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[Editor’s Note: This guest post grew out of an email interaction I had with a regular reader who is a member of a two physician couple. I was surprised to hear that while she had zero debt, he had a rather large amount of debt and thought it would be an interesting story to juxtapose the two. He has elected to remain anonymous. We have no financial relationship.]

It’s no secret that it is expensive to become a doctor in this day and age. The AAMC reported in October 2014 that the average medical school debt for a physician was $176,348 [The DO figure is higher by about $30K-ed.] I have seen the number hover around that figure since I started medical school and always thought that had to be underestimated. Until I met my fianceé.

Background

I met my fiancé during the first month of our internship in Columbus, OH. She was originally OB/GYN (now about to finish as an FP) and I, Ophthalmology. Sixteen short months later we were engaged with a wedding date in June of 2015, the last month of our residencies.

I don’t remember the exact date, but I do remember vividly the first time our debts came up in conversation. She asked for my opinion on whether she should take a large chunk of her savings and pay off the rest of her medical school debt (around 9K) or keep it for an emergency. After discussing this topic she finally asked the dreaded question. “How much debt do you still have?” I paused before telling her…”about $400K.” The look on her face was priceless, but I couldn’t laugh because I imagine I make the same face every time I look at the rapidly rising outstanding interest on my loan statements.

How did this happen? How did two physicians with similar educational backgrounds end up with such a significant difference in educational debt?

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Debt Free at Graduation

My fiancé grew up with one sibling, her father was an ophthalmologist in a medium-sized town and her mother was a nurse that stopped working once she was born. When it was time for her to go to college she was handed the reins, by her father, to a very sizable account in her name at a well-known mutual fund company.

With this account she was able to attend a small, private, liberal arts college (with a few nominal scholarships) and private osteopathic medical school and graduate with just over $20K in debt. At the time of graduating medical school, she still had enough funds to pay off her remaining debt, but the interest she was receiving on her funds was higher than the interest rate on her loans. Once this reversed in our second year of GME training she simply made a phone call to her fund manager and “poof,” debt free.

To be fair, my fiancé is incredible with money. She constantly reads finance books and has been very hands-on with her portfolio since she was made responsible for it. At the time she started college there was not enough money in the account to pay for all of her education, but through her interest in investing, she made enough to eventually pay it all off.

Then There Is Me

I grew up in a small town with five other siblings. My father was an engineer and my mother obviously had her hands full at home. Since I was twelve I knew that I wanted to be an ophthalmologist (that’s another story how I made that decision so early) with no understanding of what this would entail. When it was time to go to college my father informed me to try and make a good “cost-effective” decision as he was unable to help me out in any significant way, as I would be his fourth child enrolled at the same time.

Despite that request I chose a private school in Philadelphia that cost about $37K a year total with a $7K annual baseball scholarship. I even graduated a year early, thanks to getting accepted to a 7 year BS/DO program with the nearby osteopathic college. To pay for college I had to take out private loans, as I only qualified for the minimum “Federal Aid” loans due to my father’s salary. Even though he had six children and made less than $100K a year, he was informed that he should be contributing roughly $20K a year to my college costs, based on his FASFA information, which wasn’t going to happen. I was also turned down by over 25 scholarships I applied for as I did not demonstrate “sufficient financial need.” All said and done, I finished college in 3 years with about $90K in overall debt.

Medical school was the same story as far as scholarships and financial aid. I had to cover the entire cost of tuition, and all living expenses, with primarily federal graduate loans. This added up to an additional $240K in debt over the 4 years. The interest rates on these loans the federal government was kind enough to provide me run between 6.8-8%, which is currently 3.3-4.5% higher than my private school loans through a bank. Graduating debt: $330K.

The Residency Years

Through residency I have been on IBR for my federal loans and forbearance on my private loans. My IBR payment has gone from $0 as an intern to $417 my final year. During my first year of residency I made an effort to put extra money into my loans, but soon felt like this was the proverbial “peeing in the wind” and stopped doing so. My annual interest on my cumulative loans has been $23K-$26K a year over my 4 years of internship/residency. I will graduate at the end of June this year with a total of about $430K in educational debt.

