In This Show:
One Big Beautiful Bill Update
Dr. Jim Dahle gave a sweeping overview of the massive piece of legislation that we all know as the “One Big Beautiful Bill Act” (OBBBA). While politically charged, this bill contains several far-reaching tax and healthcare changes, especially relevant to high-earning professionals like you. This bill represents one of the most consequential laws passed since the 2017 Tax Cuts and Jobs Act. Election outcomes often lead to major legislative changes, and when one party controls the House, Senate, and White House, big things happen. The 2017 law came out of a unified Republican government, and now, under another such alignment, the 2025 legislation aims primarily to extend and expand on those earlier tax cuts.
At its core, this new bill preserves a lot of the 2017 tax structure. It extends the lower individual tax brackets, such as keeping the top marginal rate at 37% instead of allowing it to revert to 39.6%. It also maintains the lower corporate tax rate of 21%—which was already permanent—and, more importantly, extends the Section 199A or Qualified Business Income (QBI) deduction. That's an enormous benefit to business owners, including many physicians and small practices. This allows eligible filers to deduct 20% of their qualified business income, with some salary-based limitations. Without this extension, many pass-through entities would have faced significant tax increases. Additionally, the estate tax exemption, which was set to be halved in 2025, has been extended and increased to $15 million per spouse, indexed to inflation. That means few high earners will have to worry about estate tax under current rules.
One of the more notable and debated changes is the expansion of the SALT (State and Local Tax) deduction cap. Previously limited to $10,000, it now goes up to $40,000, though it starts phasing out at $500,000 of income. That limit is the same for both single and married filers. Unfortunately, the phaseout details remain murky. Bonus depreciation has also been made permanent, allowing businesses to immediately expense certain capital expenditures, which is a very pro-business move. There are also renewed incentives for Opportunity Zone investing, which may appeal to investors hoping to defer or reduce capital gains by investing in economically distressed areas. New efforts are being made to direct such incentives more toward rural zones this time around.
Among the smaller tax tweaks are that the standard deduction has been increased to $15,750 for individuals and $31,500 for couples. There’s also an “elderly bonus deduction” for retirees, though it phases out at $75,000 of income. The child tax credit was modestly raised to $2,200, with $1,700 refundable. One eye-catching but temporary provision is the tax exemption on tips and overtime (up to $25,000 and $12,500, respectively), but it phases out for higher earners and it's only in effect through 2028. Similarly, there’s now a $10,000 auto loan interest deduction available, but that's only for newly purchased vehicles with final assembly in the US, which adds a “Buy American” flavor to the bill. Jim is skeptical this will be good policy, cautioning you not to use this as an excuse to buy cars you can't afford on credit.
A particularly novel provision is the creation of Trump Accounts for newborns. Each baby receives a $1,000 credit with an option for parents to contribute an additional $5,000 annually. Funds can be used for education, small business creation, or a first home. While the benefit sounds generous, Jim suspects that 529 plans and UTMA accounts may remain more practical and flexible alternatives. Another controversial element is an increased tax on university endowments, raising questions about whether nonprofits (including, possibly, churches) could face similar treatment down the road.
Healthcare changes in the bill are mostly detrimental to physicians. They target cost-cutting in Medicaid, CHIP, Medicare, and ACA-related subsidies. Medicaid eligibility will now require “community engagement,” meaning work, school, or volunteering unless certain exemptions apply, and eligibility reviews will occur every six months. Co-pays for Medicaid will increase (from as little as $3 to up to $35), and payments to certain providers, particularly those offering family planning or abortion services, are being cut. Immigrant access to these programs is also being curtailed, especially for legal non-citizens. These shifts are expected to significantly increase the number of uninsured patients by possibly 10 million-17 million, translating to more self-pay or uncompensated care. That tends to lower physician income, particularly for ER and primary care doctors.
Medicaid payments will now be capped at Medicare levels. Some temporary relief was included, like a 2.5% Medicare fee schedule bump in 2026, but it isn’t indexed to inflation. Direct primary care payments, however, are now eligible HSA expenses, and telehealth coverage can be paid pre-deductible, which are positive shifts. Orphan drugs were also exempted from Medicare pricing negotiations to keep R&D incentives strong, although that leaves them financially out of reach for many patients. Lastly, a $50 billion rural health transformation fund may offer support to providers in underserved areas, though details are still emerging.
In summary, “The One Big Beautiful Bill” significantly shapes the tax and healthcare landscape for years to come. It leans pro-business and pro-investor, offering tax stability and some new deductions and incentives—especially beneficial for high-income professionals and small business owners. But for healthcare, especially for physicians serving low-income populations, it introduces new challenges, with reduced coverage and payment cuts likely to lead to more uncompensated care. Like most large bills, this one offers a mix of pros and cons depending on your income, profession, and political views. But its scale makes it a pivotal moment in post-2017 tax and health policy.
More information here:
How the ‘One Big Beautiful Bill’ Act Will Affect Doctors
The One Big Beautiful Bill and Student Loan Changes
Andrew Paulson of StudentLoanAdvice.com joined us to give an update on student loan changes under the OBBBA. The bill gives a dramatic overhaul of the federal student loan system, especially for future graduate and professional students. The most striking shift is the implementation of new federal borrowing caps starting in the fall of 2026. Graduate students will be limited to $100,000 total in federal loans (about $20,500 per year), while those in professional programs (like med, dental, or law school) will be capped at $200,000 ($50,000 per year). This is a sharp departure from the current policy, which allows students to borrow up to the full cost of attendance through Grad PLUS loans. The Grad PLUS program is being eliminated, which means students starting their programs in the fall of 2026 or later will likely need to turn to private or institutional loans to bridge the gap.
The challenge with this shift is that private loans don't offer the same benefits as federal ones. They lack Income Driven Repayment (IDR), Public Service Loan Forgiveness (PSLF), and other flexible repayment options. Interest rates are also highly variable, where some borrowers with strong credit or cosigners can lock in rates under 4% while others may face double-digit interest rates north of 10%. Institutional loans, offered by some universities, may help, but they often come with strings attached—like primary care service requirements in specific regions. Borrowers may be subject to penalties or spiking interest rates (even up to 15%) if those conditions aren’t met. Andrew strongly encouraged students to max out federal loans first, and then shop carefully for private loan terms.
This tightening of federal loan access also has ripple effects on loan forgiveness programs. PSLF will likely play a smaller role for future doctors and dentists, because they won’t have as much federal debt to forgive. Previously, borrowers could accumulate $400,000+ in federal loans and have large balances wiped out after 10 years in public service. Now, with lower federal caps, many will have mixed loan portfolios—part federal, part private—making PSLF less attractive or impactful. Some physicians, especially in fields like pediatrics or those with lengthy training, may still benefit, but others may find refinancing more practical once they have income. The overall trend suggests fewer doctors will opt for PSLF, especially if public sector jobs offer lower pay and fewer benefits compared to private practice.
Another major change is the repayment structure. Starting in 2026, new borrowers will have only two options: a standard repayment plan (based on loan balance, with terms ranging from 10–25 years), and a new income-driven option called the Repayment Assistance Plan (RAP). RAP is based on 10% of Adjusted Gross Income (AGI), unlike previous plans that used “discretionary income” (AGI minus a poverty line buffer). One of RAP’s helpful features is interest forgiveness. If your monthly payment doesn’t cover the full interest, the unpaid interest is waived, meaning your balance won’t balloon during low-income years like residency. It also auto-applies a $50 monthly reduction to your balance. RAP qualifies for PSLF but has a 30-year forgiveness timeline if pursued without public service, far longer than most borrowers are comfortable with.
For existing borrowers, the landscape is also shifting. The four current IDR plans (SAVE, PAYE, IBR, and ICR)will be merged into just two—an updated IBR and the new RAP. SAVE is already facing legal challenges and is expected to be phased out within a few years. Borrowers on PAYE or ICR may be forced to migrate to new plans over time. If you borrowed before July 1, 2014, you're eligible for the old IBR (15% of discretionary income). If you borrowed between 2014 and mid-2026, you qualify for the new IBR (10%). Unlike earlier proposals, the final bill allows borrowers to exclude spousal income from repayment calculations if they file taxes separately—an important option for married professionals trying to keep payments low.
Andrew also warned about the elimination of certain repayment tools. Forbearance and deferment are being restricted, and borrowers will only be allowed nine months of forbearance within a 24-month window. That's compared to the current cumulative limit of three years. This is part of a broader push to discourage prolonged non-payment periods. Parent PLUS loans are also affected. They’ll now be capped at $65,000 per child, and they may lose access to IDR plans unless consolidated into the ICR plan before the summer of 2026. Once ICR is gone, Parent PLUS borrowers may be left with only standard repayment and refinancing options, which could be a major setback for many families.
The SAVE plan has a pretty uncertain future. Interest will start accruing again on August 1, and while SAVE is in a legal limbo, borrowers aren’t earning forgiveness credits during this “pause.” Even the buyback program meant to help fix that is backlogged by years. Andrew advised that if you're pursuing forgiveness, don’t wait on SAVE. Get back into a viable plan like IBR or PAYE. On the other hand, if you’re planning to repay your loans in full, now may be a great time to refinance into a lower rate, as some borrowers are seeing rates drop from over 7% to under 4%.
In summary, this legislation fundamentally reshapes how students borrow, repay, and seek forgiveness on their loans. It tightens access to federal debt, limits PSLF’s reach, consolidates repayment options, and makes refinancing more relevant than ever. If you're planning to attend grad or professional school in 2026 or later or you are a parent borrower, you’ll need to be especially proactive in planning your financing and repayment strategies. The student loan landscape is narrowing, and informed decision-making has never been more important.
If you need help figuring out what the exact right plan is for you, reach out to Andrew for help at StudentLoanAdvice.com.
