By Dr. Jim Dahle, WCI Founder
I meet many doctors each year and get lots of “thank yous” for helping them, both in-person when I go around and do speaking gigs or conferences, and by email from others. Frequently they share their success stories with me, which makes me happy. Occasionally I hear of their struggles, which makes me sad. I often wish I could connect those who are struggling with those who have been successful to show them how taking control of their finances and getting their financial ducks in a row can make them better doctors, parents, and partners. It would be even better if I could make that connection BEFORE the “strugglers” start struggling. Today I'm going to attempt to do that, at least in a general way.
Although The X Factor does come into play in a big way, one big difference I see between the “succeeders” and the “strugglers” is that the succeeders wipe out their student loans in just a couple of years and the strugglers add the minimum student loan payments to their long-term monthly budgets (if they have a budget at all).
7 Steps for Doctors to Pay off Student Loans Fast
In this post, I'm going to teach you how to avoid doing that; i.e. how to pay off your student loan debt very quickly, in less than two years in most cases.
#1 Make Smart Financial Decisions in School
Obviously the best student loan is the one you never took out. About 1/4 of MD students graduate without any student loans at all. While most of those people are in that situation due to family help or a contract (HPSP, MD/PhD etc), far too many medical students assume their peers are just borrowing every dime their professional schools charge and they can spend on living expenses. That is definitely not the case. Keeping the total loan burden down is a major part of wiping out your student loans quickly afterward. Going to the cheapest school (including both tuition and cost of living) you can get into is a major factor. Luckily, it is often the case that the cheaper school actually provides the better education! Ensuring you match to avoid the financial catastrophe of having a doctor debt burden without a doctor income is another critical factor. Living frugally matters. Get roommates if you are single or send your partner to work (preferably for the university) if you are not. Don't take out your student loans until you need to (and maybe even not them.) Maybe even have a part-time job some of the time.
Perhaps the most important financial decision in medical school is your specialty choice. Unlike Dave Ramsey, I see attempting medical or dental school on debt as generally a good investment, despite the risk of not matching. But it is only a good investment up to a certain debt to income ratio. At 1X (student loans at completion of training are less than or equal to starting income), it's a good investment. At 2X, it may not be. At 3X-4X, it definitely is not. So if your dream is to be an occupational medicine doctor or a part-time employee dentist, borrowing the entire cost of attendance at an expensive school in an expensive city is not a very good financial decision. You'll likely end up with $400K+ at medical school graduation and $500K+ at residency graduation for a job that might pay $200K or even less. That's not smart. Don't do that. If borrowing to pay for your dream will lead to a debt to income ratio of 3X-4X, you need to consider alternative methods of paying for it. Those include:
- A military contract (USUHS/HPSP)
- Public Service Loan Forgiveness (PSLF)
- A decade long Live Like a Resident strategy
- Marrying a high earner without significant debt
If none of those, with their associated risks, are acceptable to you, then you should really consider whether your dream is worth the incredible financial stress it will bring on. Based on the doctors I talk to who have made that decision, it isn't.
#2 Make Smart Financial Decisions in Residency
The need for smart decision making continues in residency. While you are a very rare doctor if you can wipe out your student loans in residency (although some do accomplish it), making a few decisions right can make a big difference. For example, your private student loans can be refinanced as soon as you are out of school. There's no reason to keep these at the 6%-10% interest rate you borrowed them at. They aren't eligible for the federal income-driven repayment plans nor public service loan forgiveness. You can probably refinance them to something in the 5% range while limiting monthly payments to just $100 AND get $300-$500 cash back by going through the WCI Refinancing Links. Heck, that cash back will cover your payments for several months! The following companies have resident programs:
- SoFi ($500 cash back through this link)
- Laurel Road ($300 cash back through this link)
- Splash ($500 cash back through this link)
#3 Refinance Your Student Loans
Our 4-year-old and 10-year-old love going fast too. Here they are launching down a kilometer long zip line in Costa Rica.
