Hi Pete, 

I am currently a student at Butler University, and I remember you coming to speak here last semester. I currently have a quite a predicament, while I don’t have any loans or debt now, I will be attending optometry school in the fall at IU. I will need to pull out upwards of $40,000 a year for four years (HOLY COW). 

Recently my ’99 clunker has been in the shop every three weeks and I’m currently spending more on repairs/maintenance than I would on a new car. Here are a few of the problems I have, while Bloomington has a great bus system, I’ll need transportation to go to clinicals and rotations and also to visit my girlfriend in Indianapolis every few weeks. I’d like my car to last 10 years or until it breaks down. I know I wouldn’t spend more than $20,000 if it were new. Would you recommend a new, used, or leased car? Unfortunately, I won’t be able to get a job due to the rigorous curriculum. Second part of my question, would it be possible or beneficial to use my Grad-Plus Perkins school loan to cover the payments on a vehicle or would I need to pull out a private loan? 

Thanks,
Alex

Alex,

Oh man, I know the point of your email isn’t about student loans, but we need to pause for a second and recognize that you’ll have $160,000 in student loans when you graduate… holy moly!

Alright, on to the real question, should you use your student loans to fund your lifestyle? I prefer student loans be used for education expenses only and not for living expenses, but there are a few situations where this doesn’t work. Optometry school is one of those times. You are going to have to use your student loans to pay rent and buy food while in school.

Here is your main issue: you are going to be without income for four years. This is an expense trap. But you still need a new vehicle so here are few options.

Leasing a car wouldn’t be the worst idea, since it’s a temporary situation. I know what you are thinking, leasing?! A lot of financial experts rail on leasing, but I’m one that happens to believe leasing a vehicle makes sense in certain scenarios, this being one of them. Alex, you have a cash flow problem. That’s what all this boils down to. Leases are less per month, around $99-$199 a month, compared to a $300-$400 car payment. In this situation you are borrowing borrowed money to pay for a vehicle, which is all adding to the lump sum you will owe upon graduation. Assuming a $100 lease and a $300 car payment, over four years you could add $4,800 to your student loan for a leased vehicle, or add $14,400 for a vehicle you are attempting to purchase. 

Or you could take out a private student loan. Use this student loan for living expenses and a car payment. But absolutely do not, for any reason, take out a lump sum from your student loan and pay for a vehicle in cash. Set a strict but doable budget for yourself including rent, car payment, food, etc. Stick to this budget while you are in school. If possible, during breaks, work your ass off to accumulate money to pay off this loan.

If you can get a super low lease payment, it makes sense from a cash flow standpoint. If not, buy a used vehicle for under $15,000 and make sure your payments fit in line with what you can afford to pay from your student loan. Good luck!

Oh, and I also answered your question on The Pete the Planner Radio Show on WIBC this week (I apologize for all the things I said about your girlfriend).

Pete

Pete the Planner®

Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.