Should doctors worry about medical school debt?

There is a wide range of debt among medical school graduates.  Family situation, school selection, and geographical location are some of the more common variables that impact the ultimate cost of “M.D.” (or D.O.) after your name.  How quickly one eliminates the debt subsequently depends on I/O’s–your earning firepower subtracted by expenditures.  There are quite a number of financially efficient doctors who opt for lower cost schools in low cost of living areas who end up choosing highly compensated specialties with very short training periods (read: emergency medicine) who emerge from their decade of school rocking enviable salaries.  These groups will be able to repay their loans without much difficulty.

The rest of us without the financial foresight and fortune will fare differently.  Most of us likely made our career decisions mostly by choosing what interested us.  Frankly, that is how we should decide to choose our careers anyway, but unfortunately money doesn’t necessarily follow passion.  If any of you graduated from a medical school with annual fees of $70,000 and are now $300,000 in the hole with a family medicine degree, you are at a financial disadvantage from your peers.

You might also like: How I paid off $148,260 in student loan debt my first year in practice

The average medical school graduate in 2018 will finish with roughly $200,000 in debt.  This essentially amounts to a first mortgage, or a second mortgage if you got suckered into buying a home during medical school or residency.  No matter how you spin it, that is a hefty chunk of change when the investment in your medical knowledge needs to be converted into practical financial firepower.

Basic strategies to repay student loan debt

There are plenty of resources from financially savvy graduates to optimize your student loan debt. Consolidating your high interest loans into a lower one is helpful.  Making sure you are repaying the highest interest loans first is another fundamental principle. Those who are creative can also create a system for public student loan forgiveness (PSLF) while working for governmental type positions.

The premise with PSLF is that you have to be employed by qualified employers while making minimum repayments for a total of 120 months, or a decade. Some doctors have clearly made use of this program, but ten years is gamble to have your loans forgiven.  The ideal scenario for PSLF borrowers include:

  • Extended training schedule such as neurosurgery (7-10 years) or advanced cardiology (7-8 years) where you are in residency or fellowship with “low” pay. Make sure you match into a qualifying program first.
  • Family with dependents but non-working spouse so that expense burden is high but income is low.
  • All loans have to qualify for PSLF.
  • High debt burden.  Like $500,000 in debt.
  • This is a close second to the real thing, but is it really a justifiable purchase?

In these situations, doctors could find a means to stay on faculty for several years after training to complete the PSLF process.  There is a calculator on the governmental student loans website to estimate the amount that you’d save.

Why PSLF isn’t for everyone

There are quite a few contingencies that make PSLF a viable option. If you fall under the ideal demographic, go for it.  You deserve all that you have worked hard for. Unfortunately, most doctors don’t.

The biggest issues with this program is that you are tied to working for certain hospital systems that receive certain funding from the government.  It’s great if you plan on working there anyway, but there is a good chance that there are more lucrative options elsewhere. Sometimes it’s not possible to predict what’s going to happen nine years down the road.

Even with debt burden, you might be saving less than you’d think with PSLF. Maybe 30-40% of your loans will get forgiven. This might amount to $100,000 out of a $300,000 loan over the course of ten years. It sure feels great beating the system, but $100,000 in ten years amounts to roughly $833 a month.  Compare that to repayment the old-fashioned way with aggressive repayment, the difference would be even less when you are limiting interest growth.

Why student loans are only a bump in the road for doctors

Fortunately doctors have good financial firepower.  All of us ought to be able to repay our loans relatively quickly with the appropriate discipline.  You might have to extend your delayed gratification briefly but it will pay off.

Suppose that Doctor A finishes with $200,000 in student loan debt, but he is starting his new job that pays $200,000.  Assuming a very generous buffer that the first $100,000 of that income will go towards taxes and tax-deferred retirement savings, he will still have $100,000 to live from.  Not long ago, Doctor A only had maybe $40,000 of living income from his $60,000 residency salary. If he continued with living expenditures of $40,000 annually, he’d still have $60,000 of that post-tax attending income to put towards loans.  At this rate, he’d be student loan free a little more than three years out of training!

Some of us will earn less but also have less debt.  The converse could be true.  Most doctors ought to be able to repay their student loans within the first five years into medical practice regardless of their income.  It all depends on how motivated you are in eliminating this debt.  Five years of controlled financial prudence is a small price to pay for what could amount to a thirty year medical career.

We should all pay attention to our medical school debt, but don’t let it consume your life.

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