The succeeders refinance their federal loans too, just as soon as they realize they're not going for Public Service Loan Forgiveness (PSLF) nor receiving any subsidy through REPAYE. That usually means about the time of residency graduation. Refinancing gives you a few hundred dollars cash back (at least when you get the WCI negotiated deal), but the primary benefit is lowering your interest rate from 6%-7% to 2%-4%. Taking a $300K student loan from 7% to 2% means that $15,000 that was going toward interest that year is now going toward principal. That's probably most of a month's paycheck for you, and well worth the 30-60 minutes you'll put into refinancing. In fact, the succeeders refinance early and often. As your debt to income ratio and credit score improve, you will likely qualify for better and better rates and perhaps even an additional cash bonus if you end up switching companies. If nothing else, you get a heck of a lot better service than you were getting from student loan servicers like Navient or Fedloans. Those guys can't even count to 120 as evidenced by the PSLF debacle.
How do you get down into the 2%-3% interest rate range? If you're really committed to crushing your loans in less than 2 years you can afford to run the interest rate risk of a variable 5-year loan, which offer the lowest interest rates.
If you are an attending who isn't going for PSLF and hasn't yet (or hasn't lately since rates have dropped) refinanced your student loans, what are you waiting for? How many days do you have to work to make $15K after-tax? You can't spend 30 minutes to save that amount of money? Really?
Refinance your student loans today and get some cash back using the best deals on the internet found in the chart below!
† 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: ATTENDING 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, 2024. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
Student Loan Refinancing Disclosures
#4 Live Like a Resident!
Unfortunately, just refinancing your student loans isn't enough to get student loans paid off in just two years. But if you've been following the steps above, you only need to do one more thing to pay off your student loans in less than 2 years – live like a resident! Live like a resident means that you earn like an attending while living a lifestyle very similar to what you were living as a resident and use the difference to build wealth–in this case to pay off student loans.
Now, if you did a nice job with numbers 1-3, you probably owe $250K and perhaps you make $300K, just a little more than the average physician income. A resident makes $60K these days (pre-tax), but let's give you a 25% raise AND make it post-tax, so you get to spend $75K. That raise would be HUGE in corporate America. You're now paying perhaps $75K in taxes. $300K – $75K – $75K = $150K you can use each year to build wealth. Well, let's say you pay that $150K toward your student loans in year one. What do you owe now? Well, just over $100K. You'll be done in something like 21 months total. You're now free of that burden.
I recommend you live like a resident for 2-5 years after residency, but now you can move that $150K a year toward your other wealth-building goals like saving up a down payment on your dream home, saving for retirement/college, or perhaps even buying that supercar you've always wanted.
#5 Let the IRS Help
If you're in a really good position (let's say an income of $400K and student loans of $150K) and self-employed, you might consider using your taxes to pay off your student loans thanks to the safe harbor rules. The safe harbor rules say if you, as a high earner, pay at least 110% of what you owed in taxes the year before in estimated tax payments, then you can pay the rest of the taxes due with your return in April with no penalties or interest.
Since a resident or fellow barely pays taxes, and taxes were withheld for the first half of the year by the residency W-2 job, you would only have to make two tiny estimated tax payments for the rest of the year. That gives you 9 ½ months from completion of training until the lion's share of your taxes are due. Essentially, the IRS is letting you borrow your tax money for 0%. Why not take advantage? Instead of putting 20%-35% of your income into a savings account to cover that tax bill, why not pay it toward your student loans? If you can wipe them out by December or January (should be no problem if living like a resident and not paying taxes), you can then save up for the big tax bill by April. In less than 10 months, your student loan burden is gone.
#6 Realize You Probably Won't Invest the Difference
A lot of doctors feel like they can earn more than their student loans are costing them, especially if they've refinanced the loans to a rate of 2%-4%. Aside from the obvious mistake of not accounting for risk (paying off a loan provides a guaranteed rate of return and you usually must take significant risk to beat that rate), these doctors frequently make a more subtle mistake–they don't account for their own behavior.
While it makes sense mathematically to borrow at 3% and invest at 7%, the truth is most of us don't actually invest. We borrow at 3% and then spend the difference. While we can focus our efforts on paying off debt for a year or two, we can't keep that same level of focus for 10 or 20 years and so we slack off while interest robs “Future Me” of money he should have had. There's a reason that you don't know very many (any?) doctors who have become multi-millionaires by keeping their student loans around. The same motivation that leads someone to save and invest well also leads them to pay off their debt quickly.