More information here:
Staying the Course Despite the Trump Tariffs
Is Going to Medical School Still Worth the Cost?
“Hey, Dr. Dahle, thanks for everything you do. I've been listening to your podcast since high school, and I found it to be super helpful. I'm a Canadian undergraduate student applying to DO med schools in the US this coming cycle. The tuition fees, as well as the estimated cost of living for the schools that I'm applying to in the US, would total between $520,000-$550,000 Canadian, which equates to $380,000-$400,000 US dollars for the degree. This includes interest accrual up to graduation, as I do not qualify for financial aid as a Canadian.
I would love to do the HPSP scholarship from all aspects, but it doesn't seem as though I'm eligible for it as a Canadian citizen. My question is this: do you think that this is still a wise investment given the large financial cost? And do you have any advice or insight into my situation?”
Jim believes that medical school is still financially worth it, especially compared to other graduate-level paths like law, pharmacy, or veterinary medicine—which often carry similar debt loads but offer much lower earning potential. Physicians, on average, still come out ahead. He acknowledged that it’s become “less attractive” under the new loan rules introduced by the OBBBA. Those starting med school in the fall of 2026 or later will only be able to borrow $200,000 in federal loans or $50,000 per year, with the remainder needing to be financed privately. This marks a return to the private student loan market, which had largely vanished in recent years thanks to generous federal loan availability.
Jim emphasized that federal loans come with far more borrower protections, like income driven repayment, forbearance, deferment, PSLF, and even payment freezes during national emergencies, as seen during the pandemic. Private loans typically don’t offer any of that. Students taking on substantial private debt need to be far more strategic and proactive about repayment. Students can make informed financial decisions in this new landscape.
PSLF still exists and remains a viable strategy for many. It will still make sense for those with lengthy training timelines, modest attending salaries, or those planning to work in qualifying nonprofit or government settings. But the new borrowing cap limits how much federal debt can be forgiven, making the program less beneficial than before. For shorter training paths or high-earning specialties, PSLF may not be worth the hassle anymore, especially if only half the debt is federal and the rest is private.
That brings us to the well-known motto at WCI of “living like a resident.” It’s a simple but powerful strategy to live frugally for a few years after training and throw giant checks at your loans. If you owe $400,000 and send in $10,000 a month, your debt could be gone in under four years. If you send $15,000 or $20,000 a month, you can slash even larger balances in two or three years. But the key is keeping your lifestyle modest and your income high during those early attending years.
Of course, this only works if your post-training salary supports it. You can’t borrow $700,000 for med school and then accept a low-paying job that doesn’t qualify for PSLF. You’ll be financially stuck. You need to be strategic about your specialty, job selection, and personal life.
Yes, medical school is still worth it if you plan smartly and act decisively. If you're willing to live below your means temporarily and commit to a high-income path, even a $700,000 loan burden is conquerable. The landscape has changed, and the deal isn’t quite as sweet as it once was, but for most students, a medical career still offers a positive return on investment. Just don’t go into it without a plan.
To learn more from this episode, read the WCI podcast transcript below.
Milestones to Millionaire
#232 — Med Student Graduates Debt-Free with Limited Parental Help
Today, we are talking with a newly graduated med student who made it through school debt-free. She worked four different jobs and ended up joining the National Guard to help cover costs. She worked hard to save up enough to pay cash for her first year of school before joining the military to cover the last three years.
Finance 101: The Pennies Issue with the Backdoor Roth IRA
When using the Backdoor Roth IRA strategy, a common issue arises with small amounts of interest that accrue in the traditional IRA before the money is converted to the Roth IRA. Since the process involves putting money into a traditional IRA and then converting it to a Roth IRA, there’s often a short waiting period in between. Even if the money just sits in a cash account, it might earn a few cents or dollars of interest. Technically, that interest is taxable, and if not converted, it can cause a pro-rata rule complication. This small amount is usually negligible, and people often worry unnecessarily about being prorated on something like 42 cents.
The easy solution is to do a second Roth conversion for whatever interest the traditional IRA earned before the main conversion. Whether it’s 42 cents or $18, converting it right away minimizes paperwork and prevents complications. That second conversion will be taxable, unlike the main Backdoor Roth amount, but the tax on such a small amount is minimal. The key is to act promptly and clean out the traditional IRA so that no money lingers and causes issues on your tax forms. If you forget or miss it, it’s not catastrophic and you can just roll it in with next year’s conversion.
One important tip is to avoid investing the money in anything volatile while it's still in the traditional IRA. If you gain money, you owe more in taxes. If you lose money, you’re stuck with carrying a loss on your tax forms. Instead, leave the money in cash until the conversion is complete. Then, once it’s in the Roth IRA, you can invest it however you like. This simple step makes the process smoother, reduces tax headaches, and keeps your Roth contributions working efficiently for the long term.
To learn more about the pennies issue with the Backdoor Roth IRA, read the Milestones to Millionaire transcript below.
Sponsor
Today’s episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn't easy, but that’s where SoFi can help. It has exclusive, low rates designed to help medical residents refinance student loans—and that could end up saving you thousands of dollars, helping you get out of student debt sooner. SoFi also offers the ability to lower your payments to just $100 a month* while you’re still in residency. And if you’re already out of residency, SoFi’s got you covered there, too.
For more information, go to sofi.com/whitecoatinvestor. SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. Additional terms and conditions apply. NMLS 696891
WCI Podcast Transcript
INTRODUCTION
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.
Dr. Jim Dahle:
This is White Coat Investor podcast number 429 – The Big Beautiful Bill Update.
Today's episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn't easy. That's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. That could end up saving you thousands of dollars, helping you get out of student debt sooner.
SoFi also offers the ability to lower your payments to just $100 a month while you're still in residency. And if you're already out of residency, SoFi's got you covered there too. For more information, go to sofi.com/whitecoatinvestor.
SoFi student loans are originated by SoFi Bank, N.A. Member FDIC. Additional terms and conditions apply. NMLS 696891.
All right. Welcome back to the podcast. Thanks for those of you out there for what you're doing. What you're doing matters. It's important work you do, and that's why we're here to serve you at the White Coat Investor.
Now, I know a big chunk of our audience is doctors. I think it's about 75% physicians and their trainees, another 10% dentists and their trainees, and the rest are other high-income professionals of various types or business owners or whatever.
Whatever you're doing out there, you're getting paid pretty well or you anticipate to soon get paid pretty well. That's why you listen to this podcast. And that's usually because you're doing really important work, work that matters. It was interesting. My physical therapist texted me this last week and said, your insurance company is done paying for your physical therapy. They're only going to pay for 20 visits. And I reassured him that, “You know what? I have a high deductible health plan. I've basically been paying cash the whole time anyway. So whatever the cash price is, I'm still coming to see you.”
It's because the work he does is important and it matters. It makes a difference in my life. And I know that's the case for all of you out there and the work you're doing for your patients or clients or whatever it is that you do.
We're going to talk a lot today about medical school, medical students, student loans and debts. We do something here at the White Coat Investor we've been doing for many years to directly reduce the indebtedness of medical students, medical and other professional students. You can actually apply no matter what professional school you're in, as long as it's a brick and mortar school.
But we give a scholarship. We give out 10 of these scholarships every year, thousands of dollars. And students can apply for this through the end of August. Rules and details of applying can be found at whitecoatinvestor.com/scholarship.
We're just going to have one big category this year. We're hoping people will put a financial spin on their essays that they submit to apply for this scholarship. But we had over a thousand applicants last year. We expect more than a thousand applicants this year.
We can use some help judging. If you'd like to be a judge for the White Coat Investor scholarship, email scholarship at whitecoatinvestor.com. Just put “Volunteer Judge” in the title. And you'll have to read a few essays, like 10 essays, come September and help us decide which ones are going to be the winning ones. Thank you if you're willing to do that. Please volunteer.
All right. I need some more help as well. I'm getting emails from people all the time about “I need some help evaluating my practice and what to do with it, whether to buy this practice, how much I should pay for it, how much I should sell my practice for.”
This is more than an employment contract kind of thing. They're looking for consultants. They're looking for somebody who can really get in there that they can pay thousands of dollars to, to really analyze things over and get some professional help with it. And people are asking for referrals to these folks.
Well, here's the problem. I don't have anybody to refer them to. We don't have a list of these folks, but we think it might be worthwhile creating one. So, if you've worked with somebody selling your practice, buying a practice, really found somebody that could really consult on a practice management kind of issues. We would like to know about them.
If you can send us an email [email protected] is fine. Let us know about them, especially if you had a really great experience and you'd recommend them to other White Coat Investors. And we'll see if we can develop that sort of a resource for those of you out there who could really use this, because it's getting to the point where I'm starting to get embarrassed that I can't refer people anywhere. I just don't know anybody doing this work that's really good at it.
BIG BEAUTIFUL BILL UPDATE
The title of this episode referred to The Big Beautiful Bill. And I'm recording this on July 9th. It's a busy time of the summer. This is literally the one day in between two week long trips. I have just got back late last night from Lake Powell, spend a week down there in a house boat. I'm leaving literally 06:00 AM tomorrow morning to go to Oregon.
I'm going to spend some time out in Oregon at a cabin on a lake, as well as go float the Rogue River. I’m looking forward to that, that's our main river trip this summer. And so, we're thrilled to do it, but it makes for a very compressed timeline.
And in fact, I was sitting on the house boat when the Big Beautiful Bill passed. It was signed into law by president Trump on July 4th. There's apparently a flyover in Washington, DC. There's not a flyover at the lake. There was a helicopter flying ridiculously low that I saw at one point, but there was no military flyover at the lake when it passed, but we realized, “Well, we got to get a blog post out by early next week.”
And so, over the 4th of July weekend, that's when both Andrew and I wrote our parts of that blog post. If you saw that, that ran on the blog. It's a busy time, but this is probably the most significant piece of legislation that has come out since 2018, the Tax Cuts and Jobs Act.
