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

undergraduate student loan debt

 

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!

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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!