my expensive dream like this (maybe think of it in terms of wanting to buy an expensive luxury item like a boat or a car) then I would put off acquiring it until I have built a better base of income and savings. Maybe delay the education a couple of years and buy that duplex anyway... then maybe a second and a third. 

With $300k of student debt hanging over your head simply qualifying to buy additional investment properties will be extremely difficult cause your debt ratios will be totally blown out. 

Hard dose of reality coming in 3...2...1....

Taking out $200k (just the tuition cost, mind you) to attain a ND degree is borderline insanity. If this is her one and only path to happiness (which I would highly question, unless she has spent considerable time shadowing NDs, spending time in clinics volunteering, has experience in that vein, etc...), then it is necessary for her to realize this dream is not possible right now. 

Put more directly: you two cannot afford that level of debt at this time. Trying to invest in real estate right now would further compound this (IMHO very bad) decision.

Why not... have you and her both save up like crazy for the next 5 years, and once you have more of a cushion, she can revisit the NP route?  If you and she elect to send her to school now, you will literally be paying her student loans for the next 20 years.

@Elizabeth Susan Ademi . Wow I read some more of this thread and I’m amazed.

You’re borrowing 120k just to live plus the cost of tuition? To make 75k a year???

You’ll never get ahead of that debt. I am glad you love your wife, but you both need to sit down and think about this. This is not a wise decision. You can’t get away from student debt. This will financially ruin you, and you won’t qualify for that duplex loan, just FYI.

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