President Obama famously said “Elections have consequences.” Now he was talking about when the patient protection affordable care act was being passed, but it's true. Elections have consequences. And when Americans decide on election day to give the House and the Senate and the White House to a single political party, that usually results in some pretty big deal legislation being passed in the next few months afterward.
We're talking about Obamacare. The patient protection affordable care act big deal came out in 2009. Guess who controlled the House and the Senate and the White House? The Democrats did.
Same thing when the Tax Cuts and Jobs Act came out. I guess it was 2017, not 2018. President Trump was elected 2016, the House and Senate were both controlled by Republicans and we got the Tax Cuts and Jobs Act. Now, a lot of the things in that act were set to expire at the end of 2025.
And so, this was something that a lot of Republicans ran on this issue. They're like, “We're going to extend. These tax brackets that are temporary set to expire at the end of this year, but only if you elect us into office.” And well, for various reasons, they were elected into office. And one of the big things they wanted to do was to extend these tax cuts. And indeed the Big Beautiful Bill act as it's been called did extend these tax cuts.
This is politics. I don't want to get too much into politics on the podcast. It's kind of impossible with this subject, not to get into it a little bit. Politics begins when you get to a place where reasonable people can disagree. That's what politics is. And when they disagree, well, they go, “Well, what's the majority say?” And you go, “It's what the majority says.” And that's kind of how we get to a place like this.
Your thoughts about this legislation are probably highly flavored by your own political views. If you are a hardcore MAGA American who's out there campaigning for president Trump, you're probably thrilled with most of what has occurred with this legislation. If you are a whatever, far left spectrum kind of person, you're probably upset with a whole lot of what's in this legislation.
But the truth is everybody's helped a little bit by this and everybody's hurt a little bit by this. It's such a huge piece of legislation. It's going to affect us in so many different areas of our lives. There's probably something positive in it for you. And there's probably something negative in it for you as well.
So, let's talk a little bit about what happened , what this act says, what's changing. And I'm not going to do it all myself. We're going to bring Andrew Paulson from studentloanadvice.com in here to talk about the student loan changes because they are significant. We've had lots of changes in student loan management in the last five years. This is the biggest one by far.
And while I appreciate the fact that we're likely to have student loan management stability for the next three and a half plus years, these changes are not all good for docs, especially those who are just starting into the medical system pipeline now. It is a dramatically less generous student loan picture they are facing than what people that started med school a decade ago have ended up with. And so, we'll get into those details as well.
Okay, big picture. The first part is the extension of these tax breaks that came out in 2017. These were very helpful for doctors. They generally lowered your tax bracket. Some of you might be too young to really remember when the top tax bracket was 39.6%. Well, since 2017, it's been 37%. No matter how much you earn, you don't have to pay more than that in federal income taxes. Now, 37% is still a big chunk of what you're earning, but it's less than 39.6%.
Now, at that same time in 2017, the corporate tax rate was lowered to 21%. That part was permanent. But the new brackets that were new in 2017 were not permanent. They were going to expire at the end of 2025. And so, they were extended as part of the Big Beautiful Bill.
The other thing that was extended was the equalizer. The equalizer between C-corporations and pass-through entities like S-corporations and partnerships and sole proprietorships. The equalizer was the Section 199A deduction or the QBI – Qualified Business Income deduction. It's super complicated. But now it's permanent. It was going to expire at the end of 2025 as well. Basically, you can take a deduction of 20% of your Qualified Business Income. That's limited by a factor of 50% of what you're paying in salaries to your employees, et cetera.
There's all these different factors that go into it. But the bottom line is it's still there. It wasn't going to be there after the end of 2025. So, for businesses like the White Coat Investor, taxes were going to go up substantially. This is our biggest tax deduction is the 199A deduction. It's a huge deduction for us. And so, we're thrilled to see that be extended.
The higher estate tax exemption limits, also extended. They were going to be cut in half at the end of 2025. People were starting to wonder, “Do I got to do a whole bunch of estate planning stuff because I don't have an estate tax problem if it's really $15 million or $14 million or whatever per spouse, but I do if it's half that?”
Well, they were extended and actually increased a little bit. They're $15 million per spouse this year. $30 million for a married couple, still portable between them, and it's still indexed to inflation. So, it's going to continue to go up every year. What that means is most White Coat Investors are not going to have an estate tax problem unless this is changed by future legislation. That's a nice thing to not have to worry about.
Now, of course, there's still state to state tax limits. And there's a few states we talked about on the podcast last time that have lower limits than the federal limits, in which case you might have to do some estate planning to try to reduce your state taxes, but that was basically extended. So, that was great as well.
Okay. Another big thing that people have been talking about in the news for the last few months is the SALT deduction. State and local tax. Now, ever since the Tax Cuts and Jobs Act came out in 2017, basically high earners have not been able to take as a deduction on their Schedule A, all of the state income tax they pay.
If they paid 20 or 30 or $40,000 in state income tax and they pay another $20,000 in property tax, you're limited. $10,000 is all you could deduct. Well, they increased that. It can now be as high as $40,000. And that actually increases by 1% a year through 2029 before that is set to expire as well.
The downside is that it starts phasing out at an income of $500,000. Now, lots of White Coat Investors have a modified adjusted gross income of less than $500,000. But if you're one of those with more than $500,000, you're going to face a phase out of that $40,000 amount. It might phase out all the way back to $10,000 a year.
I tried to look up the details today of how exactly that phase out works and how high your income can be before it hits $10,000 a year. I think I'm going to have to read the actual legislation to find that answer. I've not yet found it. It's not out there in easily accessible format, anything I can Google, but it phases out. Interestingly, it's $500,000 if you're single, it's $500,000 if you're married filing jointly, but it's only half that if you're doing married filing single. So, keep that in mind.
Okay. Bonus depreciation is back. All these business expenses that a couple of years ago, two, three, four years ago, you were able to write off 100% of the business expense that year. You're able to just expense it instead of depreciate it. That's back. It's now permanent. That's pretty cool. That's a pro-business move, makes it easier to start and maintain and grow your business. So, that's a pretty fun thing.
Okay. There are a whole bunch of changes to international income taxes. Now, most people do not have to pay any of this because they don't have any international income. I'm not just talking about the dividends from your total international stock market fund or something. I'm talking about, you actually go work overseas or you have rental properties overseas or that sort of stuff.
I'm not going to go through all of these in details. There's a whole bunch of them, but if you have international income, it's worth looking into seeing if there's any changes to how your income taxes are going to be affected by those changes.
Guess what else is back? Not just bonus depreciation, but opportunity zones are back. Opportunity zones are a type of real estate, private real estate investment fund that tried to boost investment in downtrodden areas by giving people a break on their capital gains taxes. And so, they're also aimed a little bit more this time at rural areas. And maybe that will provide some benefit in growing some of the rural areas in our country as well.
Worth looking at again, if you have a bunch of capital gains, you're trying to minimize the effect of those on, and you don't want to do an exchange, a 1031 exchange or something, you might want to look into opportunity zones. Looks like there's going to be new opportunity zone funds coming out with private real estate companies.
Okay. Those are the main tax extensions, and they're mostly good for White Coat Investors because you're white coat investors because you have high income. You're a high income professional. And when tax cuts happen, they go to the people that pay taxes. And that's generally high earners. The tax cuts are coming to you. Most of those are just extensions of the tax cuts that started in 2017. So it doesn't feel like a tax cut, but I assure you, compared to the alternative, it's a tax cut.
Okay. Lots of new tax changes too. The standard deduction went up even for 2025. It's now $15,750 this year and $31,500 if you're married filing jointly. There's a cool thing. It's like a bonus deduction for the elderly. Basically their standard deduction just went up by like $6,000. This was sold as like eliminate the tax on social security thing. Well, it doesn't really have anything to do with that. It's just like an extra deduction if you're elderly.
So, if you're a retiree and you qualify for this, great for you. It's an offsetting age and income based deduction. Note that it phases out at an income of $75,000. If you did a really great job saving retirement, you have all kinds of retirement income, you're probably not getting this.
Child tax credit went up a little bit. It's up to $2,200. $1,700 of it is refundable. Still starts phasing out at the same modified adjusted gross income as before, which is $200,000 single, $400,000 married filing jointly. I know many of you out there are high enough income folks that you don't get a child tax credit. But for those who can get their income down low enough, it's a little better than it was.
This next thing's had a lot of press on it. Tax-free tips and overtime. And so I got questions about this. People like, “Okay, how can we start converting our tip, our income to tips? And how can we start getting paid for overtime?” Because lots of us are working far more than 40 hours a week.
Well, a few things to know about this. Number one is temporary. It's only going to last through 2028. And it phases out at higher incomes. $150,000 single, $300,000 married filing jointly. That's going to take out a lot of white coat investors. But basically up to $25,000 you made in tips and up to $12,500 in overtime pay. It's an above the line deduction now. So you basically don't pay taxes on it.
I'm not sure that's going to make a huge difference in the tips world. And let's be honest, a lot of people getting cash tips are reporting those tips already. I don't know that this is going to really change how they're being taxed. It'll just make it legal what they're doing.
At any rate, it would be cool if some of resident pay could be recognized for what it is, which is overtime work and residents can get a tax break, but I don't know if that's going to change. I think if you're on salary, this is probably not going to affect you much.
Another thing out there, the administration really wanted to support U.S. auto companies. And so, there's a new auto loan interest deduction. Up to $10,000 in auto loan interest on newly purchased cars. You can deduct that through 2028. So it's only temporary and it's limited to cars whose final assembly was in the United States of America. That has to be a brand new car, has to have its final assembly here. And then you can get up to $10,000 in your auto loan interest deducted.
