Graduate early or be in more debt?

Parents Forum
1

<p>Hi Parents,</p>

<p>I am currently a junior at Rice, where I am part of the Rice/Baylor 8-year combined medical program. I am trying to decide whether or not to graduate a semester early. Here’s the situation:</p>

<p>When I return from study abroad at the end of the semester I will need to take 4 more sociology classes, 1 humanities class, and 2 upper-level classes. This is a total of 7 classes, or about a semester and a half worth of classes (most people take about 5 per semester).</p>

<p>The main reason to graduate early is financial. In order to become a Texas resident (to qualify for instate medical school tuition and because I plan to stay in Texas for the forseeable future), I will be buying a condo sometime this spring. The down payment will be 20% so that I can get the mortgage in my name. This will likely be about $20,000. I currently have about $10,000 in savings, and my parents will be contributing another $10,000 towards the down payment/tuition. As you can probably see, this means that I have basically zero dollars left to pay for school/mortgage after considering the down payment.</p>

<p>If I graduate early, I will need to pay for 2 more semesters of school tuition, and one semester of room and board (fall of my senior year I’ll be living in the condo), plus the mortgage payments.</p>

<p>If I stay for the last semester, I’ll need to pay 3 semesters of tuition, and one semester of room and board. The only difference is the tuition, because I’ll be paying the same room and board/mortgage payments whether I graduate early or not. One semester of tuition currently costs $11515, but I expect this will go up about 6% for the next year, which would make it about $12,200. However, I would recieve $5000 in merit scholarships that I forfit by graduating early, so the tuition difference is only $7200.</p>

<p>Other differences that need to be taken into account include:
If I leave school early, I lose my parents health insurance. I’m not sure how much 6 months of coverage (time between college and starting med school) would cost, but I don’t want to go without insurance for that time.</p>

<p>If I graduate early, I would be working for the 6-7 months between college and med school. I would hope to earn maybe $5000-7000 during this time. I don’t know how realistic that is, or if I could do better.</p>

<p>So, if I estimate 6 months of insurance coverage at (i have no idea here) $2500 and can earn $6300, while saving $7200 in tuition, I come out ahead by $11,000 by graduating early.</p>

<p>However, I will graduate from Rice, even if I graduate early, with debt equal to two semester’s worth of tuition, one semester’s worth of room and board, an approximatly 80,000 mortgage, and a semesters worth of mortgage/tax/maintenance fee payments. This is something like $25,000 + the $80,000 mortgage. And then medical school is pretty expensive - at current rates, the estimated student budget adds up to $137,000 over four years. It’s likely to increase as well. So all in all, I’m going to probably be somewhere around $200,000 in debt (plus the mortgage! <em>faints</em>) when all is said and done.</p>

<p>So is saving $11,000 worth it? I know it’s a lot of money, but when I look at my finances (or lack there of!) I feel like it’s just a drop in the bucket!</p>

<p>I have really taken advantage of what Rice has to offer, though (research, study abroad in 3 countries, classes in about 15 departments, etc.). I know there is something to be said for really taking your time through the college years and study a lot of electives, but is it worth $11,000 to take painting and asian history for a semester?</p>

<p>Thanks for reading this long winded post! I’d appreciate and advice/thoughts/suggestions/encouragement.</p>

2

<p>If I read this correctly, if you graduate a semester early, you will have to take all seven remaining classes in one semester, when most people take only five, so that is going to make for a difficult schedule. </p>

<p>You have not yet selected the real estate, so, you are going to need some time to look at property, make a choice, go through the mortgage approval process, close on the property, move in, establish utilities, etc. This is going to take some time.</p>

<p>I think the decision is somewhere in here: can you take seven classes in one semester with little compromise to quality of work, grades, sleep, etc.? And can you find a condo, and close on it and move in, in that same time period?</p>

<p>If you can do both of those things easily enough, then, it seems that graduating early is the best option. Health insurance is easy enough to get and relatively inexpensive assuming no pre-existing conditions or issues like cigarette smoking (I’m guessing you don’t smoke!!!). </p>

<p>If you work during the semester off, you will be able to earn about $10,000 after taxes, and probably more, if your primary goal is to make money and you focus on finding some employment for the most money against the least time.</p>

<p>I would make finding the condo your first priority, since a home search can contain some surprises in terms of money, and time investment. Once you can resolve housing, it will be easier to assess the rest of the equation. </p>

<p>(BTW things like mortgages and school loans are generally viewed as “positive” debt, compared to things like car loans, credit cards, etc.) </p>

<p>If possible, you need to try to calculate is how any combinations of your decision options will impact your income tax return, or your parents. Net income after taxes will change that $11,000 figure, and things like tuition, mortgage interest, etc. are tax deductable (actually tuition depends on some other factors). Example - if your parents are claiming you as a dependent now, but will not be able to if you graduate early, AND if you do not find a house to purchase in a relatively short period of time and therefore no one gets the related tax deduction, that assumed $11,000 could erode very quickly.</p>

3

<p>Ooh, sorry. To be clear, I would need to take 7 classes over 2 semesters if I graduate early, and would take them over 3 semesters if I stayed. Obviously I’d take electives to fill in my schedule either way.</p>

