By Dr. Jim Dahle, WCI Founder
A surprisingly high number of doctors ENTER medical school with a large amount of student loan debt. One recent question on the WCI Forum illustrates the point well:
“I am a rising second-year medical student. I am one of five children, and we are all within six years of each other. Long story short, this meant that my parents have had a lot to pay for in similar timelines, and the blunt truth is that my undergraduate education was fully paid by loans and financial aid. My parents (who are the best people in my life) have intentions to help pay things back down the road, but that’s not something I hope or plan to fall back on despite their best intentions. I graduated college in 2021 and took out $180,000 for tuition that has now accrued to $200,000, which pains me to write down and continues to terrify me. I came straight to medical school and am now taking on another $320,000, which will obviously accrue, too. I became truly aware of this financial fate in my sophomore year of college, and I have definitely had moments of panic and crisis when I think about how much that is. However, I’ve always known in my heart that I wanted to be a physician, and nothing could change that.
I’m a very frugal person and I know the value of a dollar very well. I can stretch a dollar to its max, and I don’t buy myself any luxuries besides some drinks with friends on the weekends. I’ve had a lot of fun in my life, but I’d like to think I’m smart with the personal money that I do manage. I’ve worked labor jobs on any break I’ve had to make cash and pay for my expenses. My friends all know me as cheap, and I’m very much OK with that. I say this so it's clear that I’m capable of living my net worth and that I will do whatever it takes to get rid of this debt as fast as humanly possible. I’ve read The White Coat Investor and have a basic understanding of how a doctor’s debt works and how to climb out of it, but obviously I’m going to have a lot more than most. I can and will live ‘below my means.' I live and have lived my life knowing that everything will be OK and that my loans will eventually be paid off. I try not to let the looming debt worry me too much, but there are definitely times when the weight of it feels extremely daunting.”
Dealing with Above Average Student Loan Debt
Most of us are aware of the average debt loads for medical and dental school students. On average, indebted professional students finish school with $200,000-$300,000 in professional school educational debt—less for MDs and more for DOs, dentists, and Caribbean grads, in that order. However, there is a huge range around the average. It goes from as little as $0 in debt to as much as seven figures for people who come out of an unpaid dental subspecialty residency and then let it ride for a few years.
In addition, hardly anybody ever seems to talk about the additional burden from undergraduate debt. But the graduation questionnaire given to MD and DO students asks this question. The 2021 AAMC Questionnaire reports that 69% of students had no undergraduate debt. Another 13% had less than $25,000, and 8% had $25,000-$50,000. That leaves 10% of medical students with more than $50,000 in premedical student loans. However, less than 2% have more than $200,000 in premedical debt. The DO survey is somewhat similar, although a much higher percentage of students there have med school debt (91% vs. 70%). Meanwhile, 47% owe for undergraduate (the mean is $51,000, the median is $30,000), 15% for post-bacs (mean is $51,000, median is $40,000), 4% owe money to family (mean is $113,000, median is $83,000), and 33% have non-educational debt (mean is $30,000, median is $15,000).
More information here:
You Can’t Wish Your Student Loan Debt Away
Getting Judgey on Undergraduate Student Loan Debt
Before we get too far into what this and similar students should do with all this debt, I'm going to rant for a minute. Tuition at our alma mater 25 years ago was something like $4,000 a year. I don't really know exactly what it was since, like many people who are good enough students to get into medical school, I was there on an academic scholarship. I almost worked my way through without any debt. Our daughter is also attending that school. Tuition is still under $6,000, and I suspect she'll mostly work her way through, as well.
State schools in our home state charge between $5,000-$9,000 per year in tuition. So, you can imagine that my compassion for people who borrow $200,000 for an undergraduate education is somewhat limited. I do recognize that Utah is nowhere near the national average, even for state school tuition levels. I also recognize that some people need something from their undergraduate education that they cannot get at a state or an inexpensive private school. Perhaps there are people who would get into medical school after going somewhere spendy but would not after attending State U. Plus, there's the fact that a lot of people just don't know that it is smart to consider value when choosing a school, rather than vague things like reputation or nonsensical things like a pretty campus and cool fraternities. Maybe they're the first person in their family to go to college.