Well, it's still kind of dumb, in my opinion, to buy brand new cars on credit. It's slightly less dumb now, just because your effective interest is going to be a little bit lower. Please don't use this as an excuse to go buy a depreciating asset that you can't really afford and put it all on credit.
I'm not a fan of this big change, as you can tell, but whatever. It'll be interesting to see which brands actually qualify for the final assembly in the U.S. It's probably not just Chevy and Ford and Chrysler. It's probably Toyota and anybody else will start assembling, doing the final assembly, whatever that means, the last bolt you put in. I don't know what the rules are going to be on final assembly. More of that, maybe it happens in the U.S. and brings a little bit of manufacturing back here. I think that's the hope of the administration.
Okay, cool new thing coming out, the Trump account. And I'm still wrapping my head around these. But basically when your baby's born, they're going to get a baby bonus, $1,000 credit into a Trump account. And you can contribute another $5,000 into it if you want. And that money can be used for school and small business expenses or a first home.
Now, there were a lot of changes at the very end with exactly how these are going to work. I'm going to wrap my head around all the changes. Initially, it looked like you're going to have to have all the money out by 31, but it sounds like now it might be a little more like a traditional IRA.
But as I look at it, I'm having a hard time seeing a huge advantage using them for education, anything better than a 529. And I'm not seeing it necessarily as being any more flexible than a UTMA account. So, it's a lot of complexity, certainly get your $1,000, might as well. It's free money, obviously coming from the taxpayer. But I don't know that I'm going to end up recommending people contribute much more to it than that $1,000. I think you're probably going to be better off with 529s for education, UTMAs for everything else. But if it gets more people saving and investing from birth, it's probably a good thing.
University endowments. Some of the most famous universities in our country are going to have a pretty significant tax on their endowments, whereas these used to be considered the same as charities. I'm sure that feels a bit confiscatory, confiscating money from these big famous universities. And maybe that will trickle down to docs that work for them. I don't know.
Apparently, there was an excise tax established by that 2017 legislation, the Tax Cuts and Jobs Act. But this increases the tax rate on it substantially. It does make me worry. What else are they going to go after when it comes to endowments? They're going to start taxing churches, for instance. And things that you thought were operated in a non-profit environment, maybe they're not so non-profit if Congress decides to change the rules. So, keep an eye on that.
Bottom line, the new taxes, not a lot of huge changes for White Coat Investors. There are a few. Here's another one. 529 money, you can use $20,000 a year now for K-12 education instead of just $10,000 a year. It's a small thing, but maybe you can take advantage of that one. But lots of the tax changes were not incredibly huge. The main change was they extended the tax breaks that were put in place in 2017.
Another big thing that happened in this legislation was lots of changes to healthcare. For the most part, these are bad for doctors. Because they involve ways people pay doctors. We're talking Medicaid, we're talking CHIP, we're talking Medicare, we're talking ACA plans. Basically, all the changes make them less generous. There's going to be more uninsured patients than there was before.
But just to give you an idea of some of the changes here, one of which is a work requirement isn't the right phrase for it. It's a community engagement requirement to get Medicaid or CHIP. If you're 19 plus and you don't have a hardship event, you got to spend 80 plus hours a month either working or in school or doing community service or you're not going to have your Medicaid. If you're a parent with dependent children, you can be exempted. But that's, again, up to your state.
Bottom line, Medicaid, CHIP are going to be a little bit less generous. Patients you may have now that were on Medicaid may not qualify. As a general rule, the current administration is a little bit more anti-immigrant than the last administration. Non-citizens, some non-citizens can't enroll in Medicaid, CHIP or Medicare anymore. They can't get premium subsidies on their ACA plans. Technically undocumented immigrants have never been eligible for these, but these changes can affect many people for lack of a better term that are legal immigrants. Again, fewer of your patients are going to have a third party payer to pay you for them.
Medicaid and CHIP eligibility is now every six months. The determinations for eligibility have to take place every six months. Medicaid payments are being cut to entities providing family planning, reproductive health or abortion services. No surprise when the right side of the political aisle gets in charge of healthcare, you're going to see a pretty significant anti-abortion bias there. For better or worse, wherever you fall on that issue, you'll see this is very positive or very negative, but Medicaid is not going to be paying it anymore.
Cost sharing on Medicaid is going to be $35 co-pays, no more $3 co-pays. I'd see four patients in a room in the ER all with the same cold. And almost always you knew if there were four patients in that room that they were covered by Medicaid because everyone else has a huge ER co-pay. They're not going to go to the ER for something small, but when your co-pay is $3 or whatever it is for Medicaid in your state, well, there's not much of a disincentive to do that. Well, now it's up to $35. That may mean you see fewer patients like that.
Medicaid payments are now capped at Medicare limits. For non-ACA expansion states it's 110% of Medicaid limits, but this might be an issue. There are some Medicaid direct payment programs. They can be grandfathered into the higher rates that might delay this for a few years, but the temporary doc fix went through for 2026 is a 2.5% Medicare fee schedule increase. It's not indexed to inflation like all the other Medicare fixes. It's just a one-time thing. Hopefully they do it again next year. You never know with Congress though. They can always decide not to, but there was a doc fix in this. That was like the only semi good news available in the healthcare section of this bill.
Orphan drugs are exempted from Medicare negotiation, which means they can still be really expensive. The idea is to incentivize drug companies to make them. The downside is once they make them, none of the patients can afford them. At least not your Medicare patients.
There's a rural health transformation program that's put in place. You may want to look into that if you're in a rural area. Your hospital, you as a provider might be able to get some of that $50 billion that's been set aside for to help with this program. It's worth looking into if you practice in a rural area.
Some other Biden era healthcare rules that were passed have been delayed until 2034. These are rules like minimum staffing and long-term care facilities. I think the idea was to delay them long enough to maybe get rid of them entirely, but apparently they weren't popular with the new administration and now they've been delayed. Since Congress has dictated they will be delayed.
Oh, here's one that's kind of positive. Direct primary care payments, now an eligible HSA expense. Didn't used to be. I can't believe I didn't even realize they didn't used to be an eligible HSA expense, but now they are.
Insurance companies can also pay for your telehealth if they want to before a high deductible health plan deductible is met. That's a little bit positive as well. Some of these changes might help docs a little, but mostly these changes are bad for doctors. Fewer people on Medicaid and CHIP.
Estimates are that something like 10 to 17 million of the 72 million people on Medicaid right now are going to lose it. That's going to increase the number of uninsured a.k.a self-pay patients by my calculation by about 50%. All the good stuff that happened when the Affordable Care Act came out and there was coverage that then had coverage. It's kind of the opposite happening now. I suspect that's going to reduce physician incomes, particularly emergency docs and others who have a lot of self-pay type patients.
BIG BEAUTIFUL BILL STUDENT LOAN UPDATE FROM ANDREW PAULSON OF STUDENTLOANADVICE.COM
Let's get Andrew on here. He's going to talk about the part you guys have all been waiting for, which is all these changes to how paying for medical school is going to work. It's going to be substantially different. I'll let him give you the updates.
Andrew:
Well, thank you, Jim. It's great to be back on the pod talking about some of the matters in the student loan world. There's a lot going on right now in the student loan space. We'll talk a little bit about how saved interest is turning on, but even before that, what has the one Big Beautiful Bill act done to really shake up student loan programs?
There are some huge changes that you need to be aware of, especially if you are starting medical school or dental school or some other expensive graduate or professional degree program in the fall of 2026 or later.
The big first thing that is happening is there are some new caps in how much you can borrow for your education. For graduate school, the maximum amount that you can borrow currently as part of this new ruling is $100,000 for your entire program. That is about $20,500 is the maximum that you can borrow per year for graduate school.
For professional school, if you're starting your medical school or your dental school or law school in fall of 2026 or beyond, you can only borrow $200,000 federally now. That is $50,000 per year.
Previously, you could borrow up to the cost of attendance. If it was going to be $100,000 for your dental pro, your dental school, for your first year of dental school, you could borrow all of that federally. Well now, you're only going to be able to borrow $50,000 federally, and that's because they have discontinued the Direct Plus graduate program. And frankly, they've just put in this lower cap.
So, know that you are probably going to need to look for some alternative source of financing your education, such as private student loans, institutional student loans. Maybe some people are going to end up working a little bit more before they end up matriculating into their graduate or professional degree programs.
That's a really, really big change that you need to be aware of. If you're currently in school and you're right now or you start this fall, you are not going to be impacted by these changes. If you're in your professional degree program, you'll be grandfathered into kind of the old rules for another three additional years.
What does this mean for borrowers? Well, hopefully this means that there is going to be some cuts in tuition, but I don't think we're going to see that in the short term. And I don't think that people are going to stop going to these graduate programs and professional degree programs. They're going to continue.
And so, jury's out really on what's going to happen with tuition as it's been going up 5, 6, 7% per year, which seems like forever at this point. With more loans needing to be taken out privately, there's going to be a lot of nuance in what the interest rates are.
But as a general rule of thumb, private student loans or those institutional student loans do not have as much flexibility as federal student loans. There is no income driven repayment. There is no public service loan forgiveness on private student loans. Generally, you have to pay back whatever was borrowed, obviously, plus the interest.
Interest rates are all over the place. I was just talking to someone who's starting their medical school right away, and they're going to borrow 11% on private student loans. But I also worked with another client that had a cosigner. Their parents were able to cosign and they got 3.75% in interest rates. So, there is a huge array and variance in terms of what the interest rates are. But if you don't have a cosigner, there's a good chance it's going to end up being double digit interest rates that you're going to be borrowing for your private student loans.
Now, ideally, perhaps there's going to be some institutional loans that are offered by your school. But sometimes those institutional loans are riddled with all sorts of red tape and you have to practice in primary care in this specific state. And if you do not, then they're going to charge you a whole bunch of extra interest. And the interest rate is going to go from 5% that a lot of the institutional loans are up to I've seen as high as 15%. I would tend to say continue to borrow federally what you can and then look for the best options for private loans here going forward.