#7 Build a PSLF Side Fund If Going for PSLF
- If you leave your PSLF-qualifying job for a non-PSLF-qualifying job
- If the government changes the PSLF program and you are not grandfathered in
- If you get sick of fighting the government to give you what they owe you
If none of that happens and you actually receive PSLF 4-7 years after completion of training, great! You just got a nice boost to your nest egg and accelerated your path to financial independence. But since your PSLF Side Fund was equal to your student loans just two years out of training, you've really had those loans “virtually paid off” for years by the time PSLF kicks in.
Imagine how much wealth you could build if you didn't have any payments at all. Imagine how much you could buy. Imagine how much you could give. Imagine how much less you would have to work. How many days a month do you work now just to make your payments? How much better would your life be if you could spend those days doing something else? Get those student loans out of your way and get on with the rest of your life. You're not really done with medical/dental school until you pay for it.
What do you think? Are you one of these succeeders? Did you pay off your loans in less than 2 years? How did you do it? What was your debt to income ratio? Comment below!
Does paying off your student loans make you wealthy or is it those who do pay them off are the type of people who become wealthy?
The later for sure. But people who subscribe to different ideas can learn lessons and follow the example of paying off their loans.
Fantastic post. Email it to every premed.
Here’s one multimillionaire doctor with student loan debt: my husband. Our net worth is just over $2 million 11 years out of his residency. His federal loans are at 1.6% which is why they’re still around (at around $135,000). We have enough in cash and taxable investment accounts to pay it off, but so far the $900/mo payment isn’t annoying enough to him to get rid of them
I bet he graduated about the same time I did. I’ve got classmates with 0.9% student loans. But data is not the plural of anecdote. I’ll bet the average net worth of those who still have $135K in student loans 11 years out is < $500K.
It also helps a lot to marry a financially savvy, debt-free pharmacist. 😀
I do think there’s a group of us who are “imperfectly” doing OK. I’m about 13 years out of fellowship. My savings rate is around the mid teens % (not quite the recommended 20%). I still have student loans at 2% and have enough in cash to pay them off. Max everything pretax, backdoor x 2, taxable, 529s well funded for the kids, no debt except mortgage and student loans. Our net worth is around 2.5 million.
Hanging around WCI and seeing the FIRE types I think I could be doing better since if I lived frugally I could have FIRE’ed by now. However, I also see the folks that are making as much as me with <500k net worth, multiple car loans, in debt up to the eyeballs so it could be worse…
Sounds like you’re doing great to me. It also sounds like you’re about my age with those loans at such a low rate.
I agree. It’s the latter.
Here is another…my net worth at this point is about 3.5 million. I am “FIRE”-able, but I still enjoy my work and my income. However, I’m still carrying about 70K in student loan debt between my wife and myself. They are at 1.75% and although I finally broke down and paid off 100K early last year, I’m holding off on paying anymore until I find out if Elizabeth Warren or The Bern will wipe them clean in a year or two if they are elected. If not, then I will pay them off with my checking account after the next election.
Uhhh…..you know there’s still Congress right? It’s not like Bernie gets elected and student loans disappear the next day. Remember that wall?
Sorry…the comment was half tongue in cheek….however, at 1.75% I’m willing to let them ride for another year or two to find out if they can all get wiped away. Otherwise I will be kicking myself for wasting that 70K when I could blow it all on hookers and cocaine like Charlie Sheen 😉
I think a reasonable case can be made to carry 1.75% debt in order to invest. But to carry it in hopes of universal loan forgiveness? I don’t think that is wise.
I thought there would be an income limit for those who would benefit from student loans forgiveness according to both of their plans. Most likely physicians won’t ripe the fruits because of their high income.