<p>But, other than that, the advice is helpful. Thanks!</p>

4

<p>A high deductible, major medical only policy, assuming you don’t smoke and are willing to pay for things like prescriptions out of pocket, shouldn’t be more than $50/month, give or take (I don’t know about Texas). That will insure you for catastrophic illness or an accident, which presumably is what you’re worried about.</p>

<p>I don’t get the condo purchase, frankly. Home ownership usually costs more than people think; there’s no landlord to fix the dishwasher or replace the airconditioner (you’re the landlord and you’ll be paying out of pocket every time there’s a repair… a believe me, ask anyone with a washing machine or a kitchen sink how often they need a repair). The alternative is to become handy with a wrench yourself, which doesn’t sound terribly feasible for a soon-to-be med student. There are lots of other things to consider-- what if the real estate market is down when you’re done with med school and you need to sell at a loss to take your dream residency in California or Boston? what if you can’t rent it out due to a housing glut in your area? Can you afford to carry an empty place for a while if it takes a long time to sell? Do you want the responsiblity of home ownership in addition to everything else? </p>

<p>Can’t you establish residency in another less costly, less risky way?</p>

5

<p>I don’t see why it is necessary to purhcase a condo to establish residency. Aren’t renters also residents? Are all TX residents homeowners?</p>

6

<p>There may be other ways to establish residency. Purchasing a condo is the one that most out of state Rice/Baylor students do. </p>

<p>I think it might also be possible to take a year off, live and work in TX without going to school, and then go to med school. Of course, I could probably make some money doing this, and it is really a valid option that I should reconsider. </p>

<p>There are some disadvantages to doing this as well - I would be paying rent in Texas for 5.5 years, and have nothing to show for it at the end (ie. a condo I could sell). And med school tuition is likely to rise during the year I was off. Plus it will make me older when I graduate - something to consider since I probably wouldn’t want to have kids until I was reasonably settled (ie. not the first year or two of a crazy residency!)</p>

<p>Granted, I am inexperienced with such matters (which is why I’m looking for advice!), but one thing that is really nice about condos is that I think I wouldn’t need to deal with too many of the maintenance issues (seems like you pay a monthly fee and then you just call one centralized number for all maintenance issues, like you would call your landlord if you were renting).</p>

<p>There are obvious risks to homeownership - especially when it comes to selling the condo later. One good thing is that Texas doesn’t seem to be in much of a housing bubble and the population is increasing pretty fast. Also, the Texas Medical Center and provides a tremendous employment base for the area.</p>

<p>And Blossom - $50/per month! Who knew? Well, clearly, you did. But I certainly didn’t.</p>

7

<p>Jenskate, careful, there. The maintenance you’re talking about is actually a Homeowner’s Association (HOA for short); they typically only deal with external, common areas, such as landscaping, etc., and you’re still responsible for the broken faucets and other issues Blossom references. But what can be really ominous is that they’re typically run by volunteer boards, and there are very tight restrictions re what you can and cannot do with your property - get on the wrong side of them and there can be serious problems. </p>

<p>If you do decide to buy real estate, and it’s in a deed restricted community governed by a HOA, make sure you read the deed restrictions carefully, and if possible, check out their reputation before you buy. (Some of them can be excellent - but that can change at the next annual election.)</p>

8

<p>Jenskate: are you sure that you will be considered for instate tuition by buying a condo? It sounds like you have looked into it - but I’ve heard that some states are leary of students claiming residency for tuition purposes…</p>

9

<p>Condos are likely to devalue in price during the real estate lull/decline/bust (whatever it turns out to be). If you feel you must buy one as the best way to establish residency, then realize you may not make any money on it - may even lose money, depending on the market conditions at the time you sell.</p>

<p>It would cushion the blow if you were able to afford a two-bedroom and rent a room to another student - that can be a hassle but would help with your payments. I do echo the other posters who are implying “Be careful!”</p>

10

<p>The condo/no condo is an interesting debate, and one which I have considered in-depth and plan on reconsidering before I move forward. I really appreciate all the advice given here, and will certainly take it all into consideration before deciding what to do.</p>

<p>But, no one has really addressed my original question - should I graduate early and miss out on some of the college experience, or should I take on more debt and stay for the extra semester?</p>

11

<p>Jenskate, that’s hard to answer without seeing the complete financial impact, including the tax implications, and acceleration of financial obligations post-graduation (loans, insurance, etc.).</p>

<p>I would recommend working out the numbers for both scenarios, using the fullest possible range of information, including assuming having a job for that third semester, and see what is the true calculated difference. </p>

<p>On surface, it seems as if you should go ahead and graduate early - you don’t sound as if you feel much like taking extra classes that aren’t needed or even very interesting, just to fill the credit hours. Your post sort of comes across as if you’re “ready” to be finished with undergrad, and move on to bigger things.</p>

12

<p>If you can maintain your social connections at Rice while you start working and getting ready for med school - why not graduate early? But do what feels right to you. In the long run, it is not a huge sum of money… And can you still “walk” with your class at graduation, even if you technically graduate early? It’d be a pity to miss out on the official hoopla! ;)</p>