Another thing that is relevant to these changes are with less loans federal for your borrowing, PSLF is going to become less of a factor. Currently with the public service loan forgiveness program, whatever the outstanding loan balances that you have after 10 years of working in public service and making payments on one of those income driven plans, they forgive it tax free.
I've had clients as high as $750,000 and fifty thousand dollars have their loans forgiven through PSLF. Well, that's no longer going to be the case for those that are starting medical school and dental school in the fall of 2026 and beyond, because you're not going to have $400,000 that you're going to be able to borrow federal. You're going to be borrowing $200,000. You're going to have $200,000 federal and maybe $200,000 private.
What that is going to lead to is perhaps less doctors are going to end up working in public service, be less doctors are going to end up going for the PSLF program, because sometimes when you're taking a job that is in the public space, public sector, you may be taking a little bit of a pay cut or maybe they don't come with as many benefits.
But now what we're going to see is there will still be doctors that will pursue PSLF. I think a lot of those in primary care will still pursue PSLF, pediatrics, pediatrics of specialties, and also those that train for seven, eight, nine years because usually all the time in training is going to end up qualifying.
But for a lot of you think emergency medicine or psychiatry and three or four years and then you're out of training and you got a very good salary. That's going to be a really hard position that you're going to be placed in. Should you do PSLF, get half your loans forgiven and then refinance the rest? Or do you just take a private practice job and refinance everything?
I think that refinancing is probably going to become a lot more relevant for almost everybody that's starting their education next year, because you're probably going to be able to get better terms on those private loans once you have some income as a resident and then also when you move into practice.
Another key thing that you need to be aware of is they're overhauling the repayment programs. We'll start with what does this mean for those of you that are still in school, that are still borrowing? And then we'll also talk about those of you that are existing borrowers.
If you're still in school and you're borrowing and you take out a loan on July 1st, 2026 or later, the only repayment programs that are going to be available to you are standard repayment and the repayment assistance plan, an income driven repayment program.
The standard repayment plan, it's like 10 years, 15 years, 20, 25 years based on your overall loan balance. If you owe more than six figures, your fixed payment schedule will be over a 25 year period of time, which is currently known as the standard extended repayment program for those of you that are currently enrolled in repayment.
Now, the standard repayment program doesn't qualify for the public service loan forgiveness for you. And usually if you're just going to pay these off and you're not going to pursue some forgiveness program, you're probably better off refinancing your loans and getting them out of the federal system.
Now, what about this repayment assistance plan? This RAP plan, it's good and it's bad. It's also a payment program that is based on income and it's 10% of your adjusted gross income, which is actually a big change from the older income driven repayment programs that were a percentage of discretionary income.
Discretionary income simply means that they take your adjusted gross income and then they include this poverty line deduction, which is just based on your household size is set by the HHS. And it helps lower your payments a little bit as household is larger. Typically you're married. If you have a fair amount of children, your payments are going to be a little bit cheaper than if you were single or if you're married without kids.
The RAP plan also has a nice feature that is similar to the previously the SAVE program and what was the REPAY plan before it got its facelift. And that is if your monthly payment is not enough to cover the unpaid interest, the unpaid interest is waived. So if you're in residency, if you are an early career attending, know that your loan balance would never go higher in the RAP plan, which is a nice feature. In addition to that, it also pays $50 per month towards the loan balance to bring it down every single month. So know that if you are in the RAP plan, the balance won't go any higher. And frankly, it'll actually get a little bit lower.
Now, it also does qualify for the PSLF program if you're working in a qualifying institution, but the long-term forgiveness tracker, what we call IDR forgiveness here is over 30 years. That is a really, really long period of time. I know for some of you out there, you'll need to use this.
But for most doctors, I really don't like doing the 25, 30 year track because then you're going to be carrying your loans until you're in your 60s. And maybe by the time your kids are in college. I just don't love having that idea. And this is up for interpretation and modification. There can be so many changes over 25 or 30 years. There's a lot less changes that usually occur over a 10 year period of time on something like PSLF.
It's over 30 years, the taxable forgiveness track. It also allows for the exclusion of spousal income if you file taxes separately. If you have a spouse that is also earning money and you're trying to keep your payments lower, you can exclude your spouse's income through filing separately. And some of the previous versions of some of the bills that were circulating, this was the initial one version by the House before it went to the Senate. And the Senate then changed it back to allow for the exclusion of spousal income. It was going to include spousal income regardless of tax filing status. Nice to see that cleared up.
Now, what about the repayment options eligible for existing borrowers? Well, we currently have four different IDR plans – SAVE, PAY, IBR and ICR. Those four payment programs are going to be consolidated into the income based repayment plan. And they're going to allow you to apply for the repayment assistance plan, RAP plan. But that's not going to be available at least until July 1st, 2026. Maybe it's a little bit later, maybe it's a little bit earlier. But that's the current timeline that we are seeing from the Department of Education.
If you're on PAY or if you're on ICR, you could stay on those payment programs. But just know that over time, you're going to get moved into either the IBR or the RAP plan. If you're on the income based repayment plan, there is two versions. You would meet the criteria for old IBR or what is 15% of discretionary income if you took out a loan before July 1st, 2014.
If you took out your first loan from July 1st, 2014 up to June 30th of 2026, you would be eligible for the new IBR plan. New IBR is 10% of discretionary income, which is the same as the pay program and pretty similar to the RAP plan.
If you're trying to figure out which payment program you should go on to, I would think maybe it's PAY or it's new IBR if you meet the criteria for new IBR. If you're in the boat where you're only eligible for the old IBR plan, know that you're going to have to really run the numbers old IBR versus RAP.
One other little key component with the income based repayment program is they're dropping the financial hardship requirement to enroll into this. That means they're going to allow you to enroll into it at any income, which is a nice feature that they have allowed for.
That's where we're at as far as our payment programs and the SAVE program. Currently, we know that everybody was in a one year forbearance where you haven't been getting credit towards loan forgiveness, but you haven't had any interest on the loans. Well, that is stopping on August 1st. They're turning on the interest again. And over the next three years, the SAVE program will go away. But remember, it's also under this lawsuit currently enjoined by the courts and they're still debating what to do with it. But bottom line, it doesn't look good for the SAVE program.
And if you're doing a loan forgiveness program, I don't know that you want to continue to wait out SAVE because there's just no guarantee that you're going to be able to get credit for the months that we're in this SAVE legal forbearance, even through the buyback program that is severely backlogged. It's about two years delayed right now. So, if you're in that situation and you're trying to get the clock moving again for loan forgiveness, maybe you look to IBR or PAY or ICR, one of those to get the ball rolling again.
If you're in the camp of no payments due or frankly, you're thinking about not doing loan forgiveness, it might be a good time to look to refinance your federal loans to private. I just had a client get 3.8% on a five year term, dropping her interest rates from about 7.5% to 3.8%. That can save you a ton of money if you're just going to end up paying these off. Maybe it's time to get them out of the federal system and refinance them as rates have recently gotten a little bit better. I don't know exactly when SAVE is going to be eliminated, but it could certainly be over the next year's time.
One other thing, a couple of things to consider is that the deferment and the forbearance rules are going to get tightened up. Currently you could have about three years of forbearances and then you could consolidate your loans and reset those three years of forbearances. And you can't have them consecutively, but this could be cumulatively over a three year period of time. Well, what they're going to do is they're going to shorten it so you can only have nine months of forbearance over a 24 month period of time. Really what we're seeing is they're really trying to get people back into repayment and not have you in periods of time where you're not making payments on the loans.
One other point is with Parent PLUS loans. If you have Parent PLUS loans or if you're borrowing them on behalf of your children, know that you used to be able to borrow whatever your child needed for their education. Usually they were used for undergraduate because undergrad has lower federal limits than they do for the graduate and professional degree levels.
But for Parent PLUS loans, you can take out about $65,000 per child that used to be capped and used to have no cap there. And the other thing, too, is that if you want to be eligible for income driven repayment programs, I would make sure you are consolidating your loans before summer 2026 and getting into the income contingent repayment program.
Because once that ICR plan goes away, my understanding is that Parent PLUS loans will not have access to income driven options. They're going to have access probably to that standard 25 year plan and then refinancing. Things are definitely going to get a little bit tighter for Parent PLUS borrowers.
But the big takeaway here is continue to stay informed on these changes. And it appears we've got a framework for the next couple of years what this administration is looking to do as far as getting things back into repayment. Good luck to you.
Dr. Jim Dahle:
Okay, I hope that was helpful to you. We're going to continue to produce content about this. We are updating our current student loan content as quickly as we can. Please have patience with us. We've been teaching how to manage your student loans for the last 15 years in books, online courses, on this podcast, on the blog, email newsletters. Everything's got to be updated. Everything changed.
And so, you probably need a student loan plan. If you don't have one, you need one before. But even if you have one, you might need updates. Now, lots of people are going to be grandfathered in and can still follow the same plan they've been following. Not everybody.
One of the big groups of people that are affected are those who are going for PAY, this type of IDR forgiveness. They're hoping to get that at 20 years. That part's going away. They're having to go for a plan that doesn't give it until 25 or even 30 years. But one doc wrote in and said that makes a difference of $300,000 to me. So, those folks are not grandfathered in.
This is one downside of relying on the government to take care of your student loans is there is some legislative risk there. This is why we've been telling you for years about public service loan forgiveness, which really wasn't changed much. But about public service loan forgiveness, have a PSLF side fund in case your career plans change or in case there's legislative or executive change that affects your decision. Those folks relying on IDR forgiveness. You may want a new plan. It may be worth running the numbers. I highly recommend booking a consult with Andrew. StudentLoanAdvice.com is where you can do that.