High school counselors too often just tell people to go where they want and to study what they love, but those counselors won't be paying the bills for the next 30 years. At any rate, I think it's one thing to attend an undergraduate institution that costs $50,000 a year and something entirely different to BORROW MONEY to attend that institution. If you can afford it and that's what you want to spend your money on, knock yourself out. But to borrow $200,000 to get an education that can be had for one-fourth of that is foolish. High school students: don't do that. Parents, if you love your children: don't let them do that.
But that's water under the bridge for this and similar students, so let's not dwell on it any longer.
Penny Wise and Pound Foolish
Before we finish ranting, though, we should probably also rant a little bit about frugality. I actually run into this a lot where people are frugal with the little things but not the big things. Often it's a car or a house, but in this case, it was an undergraduate education. We've all heard the analogy about putting rocks, pebbles, sand, and water into a jar. If you put the big rocks in first, you can then put in the pebbles and then the sand and finally the water and it all fits. But if you put in all the other stuff first, the big rocks won't fit. It's a fun analogy about the importance of priorities, but with respect to personal finance, the big rocks are the big expenses. You know, like an undergraduate education, house, and car. If you get those right, you can screw up all the little things and still be fine. But there is no amount of frugality you can employ at the bar on weekends during college that can make up for a $50,000 tuition bill.
More information here:
From Fourth Year to the Real World: An $80,000 Wedding Causes a Downward Spiral
The Good News on Your Ability to Pay Off Student Loans
Now for the good news. While this student will likely leave medical school owing over half a million dollars—and that debt may very well approach three-quarters of a million dollars by the time the student finishes training—this is actually not a financial disaster. Why not? Because when the student finishes training, the student will be a practicing doctor who will command a physician income ranging from $150,000-$800,000. While I hope the student doesn't end up with a $150,000 job, you can actually take care of $750,000 of debt without too much trouble if you can make $300,000-$400,000 per year. Plenty of doctors do that, especially in combination with a spouse.
More information here:
What Are the Best Majors to Get into Medical School?
Cheapest Medical Schools in the US
Live Like a Resident
In case anyone is not familiar with the math, this is how it works. The secret to paying off massive student loans on a doctor's income is to live like a resident for 2-5 years after residency. The more massive the debt, the longer the live-like-a-resident period. After that period is complete, you can grow into your income a bit more, always saving 20% for retirement and investing it intelligently.
If residents make $60,000 a year these days, perhaps they spend $50,000. If they can earn $350,000 but still only spend $50,000 on their living expenses (along with perhaps $100,000 on taxes), that leaves $200,000 a year with which to build wealth. Most people divide this up into paying off student loans, paying off other debts, investing for retirement, building an emergency fund, and saving up a down payment for a dream house. But if you owe $750,000 in student loans, most of it is going to go there. If you dedicate $200,000 a year to paying off a $750,000, 5% student loan, you'll have it paid off in a little over four years. Note that is still within the range of the live-like-a-resident period of 2-5 years.
Public Service Loan Forgiveness
However, that isn't actually the route I would take if I owed $750,000 in student loans. I'd find a job that qualified for Public Service Loan Forgiveness (PSLF). Remember, if you are employed full-time for a nonprofit (aka a 501(c)3), such as an academic or nonprofit hospital, and you make 10 years worth of on-time monthly payments in one of the Income Driven Repayment (IDR) programs like REPAYE, the remainder of your federal student loans are forgiven tax-free. Since you will spend 3-7 years in training, likely as an employee of a nonprofit institution, you'll only have 3-7 more years of payments to make as an attending. This student could easily have $500,000 or more of their debt wiped out by PSLF, all without having to pay taxes on that forgiveness.
I'd add up all of the federal direct loans and then everything else, commit to getting a full-time employee job with a PSLF-qualifying institution for a few years, and then quit worrying about my federal loans. I'd still live like a resident for 2-5 years, but I'll bet the rest of the debt can be wiped out in the first year.
Finding Hope
I sincerely hope that anyone in this situation can find hope when they run the numbers and put a student loan plan in place. No, you can't rack up $200,000 in undergrad loans and another $300,000 in federal loans and take a part-time job making $100,000 and expect it to all work out well. But can you be a typical doctor, be willing to live like a resident for a while, and still easily take care of massive student loans within five years of finishing training? Absolutely. That light at the end of the tunnel may be a long way away, but it should let medical students quit worrying so much about their finances so they can focus on becoming the best doctors possible.
