The much-debated student debt issue

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The much-debated student debt issue

Marc Belisle
Investor · Warwick, RI · Member since 2017 · 40 posts · 6 votes

Hi all, I've been reading a lot of posts going back a couple of years on student debt and REI. There are many opinions and I find that each situation is different based on age, job and where someone is in their life. So I'll throw out my situation to you and see what thoughts you all have.

I'm an RN and make good money and my wife makes very good money. I'm one term from finishing grad school for Nurse Practitioner which will double my income. It comes at a cost of $65K of federal student loans. I have low consumer credit debt. We live in a home with a mortgage and rent our other home. The student loans won't have payments due until early next year. Since healthcare providers can qualify for debt forgiveness if they work in hospitals for 10 years, much of my debt and its interest may never be due.

I am saving $ to place a 20% downpayment on a turnkey home in a much more affordable market than that which can be found in New England. The turnkey should cash flow positive about $200 (conservative) if all works out as planned. I see investing in a cash flow property as using debt to work for me: I earn cash each month that I wouldn't have otherwise and someone pays down my mortgage for me thus building my equity. 

Alternatively, if I pay off student debt extremely aggressively, I will pay debt off in 5 years; HOWEVER I will end up paying a lot of debt and interest that I wouldn't have needed to pay if I paid the minimum monthly payments for 10 years and had the rest forgiven due to working in hospitals. 

When my income greatly increases after graduation it will push my debt to income ratio much lower, yes? What are your thoughts on buying a turnkey soon? It's a very interesting situation.

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  • P.J. Bremner
    Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
    9y

    @Marc Belisle

    I've posted a few times on topics like this before.  As you stated, the best course of action is very much dependent on the person's financial situation, experience, investor savvy, etc.  For you, you obviously know what you're doing already (you can't be a complete idiot and own 2 homes at a young age lol), make good money along with a spouse who makes good money as well and have some experience with a rental property.  You have a plan to acquire a property within the budget you can afford.  It sounds like you have a great plan and I would feel confident it is the best use of your time/money moving forward.

    I can attest to this from personal experience as I was in the same boat as you. I left school with only $25k in debt, but went through the same thought process and decided to invest instead. I'm SO glad I did as that $25k bought my first property (3.5% FHA plus a small rehab) which I make about $2k per month net in cash flow and already have well over $200k in appreciation equity since I've purchased it. It also taught me the business of real estate which is arguably worth many times what the house has brought me financially as I've been able to aggressively expand my holdings since then.

    A couple side notes: 

    • For others who don't have the financial aptitude, income, experience, etc. like Marc, I would take a closer look at the whole situation before jumping into real estate investing and taking on more debt (investment property mortgage is still a debt). For example, because he has high income, he can probably handle a few months of vacancies or major CapEx repairs if they were to pop up early, but someone with a minimum wage job, no savings, student debts, etc. might not be able to handle such situations without going broke and putting yourself further away from real estate investing.
    • You have to look at the opportunity cost of paying off the student loans aggressively as opposed to paying them off in 10 years and having some debt forgiveness. Let's use arbitrary numbers here; student loans of $65k @ 5% interest. Can you invest that same $65k into a rental property and earn a return greater than 5%? If so, investing would net you a positive EV (Expectation Value). Even more so, the longer you hold onto that debt, the less it becomes due to inflation. Often times people see this ONLY FROM THE CONSUMER SIDE, but it also works on the debt side and can work in your favor. If you have a loan payment of $1,000 per month for the next 20 years, isn't it safe to assume that $1,000 in today's money is more costly than $1,000 payment 10 years from now? You will probably be making more money by then due to inflation, so if you were to pay this debt off early, you don't allow inflation to effectively lower your debt service payments. And a final note, if you can get any kind of debt forgiveness on this amount, it is added straight to your bottom line ROI by NOT PAYING IT OFF. If you get $10k forgiven, then you just earned yourself a $10k return on your investment. Money that you no longer have to pay is no different than earning $10k in a deal and sending a $10k check to the loan holder to reduce the debt (assuming you don't have to pay taxes on the amount forgiven?).
    • I love the fact that you are very realistic about your expectations and plan for moving forward.  You're not some kid fresh out of school with big dreams to make $50k profit on your first flip with $0 in your bank account and no practical experience.  I think a lot of people on here can learn so much from someone like you.  You busted your butt in school, got a great paying job, saved up money to buy a few homes, set forth a realistic and pragmatic goal for moving forward and then asked for advice from others to make sure it's legit.  Kudos!
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  • Marc Belisle
    OP
    Investor · Warwick, RI · Member since 2017 · 40 posts · 6 votes
    9y

    I wonder if banks will look at my $65K student debt differently from consumer debt. If I don't pay it off aggressively and only pay the minimum 250$ a month for the whole 10 years until debt forgiveness, it will be a big burden against my debt to income ratio, no? 

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