All right. Our questions today are very relevant to the subject we've been talking about. This one comes from a future med student. Let's take a listen to it.
IS GOING TO MEDICAL SCHOOL STILL WORTH THE COST?
Speaker:
Hey, Dr. Dahle, thanks for everything you do. I've been listening to your podcast since high school, and I found it to be super helpful. I'm a Canadian undergraduate student applying to DO med schools in the US this coming cycle. The tuition fees, as well as the estimated cost of living for the schools that I'm applying to in the US, would total between $520,000 to $550,000 Canadian, which equates to $380,000 to $400,000 US dollars for the degree. This includes interest accrual up to graduation, as I do not qualify for financial aid as a Canadian.
I would love to do the HPSP scholarship from all aspects, but it doesn't seem as though I'm eligible for it as a Canadian citizen. My question is this, do you think that this is still a wise investment given the large financial cost? And do you have any advice or insight into my situation? Thanks.
Dr. Jim Dahle:
I just had this discussion at Lake Powell on a houseboat this week. One of our friends is starting med school, started the week I'm recording this, two days before I recorded this podcast, started med school at a DO school. I asked her, how much are you borrowing? She said, $46,000 this semester. It's a relatively new school. It doesn't yet qualify for federal student loans. So, these are private loans.
I asked her what her interest rate was. 11%. The plan right now, at least until her third or fourth year when supposedly the school is going to qualify for federal loans, the plan right now is to borrow $92,000-ish a year at 11%. Now at 11%, your debt is doubling or so every six to seven years, six and a half years, your debt's doubling. So her debt will double. That MS1 debt is going to double before she ever starts making attending money.
It's not that hard to run the numbers out and realize that she's going to owe $700,000 or $800,000 by the time she comes out of medical school. Substantially more than this question.
Is medical school still worth it? Well, I think it is compared to lots of professions where the cost of entry is pretty high, sometimes close to what it costs to get into medicine. But they have much lower income. It's a very bimodal distribution of incomes in law, for instance. You either get into big law and you make something like $200,000 while working as many hours as residents do, or you end up with some other job where you're making $50,000. You got to figure out a way to pay off your $200,000 in student loans. Pharmacy is not that awesome of a ratio. Veterinarians can have a terrible ratio. Sometimes their debts are as large as that of us in medicine and income can often be much lower.
So, compared to all those, I think medicine is still your best bet. And I think it's still worth it. I think it's still a good investment, even if you have to pay every dime of the cost of your education with borrowed money. I think it's worth it. Is it worth it 11%? It’s probably even still worth it if you're paying at 11%.
But it is not nearly as attractive as it was a few weeks ago before this legislation passed. Because now, these people starting med school now, they're only going to be able to borrow up to $200,000 federally. And after that, they'd be borrowing with private loans. $50,000 a year federal. And after that, it's private.
And so, there's going to be a resurgence of the private lending market, which basically just disappeared the last decade or so. Why would anybody take out a private loan when they can just take out as much federal loan as they can possibly need? Of course, nobody was doing that. The federal loans qualify for IDR programs, they qualify for PSLF. And sometimes payments just go to 0% and zero payment due for three and a half years when there's a pandemic. Who wouldn't want to just use federal loans?
Well, whether it's the right policy or not, we can debate that at some other point. That's not what this podcast is all about. It's not about debating political policy. It's about helping you take what's put in place and implementing it in your life.
I think it's still worth it. But you need a plan to take care of the cost of your education. And that plan needs to actually make sense. Now, public service loan forgiveness is not gone. It's still there. And while people who do very short residencies, maybe they're not going to get enough forgiven that it's worth hassling with it, the amount of federal loans they have. But for lots of people, it's still going to make sense to go for public service loan forgiveness on that $200,000 and whatever it grows to portion of your debt.
You will pay more of it down under the new IDR plans than you would have under the old ones, especially when there's student loan holidays. But it's probably still worth it for lots of docs, especially if you're not paid that much, you spend a long time in training, all these factors that make it more beneficial to you. It's still going to make sense. There's still going to be lots of people going for public service loan forgiveness, but it's not nearly as good as it was. It's not nearly as good of an option.
What does that bring us to? Well, that brings us to the old option, the option that many of us have used, the option that works very reliably, which is to live like a resident for a few years after you finish training and write five figure checks every month to your lender.
I assure you, if you send your lender $10,000 or $20,000 a month, your student loans are going to go away very quickly. If you owe $200,000 and you're sending them $15,000 a month, your loans are going to be gone in less than a year and a half. If you owe $400,000 and you're sending them $10,000 a month, they still go away in less than four years or so with interest.
This works. It works if you can keep your lifestyle down and keep your earnings up. You can get your student loans paid off in less than five years. Now, in some of these other situations, for example, my friend who's going to medical school expects to be owing, I don't know, $700,000 when she gets done with her training. That is going to be a lot of debt to pay off.
But you're also got to keep in mind, you can't compare debt now that you're going to be paying off later to salaries now. If we went back 10 years ago and look what the average doc was making, it was substantially less than the average doc is making now.
I wrote about this in my first book. I called it the Big Squeeze because the fear was that physician incomes were dropping. Well, they didn't drop. They went up over the last 10 years. While the average physician income today is about $375,000, that's probably not what it's going to be when she gets out of medical school. It might be $450,000. And who knows what specialty she's going to choose and what kind of practice environment she's going to choose. Maybe she's making significantly more than that.
She comes out and she owes $700,000 and she makes $600,000 a year. Yeah, you can pay that off by living like a resident. Send the lender $20,000 a month. You send them $20,000 a month and you pay off your $700,000 in student loans in what? 35 months or something like that. A little more than that with interest, but certainly still less than five years, you can be have paid off school and be done and move on with life. And there's an awful lot you can do. Once you free up that $10,000 or $15,000 or $20,000 a month, you're sending to that lender.
Now, what you can't do, of course, is have this be your plan, borrow $700,000 from medical school, and then end up in a specialty that makes not that much money. And take a job within that specialty that makes far less than the average in that specialty and expect this to work out. You cannot borrow $700,000 and then take a job that doesn't qualify for PSLF that pays $160,000 and expect this to work out well.
I emphasize this to her. I'm like, you're not going to be able to go on the parent track for a few years. You're going to have to have a nanny if you want to have kids. You're going to have to have a stay-at-home spouse or some sort of plan because you can't put off kids until you have all these loans paid off. You're going to have biological problems having kids at that point. So, you've got to have them as you go along and you've got to have a plan to deal with that. That allows you to continue to work full time.
Because you're only going to be able to pay these things off if you work full time. Whether you're going for PSLF or whether you're living like a resident and paying them off yourself, you're going to need to work full time for a few years after you finish your training in order to get them taken care of.
Yes, I think medical school is still worth it financially, even if you're Canadian and going to a DO school here in the US and it's going to cost you $400,000. If you will live like a resident afterward, you can pay off that $400,000 in student loans. You don't have to do it forever. You only have to do it for a few years, but it's still worth it financially. It's a little less of a good deal now than it was a few weeks ago.
QUOTE OF THE DAY
Our quote of the day today comes from Maya Angelou, who said, “Success is liking yourself, liking what you do and liking how you do it.” And it's important to keep that in mind as we talk about all the financial ramifications of our careers that finances aren't necessarily the most important part. Let's keep that in mind.
Okay, let's talk to another medical student, this one at the far end of medical school.
TALKING FINANCES WITH YOUR FUTURE SPOUSE
Speaker 2:
Hi, Dr. Dahle. I'm a fourth year medical student who's getting ready to match later this year. My wife and I got married earlier in the year and have started having monthly meetings to discuss our financial plan. She currently works as an ER nurse, and we had discussed the possibility of writing a prenuptial agreement to delineate financial obligations in our marriage.
We ultimately decided to forgo a prenuptial agreement prior to getting married, given that our incomes would be similar while I complete my training. Our plan is to revisit this topic in a few years to discuss a postnuptial agreement. So far, this has been a very open and healthy discussion.
I was wondering if you have any recommendations regarding this process. I would like to protect my future asset allocation in the unlikely scenario of divorce, but I also want to build wealth alongside my wife together as a team.
My wife deserves to be recognized for her support through my training, but I owe it to myself to protect a portion of the assets I may acquire in the future. Do you have any suggestions on terms that may allow us to achieve these goals? Thank you so much.
Dr. Jim Dahle:
Great question. Let's talk a little bit about prenups and postnups and marriage and divorce and all these fun subjects to talk about. If you thought it was hard to write a prenup, imagine how hard a postnup is going to be. This is definitely something far easier to do at the beginning, I think, if you thought it was really required, I'm not sure your approach is the one I would take.
That said, if you ask an attorney this question, they will point out, “Well, we all have a prenup”, but the prenup is written by the state. If you don't like the one the state has written, then you ought to write a different one and hopefully you can both agree on it. The easiest time to do that is when you both love each other so much that you want to spend the rest of your lives together. So, if you don't like the state plan, then write your own plan.
Now, if you're getting married and you're young and you're both broke or pretty darn close to it, I don't know that the state's prenup is terribly unfair. You may feel it is and it's worth getting your own prenup, great, get your own prenup. But when you start out broke and you work together on building wealth and then something happens and you break up later, well, about half the wealth and about half the income ought to go to each of you. And that's just the way it works in most states when they work it out.
You can do a prenup if you want, but in that situation, I would not argue it's totally mandatory to have a prenup. Now, I think there are times when it is mandatory. You're getting married later and one of you is a decamillionaire and the other one's broke. A prenup's probably a really good idea. If there's kids coming into the marriage, somebody else's kids, and you want your kids to be taken care of in the event of a divorce and that sort of thing, you need a prenup in those situations. I think it's pretty darn mandatory in those kinds of things.