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The Game Plan

Since that day of discovery for my fiancé, we have had many conversations on how we plan to tackle such an overwhelming amount of debt. [I actually find it amazing that this post is written by him, not her. That just shows how good she really is.-ed] However, it was difficult to formulate a plan until we found jobs and knew what our salaries would be like. When we began job hunting I was nervous about joining a private practice (especially in urban areas with high cost of living) that was offering starting salaries in the low $100K’s. While I know the income potential down the road was sure to be significantly higher, I was concerned we would end up making minimal payments for a few years and just keep allowing high amounts of interest to accrue.

Luckily for us, we both found jobs with the same multi-disciplinary practice in a town of 45,000 people. As a starting ophthalmologist, I am guaranteed $350K my first year and my fiancé will be making $200K guaranteed as a starting family practitioner. This also comes with a $30K signing bonus for us combined.

So, with $550K in combined salary, I used a “take home pay” calculator at www.ADP.com to estimate that our “take home pay” will be roughly $340K. With that, here is our game plan for Year 1:

  • $60K towards housing – We have decided to “delay gratification” and not buy a house right off the bat. Instead, we will rent for $800-$1500 a month, totaling $9600-$18000 for the year. The remaining $42K-$50K will be put aside for a house, along with our, roughly $20K after taxes, signing bonus.
  • $80K towards retirement savings – I have no retirement saving thus far and feel guilty for it. My fiancé has started, thanks to a 403B at the hospital, but it is still small.
  • $100K towards my loans – I have made my own spreadsheet in Excel that includes an amortization table for all of my debt. I predict that if we stick to paying $8333.33 a month towards my loans, we will have them paid off in October of 2020!

This game plan would leave us with $100K for living expenses, a new (used) car for my fiancé, and an emergency fund with the idea that any additional goes into my loans. Our ultimate goal is to pay off my loans in exactly 5 years (August 2015 to August 2020). This is actually quite doable, without even increasing our planned monthly payment, considering my amortization table does not take into account my weighted interest rate, which will decrease significantly as we pay off my higher interest accounts first, or consolidate once I start working. (Note: I haven’t consolidated my loans because there is no way I could afford the monthly payment that you must begin to pay immediately.)

While this may seem overly aggressive, my fiancé and I both hate debt, and having this goal will help keep us from getting lazy and saying “oh, we can just decrease the loan payment this month to help us buy this/that, we will pay off those loans eventually.”

[Editor’s Note: I think the plan is great, and I’m excited to see such a well-thought out plan. However, given the average interest rate of over 7%, I would like the plan better if it included a refinance down to 2%ish variable or 4%ish fixed. I won’t be surprised at all to see this debt gone in 3 years rather than 5.]

Sofi

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Conclusion

Needless to say, my debt seems much less daunting to us now that we know what our salaries will be. However, I do feel for the individuals who may have had to take the same financial path as I did to get through their education and chose a field that doesn’t offer high starting salaries, or a spouse that doesn’t bring in a substantial income. My minimum payment will be around $3500 ($42K annually) once all loans are out of forbearance and my IBR wears off. One of my job prospects was offering $130K starting, which I estimate came to $95K take home. If I took that job, and my fiancé pulled a runaway bride, my loan payment would be 44% of my income! I would likely have to go back on IBR, allowing the government to just gobble up more interest over time, as my salary would eventually rise and I would never qualify for the loan forgiveness in the long run.

I may have made some mistakes along the way, but I think there should be some real concern if an individual can finish undergrad and medical school in 7 years straight out of high school and be $330K in debt. If you would have shown me that number before I started college, I am not sure if I would be where I am today.

What do you think? Will you have more debt than this when you finish residency? What is your plan for getting rid of it? Have you paid off this much debt? How long did it take? What encouragement can you give this couple? Comment below!