I have a friend. He is an up-and-coming doctor. This means he has about $160k in student loans. The interest rate is about 6%. In a month or two he is selling his house. From this sale he will have about $90k in cash. He is matching soon and finding out where he will be moving to for his placement or whatever it is called. He will probably be residing in NY, CA, MN, or UT.
The other day he posed a question to his "finance-knowing" friends, myself included, about whether he should:
- (A) pay down $90k in debt immediately, which should save something like $20k to $25k in interest payments, and rent in the new location, OR
- (B) When he moves to his new location, buy a new home with his wife using the $90k as part of the down payment and continue to pay back student loans at 6%.
One friend noted that certain hospitals have loan forgiveness programs and he should wait to see where he matches. Another friend noted that he should be mindful of the looming, albeit slim, possibility of federal loan forgiveness. I responded that it depended on whether he thought the return on his next investment, whether it is a house or not, would generate more than 6%. Of course a home or stocks can go down in value. But my intuition tells me that paying down $90k in one go is a little conservative. At the same time I think that house prices are due for a correction in general over the next 3-4 years so he is probably better off renting for the next 3-4 years whether or not he uses the 90k to pay down the student loans. I am very curious to see if the advice here on money.stackexchange aligns with this thinking or if there are any blind spots and/or more detail in the logic above.
I did see this similar question but it is from 2017 and I am wondering if any of the other variables (med school student, loan forgiveness, etc.) change any of the calculus. I know that this is a bit of a matter of preference but I am very curious if there are some objective "good moves" here that I am not aware of. Thanks!
TL;DR: Two-Part Question
- Should this med school friend buy a home or rent in his new location?
- If no to buying a home, should he take $90k and throw it at student loans (saving $25k in interest), invest the money in something else, or is this entirely a matter of preference?
Updates to Questions
- Yes, it is likely to be for 3-4 years with another move.
- It is 6% fixed rate. I am not sure how bearable the payments are. I'll need to find out.
- Neuro resident. Likely moving in 3-4 yrs.
- Color: I think his wife wants to buy and he wants to rent while paying down med school loans aggressively.