It may or may not be mandatory if you're coming from wealthy parents. They may be able to achieve what they hope to in protecting assets from a divorcing spouse using a trust of some kind. But it's definitely worth considering a prenup in that sort of a situation.
But when you're both young and broke, one of you is a nurse and the other one of you is borrowing a bunch of money for medical school. I don't know that it's the most mandatory thing in the world. We didn't get one. And if we ended up splitting up, we'd split the assets in half and split the income in some way. And we'd end up both being just fine, it turns out, because we've been successful enough that we could both live just fine off half of what we have built together.
That is the benefit of working together with somebody else to build wealth. When you look at studies, married people have more wealth than single people have more wealth than divorced people. That divorce process is just really expensive. Not only is there all the hassle and the worry and the fighting that reduces your ability to make income, but you have to pay the attorneys a whole bunch of money.
And then of course, when you get divorced, your assets and your income are cut in half. There's also the pre-divorce period where you're like, “Oh, half this money isn't even mine. I'm just going to go spend it. Everything's 50% off.” And so, I think a lot of wealth disappears in a year or two as the divorce is coming up. It's just not a great thing financially to get divorced.
Your best asset protection move, as I've always said, is date night. Keep that marriage together. Financially, that's going to be the best move most of the time. Obviously, if you're married to some terrible spendthrift, that might not be the case, but most of the time, if you can work it out, it's going to work out better for you financially.
All right. So, how do you go get a postnup? I don't know that I have recommendations for it. You go see an attorney. You should each have your own attorney that just represents you. You ought to look at what the state would do if you got divorced without any sort of prenup or postnup and see what changes you want to make to that. Negotiate back and forth until you're both happy. Sign it and file it away. And hopefully you'll never need to use it.
If nothing else, one good thing about talking about prenups and postnups is it gets rid of all these surprises that some people run into. Financial surprises when they get married and they find out their spouse has $250,000 in student loans or $80,000 in credit cards or is just really irresponsible about money. It forces you to have the financial conversations I think people ought to have before they get married. And if it accomplishes that, well, great.
But I think that's the process I'd go through if I tried to do a postnup. We've never tried to do that ourselves. So I'm sure somebody who has will write in and we'll give an update to this discussion in a later podcast. And if they have great recommendations for how to get a postnup, we'll add that segment to a future podcast.
Okay. I want to talk for a minute about something that's really important, which is that you get paid what you're worth. This is a real problem in White Coat Investor land. I am shocked at the breadth, the range of income in any given specialty of people working about the same amount of time. I know pediatricians making seven figures. I know pediatricians making five figures. It's a huge range. And a lot of you are not being paid what you should be getting paid.
It's just a lot easier to build wealth and pay off debt and reach your financial goals and support others and give to your favorite charities when you're actually making more money. And so, I want to make sure that you're not necessarily being paid too much. I just want you to be paid what you're worth.
One of the services we have had here at the White Coat Investor for a long time is a referral program to people who review your contract. Now, if you go to the website and you go to the recommended tab and you go down to contact review, you will see a number of companies there that we have listed that will help you to evaluate your contracts. Whether they're partnership contracts or whether they are employment contracts. We've got companies like Resolve and ContractRx and Contract Diagnostics, Physician Agreements, et cetera.
These people all pay us, of course. They're advertisers of the program, but they only charge a few hundred dollars. A few hundred dollars to make sure you're not getting underpaid by $50,000. It doesn't take that much for them to really earn their money back for you.
I think pretty much everybody signing a physician employment contract needs to hire one of these companies, have your contract reviewed, know what every term in there means, know what the going rate is for you because they're doing this for people all the time. They can give you the information, let you know what you're actually worth, and maybe give you some suggestions on how to negotiate or even negotiate for you if you want.
We had Kyle Claussen with Resolve on here a few weeks ago, and I got an email afterward said, “I recently used Resolve after hearing about them on your podcast, and that was the best value for money that I've ever spent. I'm talking like 50X what I paid them with just my base salary. I would have never negotiated for that increase if I did not have them on my side providing the data and reassuring me that there is a way to negotiate while being very cordial, polite, and professional. Thank you once again for all that you do.”
Can you get a better testimonial than that? 50 times what they paid just in their base salary. If you want to hire Resolve, you can go to whitecoatinvestor.com/resolve. We got several other companies there we think of just as highly.
Check those out on the recommended page, but get your contracts reviewed for crying out loud. Get paid what you're worth. The rest of your personal finances go a lot better if you're not being underpaid, so make sure you're being paid fairly, especially now that things like the student loan environment worsening a little bit, it becomes more and more important than ever that doctors are being paid fairly for the work they're doing.
SPONSOR
As I mentioned at the beginning of the podcast, and this is such an appropriate sponsor for today's podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.com/whitecoatinvestors to see all the promotions and offers they've got waiting for you.
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Okay, don't forget about the scholarship. If you're a professional student enrolled full-time, you can apply through the end of August. Go to whitecoatinvestor.com/scholarship. If you were willing to help us judge, email [email protected]. We could definitely use a few more judges.
Thanks for those of you leaving five-star reviews and telling your friends about the podcast. We had one come in from Physician Scientist from Massachusetts who said, “My constant companion since 2017, when I discovered the WCI podcast, I was toward the end of paying off my medical school loans. And since that time, I've read the books, followed blog posts, and listened to most podcasts during workouts and car rides. I paid off all my student loans in 2019 and was fortunate to be featured on a Milestone to Millionaire episode.
The learnings have provided far-reaching effects since that time. I've began funding my kids 529s, bought a car with cash, self-funded my spouse's mid-career degree in law, rolled over four 401(k)s, served as the executrix for my parents' estate, including probate, reviewed for the White Coat Investor Scholarship.” Thanks for doing that, by the way.” And invested in a second mountain home for our ski and hiking adventures. The knowledge from this community has given me confidence to take charge of my financial situation, make small but continuous improvements. Thank you for being an amazing resource.” Five stars.
It's a nice note, but most importantly, putting those in helps other people find this podcast. And we can help them in these awesome ways that makes their lives better. I truly believe docs, with their financial ducks in a row, are better docs. They're less worried about making the Tesla payment at the end of the month or paying off their student loans.
They can concentrate on their patients. They can concentrate on their families. They can concentrate on their own wellness. They're not working so much that they're burned out and getting bad patient care and dropping out of the profession. You're going to be a better doctor if you take care of your finances. Please do something small this week. Make them just a little bit better. One step at a time. You've got this.
Keep your head up, shoulders back. We'll be here to help you all along the way. See you next time on the White Coat Investor podcast.
DISCLAIMER
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.
Milestones to Millionaire Transcript
INTRODUCTION
This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.
Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 232 – Medical student graduates from med school debt-free with limited parental help.
This podcast is sponsored by Bob Bhayani of Protuity. He is an independent provider of disability insurance and planning solutions to the medical community in every state and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies.
If you need to review your disability insurance coverage or to get this critical insurance in place, contact Bob at www.whitecoatinvestor.com/protuity today by emailing at [email protected] or by calling (973) 771-9100.
All right, welcome back to the podcast. This is the Milestones to Millionaire podcast. We try to celebrate your accomplishments, congratulate you, and use them to inspire others to do what you have accomplished. You can apply to come on the podcast at whitecoatinvestor.com/milestones.
Something I wanted to make sure you knew about was this company we partnered with called Boldin. You can learn more at whitecoatinvestor.com/Boldin. It's considered a perfect companion for DIY investors, especially if you want to use it alongside something like our Fire Your Financial Advisor course.
You can empower yourself as a DIY investor to take control of the variables that impact your wealth, retirement timing, and long-term financial security. For example, some of the features they have on there, it's a calculator that you can use to run the numbers for your retirement, but they've got custom withdrawal orders. So you can define the sequence in which accounts are tapped for retirement income and enable some more effective task strategies and personalized planning.
They've recently redesigned their overview page, so it's an improved layout, gives you a better insight to key numbers and highlighting your next steps and helping you understand the impact of decisions on your projected net worth. It's got some enhanced Roth conversion modeling, it's got some better rate customization, some flexible objects for set options for setting rates for inflation, appreciation, returns.
It's also got a new enhancement called the Summary of Changes tool that allows you to identify the variables in an alternate scenario. If you want to run the numbers with a different assumption, you can now do that more easily than you used to be able to. There's also some long-term care assumptions that have been updated in it as well.
Lots of cool updates to Boldin. You can learn more about it at whitecoatinvestor.com/boldin. Like any software, it often has free versions and a cheaper version, a premium version with more features, so I don't know which one's going to be right for you, but start low and add on features as you need to. It's not particularly expensive. You can check it out at whitecoatinvestor.com/boldin.
All right, stick around after this interview. We got a great interview with a med student, actually. Stick around afterward. We're going to talk about what I call the pennies problem with the backdoor Roth IRA. Maybe it ought to be called the dollars problem now, but when I first started talking about it, it was a pennies problem. But it's a common problem you guys are having out there, so let's talk a little bit about it and what you can do to take care of it and to avoid it.
INTERVIEW
Our guest today on the Milestones podcast is Sophia. Welcome to the podcast and congratulations to you on your recent milestone.
Sophia:
Thank you.
Dr. Jim Dahle:
Okay, tell us where you're at in your career and what you are accomplishing now.
Sophia:
Yeah, I am starting my fourth year of medical school and I am accomplishing the goal of becoming debt-free throughout medical school and having enough saved to basically make it through without debt.
Dr. Jim Dahle:
Okay, pretty cool. So you are going to graduate from medical school debt-free.
Sophia:
Yeah.
Dr. Jim Dahle:
Now, when I look at the statistics, about one out of four medical students does this, but the vast majority of those got a whole bunch of money from their family to pay for medical school. It doesn't sound like that's the case for you.