Technically they were my husband’s student loans but I’m going to take most of the credit for paying them off early as he didn’t even know I had finished paying them off until I texted him a picture of the 0 balance (he was on the same page with paying them off aggressively, just didn’t know how quickly that happened). We paid them off in 30 months. Our debt to income ratio for the first year was about .9X and the 2nd year was about .5X (when he became partial partner) and .3X when he became full partner the next year. We just kept living the same and pushed all the new money straight into the payments. In the 3 years since then, we’ve managed to grow our savings to $1.5M and life is feeling pretty dang good. That growth was accelerated by a buy out situation that was not ideal, but at least we got a good economic boost still early in his career for it. Next up is finishing paying off the mortgage (it’s a 15 year loan that we’ve knocked off a couple years by putting a big chunk of the buy out towards) and we are enjoying life while also still saving over 50% of our gross income. It helps that it’s a big income. 😬 I Hope everyone catches the vision and does this for themselves!
Sounds familiar. I see this all the time.
The cash back on private lender loans is essentially chump change. Why is this piddling amount promoted
when you’re actually paying big buck interest over the term. The only sure fire way to pay-off loans is to
sign up with a program like REPAYE so your monthly obligated loan payment is 10% of income. Then pump
as much extra funds into the principal as possible through family funds etc. Waiting to pay-off a REPAYE OR
PAYE loan for some occurs at the same time you receive your Medicare card.
What? While I agree that a lower interest rate matters much more for a big loan than a little cash back, REPAYE and PAYE don’t lower your interest rate. Their payments are 10% of discretionary income, which is usually MUCH less than what it takes to pay off student loans in less than 5 years and in fact for most residents doesn’t even cover the interest.
Via email:
Unfortunately many physicians are employed by a group practice, which are not eligible for the 501(c) provision of a non-profit and therefore
eligible for PSFL. They would have to work directly for the VA or a government funded facility such as a City’s public health facility, Indian
Health Service, State correction medicine facility etc.. Even a large employer like Kaiser requires their physicians to be members of the Permanente medical group, which is a for-profit organization and not eligible for PSFL.
Another option is for a physician to enroll in the government REPAYE program, but it will take 25 years to pay off the loan UNLESS they add monthly funds
to the principal of the loan. For example, a 400k loan will require payments of approximately 5k per month for 10 years. If a Doc earns 250-300k per year
they could afford $1000 dollars monthly beside their REPAYE payment for a total of maybe $2500 per month. Where does the other 2k plus per month
come from? Realistically, from family members who able and willing to even refinance their home mortgage. Their contribution during the 10 year period
Is 300k. Actually the chump change of a one-time $300-$500 inducement for private loans is a rather silly token for loans that generate thousands in interest
to the lender. The key is to pay down the the loan with additional funds earmarked for interest free payment to the principal.
A loan strapped primary care Doc.
It won’t necessarily take 25 years. Many docs will have loans paid off in 10-15 under REPAYE and thus never be eligible for taxable REPAYE forgiveness. But with a high DTI ratio (and 2X is likely high enough) there will still be something left to forgive after 25 years under REPAYE.
I agree that the cash back pales in comparison to the lower interest rate for those who are paying back their loans. A $300K loan at 7% = $21K in interest per year. Cutting that to 4% saves $9K in interest that first year that can go toward principal.
“For example, a 400k loan will require payments of approximately 5k per month for 10 years. If a Doc earns 250-300k per year
they could afford $1000 dollars monthly beside their REPAYE payment for a total of maybe $2500 per month. Where does the other 2k plus per month
come from?”
Why can a doc making 250-300K only afford to make $3500 monthly payments? Why cannot they afford the 5K a month? 5K a month is only 60K a year. If you live like a resident on 50-100K a year you can easily retire those loans.
I was putting more then that towards my loans when I was a resident and our combined income was about half that.
via email:
I finished my training in 2017 thinking I was going to do PSLF. In 2019 this changed, but unfortunately my $350k in student loans at the end of medical school turned into $485k. I refinanced, twice, sold our house, moved in with my in-laws and paid off $260k in 2019. We are trying our best to pay off the rest, $220k this year (totally possible since my husband and I now make a combined gross annual income of $500k).