Where Does Refinancing Fit In?
If you are not to work for a non-profit and will be paying that debt back, you can refinance your federal loans as you leave training (you can refinance private loans any time you can get a lower rate.) The less you pay in interest, the more of your payment that can go to principal and the sooner you're out of debt. DO NOT refinance federal loans until you are 100% sure you won't be going for PSLF, because once you do, you can no longer take advantage of the IDR programs, PSLF, or any random student loan holidays that may pop up in the event of a worldwide pandemic.
Refinance Your Student Loans Today!
† Bonus includes cash rebates and value of free course. Borrowers who refinance more than $60,000 in student loans using the WCI links will be enrolled in The White Coat Investor’s flagship course, Fire Your Financial Advisor for free ($799 value). Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted from May 1, 2021 through October 31, 2023. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
What do you think? What would you tell this medical student? Did you have your own significant undergrad debt? How did you pay it off? Comment below!
I genuinely appreciate the time the writer took to address an issue relevant to a specific group of pre medical students. It helps tremendously with constructing a plan to correct errors made early in my academic career. However, the section that was relevant to being “judgey” seemed to lack empathy for those first generation students who are navigating college transition as well as the understanding of the financial undertaking of college. I personally had to navigate that myself and had no idea there were other options at the time. I was attempting to go to the best institution where I could excel. At the time I think most students are doing the best they can with the information they are given. I earnestly don’t feel like that segment contributed anything meaningful outside of the last few sentences and could have been written more empathetically. I understand my mistakes and appreciate all you guys do to educate the masses especially the students.
For some people that undergraduate debt is water under the bridge and nothing can be done about it. That section isn’t very useful for them and is, in fact, as labeled, judgey. However, there are people for whom it is not too late (for them or their kids or the people they advise) for whom that section is highly relevant. Take what you find useful and leave the rest knowing not every article and not everything in every article is written for you personally.
That section also heads off people spouting off in this comments section “Those guys made their bed and now they have to lie in it.” Having included that in the article, it generally won’t then show up in the comments.
Eh, I kind of see your point, but I think his judgement was more society directed. I, too, was a first gen college and med school grad. I had a couple of undergrad acceptances and looked at the price tags of several tens of thousands extra per year and stumbled into the right choice, but there was a ton of pressure to ignore the $’s. These students are purportedly pretty smart to be considering this route, and the math isn’t that hard. They’re being swayed by the ‘chase your dreams no matter what’ crowd that’s not footing the bill.
I was fortunate that my parents paid for my undergraduate education, but I have friends who weren’t as lucky.
I just want to point out that in-state tuition in other states can be much higher than the $5-9K in Utah — for example University of New Hampshire in-state tuition is $18K. And that doesn’t include other fees or room and board.
Owing $200K is crazy and clearly rare, but I can understand how someone without a lot of family support can end up with $60K of debt even after financial aid.
I am sure that the advice to not over-pay for college can really sting for those who regret it in retrospect. There are lots of posts on this blog about recovering from financial mistakes, and let’s be honest, we’ve all made our own. Some of our mistakes were similar to or even more expensive than taking out loans for undergrad. Big doctor house? Leasing luxury vehicles year after year? Ugly divorce? Assuming you wouldn’t actually need disability insurance? Entrusting investment plan to the wrong person? Thinking you can’t negotiate your salary or workload, or failing to get the best job for you? One could go on and on.
If you’re feeling bad about what you think was a mistake in retrospect, just remember that you’re in good company. None of us are perfect and every one of us has made expensive financial mistakes. We’re all trying to do better by learning, and sharing our stories of both success and failure to help out our colleagues (and future colleagues).
More germanely to this topic, I myself bought into the social vision that an elite education must carry an elite price tag. And don’t we all have the right, even an obligation, to attend as elite of a university as we can get into? I was initially ready to pay whatever it took to go to a “dream school” but I was lucky that life lead me to a state school with scholarships resulting in minimal tuition. I only appreciated the full value of my almost free education after I had paid off my last student loan a couple years into practice.
It’s solid advice to “get a good education at a fair price.”