Thank you for all your advice! One thing I wish you would include in your post about budgeting and paying off loans is childcare cost. We have two children and planning for a third this year. My husband and I both work and so do both our parents. So unfortunately, childcare is our highest expense. We decided to live with my in-laws in order to “live like a resident” as best we can because our childcare expenses otherwise make it really difficult. Wondering if you could include childcare cost in your post and podcasts more. I know there are women doctors who blog about finances, I tried them, but I ultimately like your approach and perspective more.
Thank you again, my husband and I are big fans. We read your book twice, read your blogs, get every email, bought your course, and listen to your podcast! We’re trying to FIRE by the time we turn 45 years old, which is in 11 years!
Thanks for another example showing how this is possible.
Child care certainly isn’t a “women doctor” issue, it’s an issue for anybody with kids whether single or dual income.
While a large expense, for a typical dual physician couple, it’s simply the “cost of doing business”, i.e. the cost of having a second income with kids. The second income helps build wealth faster and the child care costs slow the process down.
But it’s really no different budget wise from more expensive cars, private school, big fancy doctor houses, big vacations or anything else people spend their money on. Not sure it needs its own paragraph in a post like this. That said, your approach is a little more on the extreme side. Very few dual physician couples making $500K would live with parents in order to “live like a resident.” Most would simply take 3 years to pay off their loans instead of 2.
while I completely agree that the latter are those who become wealthy, I hope no one takes away that if they didn’t pay off their student loans quickly that that means they are doomed. A lot of people tend to throw up their hands and think if they didn’t do step 1 correctly, their future is doomed too. That’s not true.
We’re taking the full ten years to pay off the loans. We couldn’t agree on paying off quickly so they’ve just sat there. Started at ~$220k. The doctor in the HH went into primary care, so not high-paying. One thing we had going for us was in point 1, #4-a high-salaried spouse with no debt. By high salary, I mean the salary has ranged from $90-$120k. That’s not high in the doctor world but outside of that world, it is. We’re mid/late 30s and have ~$800k in retirement accounts and live in a MCOL area. I’m fully confident we’ll FIRE between 50-55 years old, and that is WITH the doctor going down to .75 FTE by age 40 AND the high-income spouse getting a job that’ll be a better fit but pays much less ($60-70k) around age 41. Student loans are going to be paid off by March 31 of this year, just under 11 years after graduating med school.
The point is Jim’s advice is the best path, but if you didn’t do it the “right way” at first, don’t let that stop you from making a plan and taking control and being strategic going forward. Anyone can right a financial wrong in probably less than 10 years.
meant as a reply to Lordosis, sorry
I agree. Thanks to a high income, doctors can actually screw up a lot and still become wealthy. That’s what makes it so hard to give them advice. You can’t tell them not to buy a Tesla because many of them can buy a Tesla and still build wealth. You can’t tell them to pay off their student loans in 2 years because they can pay them off in 5 (or even 10) and still build wealth. You can’t tell them not to put their kids in private school because lots of docs do and still build wealth. But if you go into a low paying specialty, rack up a ton of student loans, buy a Tesla, drag out your loans, and put your kids in private school, and then tack on a divorce or two, you’re not going to build wealth. Unfortunately, this is the case for 25% of docs, the 25% of who still aren’t millionaires in their 60s. Chances are few of them will ever read this post.
I agree it is never too late. It does get harder after the lifestyle gets inflated though.
That is great that you were able to strike a balance and meet your financial goals. I feel that is not the case for most people.
Under #4, the excess after loans are paid off isn’t “$150k per month” (unless you guys are making WAY WAY more than I am).
The example was of a doc making $300K. The average doc is making $275K these days. That could be “way way more” than you are making, I have no idea. It was certainly “way way more” than I made my first four years out.
I think they’re referring to it saying $150k ‘per month’ and not ‘per year’.
Fixed now. I missed it twice and my assistant editor missed it once. Thanks.
Read the third paragraph under #4 again, particularly this part: “ but now you can move that $150K a month toward your other wealth-building goals like saving up a down payment on your dream home”.
Month should be year.
Thanks.
This is the real deal, folks. All great advice. I’m on steps 4 and 5 right now. Living on 2/3rds of take home pay and planning to shovel $174k a year to debt or investments. Underpaid federal taxes by ~$9k in 2019 to get the interest/penalty-free loan from Uncle Sam and used the extra cash flow to max out investments in my half-attending year.
We’ll see about step 6. My loans are at 1.87% and we just refinanced my wife’s to 2.31%. I think we’ve proved at this point that we can make productive use of the money we aren’t putting toward low-interest debt, but I agree that’s not the case for all.
Overall this is about as nice and concise a game plan as I’ve seen.
Here’s an interesting scenario (at least to me!):
My SO has done extremely well to avoid acquiring a massive loan burden, as they will be leaving med school with loans to the tune of $55,000. This means that, in nearly all scenarios, the most efficient option is to privately refinance. Certainly, we could bang out the loan before the end of residency (technically, I’m assuming “match” goes well), but this comes at the cost of forgoing 401(k) /403(b) contributions (Roth IRA’s will be filled regardless – it’s far too sweet a deal to forgo for residents), particularly for my SO.
I’ve been wracking my brain and crunching numbers on various 5-year plans with respect to loans, 401(k)/403(b) contributions, and other expenses. Honestly, if I knew that the particular residency program offered Roth contributions, I have to imagine stretching out the private loan to the full term is a pretty sound idea. However, assuming traditional options, the amount of saved taxes pays for the extra interest a couple times over, and yet I’m left wondering, should a future attending be tax-deferring income at the 22% (or even 12%!) marginal rate?
Indeed, it may be worth it to start building the tax-free-growth-snowball as early as possible, particularly in the absence of other tax-advantaged savings options. Welcoming any and all thoughts!
@WCI, thanks for all the amazing, helpful resources! All told, it’s quite the compendium!
There is no wrong answer to this question. Paying off debt is good. Investing is good. If you have to invest in tax-deferred, convert upon leaving residency.
Yes, this is a fortunate position to be in. I failed to consider the possibility of converting during the residency->attending transition. Thanks for the clarity.
Is there any way to participate in the money back via WCI with Laurel Road after having refinanced a few months ago? I had not been aware of the option when I had initially refinanced, so now I’m kicking myself.
Not if you’re with Laurel Road now. I get paid for making introductions, but you two already know each other. But if you want to switch to Earnest or Sofi….
Can you pay medical school loans off with your physician medical business (self owned) income i.e. as tax deduction/overhead?
If not , why?
Thanks.
No.
Because Congress and the IRS don’t let you do that. I don’t make these laws, I just explain them.
Debt = 2x annual salary as MD. Have paid off family home secure new mortgage
to pay off lump sum 75% of debt and treat as inheritance received while parent(s)
are still alive considering age of parent(s). Contribute towards payment of mortgage if needed. The remaining balance on education loan secure employment which offers monthly contribution towards loan balance. Sign up for REPAYE.
Via email:
While I haven’t applied to medical school as of yet, the 2021 loss of my mother to pancreatic cancer has inspired what I hope to be a career change into medicine (preferably specializing in genetics). I do, however, already have a paid off Master’s in Biology.
Although not a medical degree, the strategy with which I paid off said Master’s in Biology was in fact very similar to what you suggest for medical degrees. (Minus the refinancing part, but still, I did it by living very frugally, one paycheck after another.) If ever I’m accepted to med school, I look forward to using a very similar strategy to pay off my future DO.
If you’re wondering how long it took paying off my prior degree, it was 23 months. I made the final payment in January 2020, funded by a job I had started in February 2018.
A very dear friend of mine is set to graduate from her med school (also a DO program) in May 2023. As she moves on from med school to residency, I’ll be sure to share with her your advice, about continuing to live frugally and so paying off the loans faster than she thought possible. This girl knows how much I love her, so I bet she’ll listen better than many other physicians do in their financial overconfidence.
A different friend of mine gets his LSAT score back at the end of this month, and while law school is not med school, both are combinations of academically rigorous, and expensive! This old home boy will also know the advice is out of love, and I imagine his lucrative but frugal early career as an attorney will be much like what you recommend for physicians.
In short, I thank you for that article, and especially for what “living like a resident” can do. Both of my friends thank you for the future financial advice too, even if they don’t know it yet.