Sophia:
I did. I did get some money. I was bringing it down the other day and I want to be completely upfront. Obviously, they definitely helped me. They gave me about $36,000 over the course of four years. It was primarily in the first year. They helped me pay for tuition and a little bit of living expenses. My funds were tied up in a high-yield savings account. Yeah, they still did help me, but the rest I did myself.
Dr. Jim Dahle:
Okay, you got a little bit of family help, but obviously $36,000 compared to the cost of medical school is not that big of a chunk. Tell us the other methods you use to pay for medical school.
Sophia:
Yeah, I guess it started during my gap year. I worked full-time and then I had a second job. I was working a lot, like 60, 70, 80 hours a week.
Dr. Jim Dahle:
You figured you might as well try it out if you have to do it during residency.
Sophia:
Right. I was like, “Oh, this is not so bad.” But after you get to the third month of that, you're like, “Okay, I'm tired.” And I was from home for some of it. So it was a lot easier to balance. Residency is going to be a lot harder.
Dr. Jim Dahle:
Okay, you had some jobs during your gap year, you saved up a little bit of money. How much money did you save up, you think, before you started med school?
Sophia:
I came into school with about $80,000.
Dr. Jim Dahle:
$80,000 of your money plus the $36,000 of your parents or including the $36,000 from your parents?
Sophia:
Plus.
Dr. Jim Dahle:
Wow, you saved up $80,000 in a year.
Sophia:
No, I think I came into college with about like $20,000.
Dr. Jim Dahle:
Okay.
Sophia:
And so, I've been working since I was 12.
Dr. Jim Dahle:
So your net worth went up during undergraduate?
Sophia:
Yes. From my gap year too.
Dr. Jim Dahle:
That’s pretty cool.
Sophia:
But yes, I've been working. I worked throughout undergrad.
Dr. Jim Dahle:
Where's my kids? I got to get them in here to listen to this interview. I tell them all the time, “You know where money comes from? Money comes from work.” And you've just proved it. You worked hard, saved up a bunch of money for med school. You got a little bit of help from your parents. Okay, what else?
Sophia:
That's what I did before med school. Before med school, I was considering joining the Army. I was going to do the HPSP, which I believe is what you did. And I was really considering it. I was going through the pros and cons and seeing how it would work in with my life.
And I got to the point where I decided that I couldn't commit to something at the age of 24, 25 for a contract that I would have to start at the age of 32. I definitely want a family. I didn't want to put that at risk. It entered my mind, but I put it on the sidebar for the time. And so I just planned to work during medical school. And then the rest would go on loan.
I continued waitressing one day per week, they were okay with decreasing my hours. And then I just picked up whenever I could. My parents have an Airbnb. I did the calendar and the messaging for them. It wasn't a lot of time. And it wasn't a lot of money, but it still contributed. And then I started doing work study at the library too. The first two years I had those three.
Dr. Jim Dahle:
Okay. And then what happened after that?
Sophia:
Then I was hanging out with a friend, I knew he was in the Army and he was telling me about it and he's in the National Guard. He was saying how basically all of the fears that I had had and all of the problems that I had had weren't an issue for him. So his contract begins as soon as he signs, he drills every month. And I said, that was fine. I'm already working. I can work two days per month. That would be fine. And the contract begins right away. So you have the option to re-sign if you want at the end of six years and then two years in the IRR, but you don't have to. And so, I liked that flexibility where I can see reevaluate when the time comes. So I said, great. And I applied and I've been in for about two years now.
Dr. Jim Dahle:
Okay. So you're doing the Guard. What are the benefits the Guard pays for your medical school?
Sophia:
Yes. In New Jersey, which is where I am, and if you are in a public institution, they will waive your tuition 100%.
Dr. Jim Dahle:
Okay. So no tuition, your tuition's gone, which what's the tuition of your medical school? What does that cost?
Sophia:
It's about like $25,000 per semester, maybe a little bit less. Maybe like $43,000 per year. And so, yeah, I paid for my first year in cash. And then after that they've been waiving the rest.
Dr. Jim Dahle:
Okay. Do they give you a stipend or do they pay for your books or your supplies or equipment or anything like that?
Sophia:
No. That's the magic. You can sign on to more years and get a monthly stipend, but again, I decided that I prefer the flexibility of deciding how long I want to be in and reevaluating as I go. And so, I didn't accept that. I've just been working in addition to doing the military, they do pay for the drilling. So, you make like $400 a month, per weekend.
Dr. Jim Dahle:
Okay. So you're getting paid a little bit of money when you go work essentially, and you don't have to pay tuition. What's your commitment to them?
Sophia:
Yeah. It's six years of drilling. Every month, Saturday, Sunday, you show up you're there for like 10, 12 hours. They really try to squeeze the time out of you, but it's been great. We see soldiers, it's been great. You do that once a month for six years. And then after that, you're in the IRR, which it's basically a reserve component. And I believe you don't drill, but you could be called if you need it.
Dr. Jim Dahle:
Yeah. IRR is this theoretical thing that almost never gets used. A lot of HPSP people have a little IRR commitment hanging over them when they leave and usually never have to do anything for that. But theoretically you could be deployed during your six years.
Sophia:
In theory, but you're protected during medical school and residency.
Dr. Jim Dahle:
Which is all the time you're going to be in.
Sophia:
Yes. Unless again, I want to continue and then yes, most likely I'll be deployed as soon as I'm pending.
Dr. Jim Dahle:
Okay. Do they have any influence whatsoever in your specialty choice?
Sophia:
No. You do your own residency program. That was another issue that I had had with the HPSP was I didn't know what I wanted to do. I felt uncomfortable with the risks. And so, yeah, you just go to a normal residency. You can do military if you want.
Dr. Jim Dahle:
Okay. Do you expect this to cause any problems with your residency that they're going to expect you to still drill while you're a resident?
Sophia:
My unit has been great throughout school. Their goal is to have you become a doctor.
Dr. Jim Dahle:
Even though your commitment is up by the time you become a real doctor.
Sophia:
Yeah. Just during residency, my days off, obviously you don't have a lot of days off as a resident. So my days off will be drilling.
Dr. Jim Dahle:
Yeah. It's a bit of a gamble for the guard. They don't know if you're going to sign up for more time, do they?
Sophia:
No, it's kind of a loophole. But they've treated me very well. I've had a great experience. So I think that's maybe their win. And then residency programs, I think you always have to think about how they do it. And I guess we'll see when I apply.
Dr. Jim Dahle:
Okay. So, what do you think your net worth is going to be when you walk out of school? Are you going to be flat broke or where are you going to be at you think?
Sophia:
No. Right now I'm at $40,000.
Dr. Jim Dahle:
Okay.
Sophia:
I'm not going to slow down on the working. All of a sudden I have more time.
Dr. Jim Dahle:
Well, you'll have more time as an MS4 than you had as an MS3 for sure.
Sophia:
Right. I don't really foresee that going down. But it's enough to get me through the rest of school and beyond. If that's what I want.
Dr. Jim Dahle:
How has working, including drill time, how has that affected your ability to study and get good grades in med school?
Sophia:
Yeah. There's definitely been mistakes where you took on too much and then you have to dial it back. But it's been okay. School is tough. I argued that when I was working as a waitress, I'm not going to study at 05:00 o'clock on a Friday. So, I counted that as free time and then working at the library, I can study while I'm working technically. That was an easy decision. And then with the military, you can study in between patients a little bit, but I think it's okay. I think I'm okay with giving up two days per month.
Dr. Jim Dahle:
Now, what are you doing now when you drill as a medical student? What are you doing for patient care?
Sophia:
Yeah, it's a little bit tough. For my first, basically two years, even still, I do all the pregnancy tests. We work at medical command. We see all the soldiers in the New Jersey Guard for their annual exam, and then if they're going to deploy. And so, I do all the females' pregnancy tests. I sit in a hallway by myself. It's okay. I love talking to the soldiers.
Dr. Jim Dahle:
So, kind of a tech position. You're a tech.
Sophia:
Yeah, it's kind of mundane. I input records. I think the residents are doing vitals so they're not doing too much. I'm sure they're a little bit bored. But we have good co-workers, we have a good unit. So, it's fun.
Dr. Jim Dahle:
Any threats to any of that with all these changes in Washington, DOJ and all that? Any worries that this loophole, for lack of a better word, is going to be closed?
Sophia:
I don't know. I have no idea. I'm very not well-versed in the military as it is. I'm the first person in my family. I'm not sure. But it's been around for a while, I think.
Dr. Jim Dahle:
Very cool. Very cool. All right. Why was it important to you to graduate debt-free? You're fairly financially literate. You’re certainly willing to work hard. You probably knew that you could live like a resident for a few years and pay off all your student loans. Why did you go this route instead?
Sophia:
Yeah, I definitely think I could have honed it back. I definitely think that maybe I'm a little bit more sensitive to the financial burden of loans and things like that. Growing up, my dad lost his job when I was in middle school. And I think ever since then, I just saw the stress of finances. I don't know. And I like working. So it's kind of like if you just keep working and doing what you like then it worked out. I don't know. But definitely, I don't think everybody has to come out debt-free. I think it's absolutely overkill.
Dr. Jim Dahle:
It was right for you. Okay. Now, a big worry when you work a lot is getting burned out. As I often tell undergraduates, you can do two or three things during school. You can work, you can play, and you can study. But you only do the three, not all three. And so, presumably, you've lost some opportunities to play. Is it worth it?
Sophia:
Yes. I think my secret and what I would recommend to everybody is that my jobs, for the most part, are dual whatever, results. At the library, I have the community, and I can study, and I'm working. I'm basically tackling a couple things. At the bar, it was super fun. And so, it was a break from the studying and a little bit diversity added. And then same thing at drill, I have good friends. Having the right work environment and maybe the right type of job is probably the most important for achieving that balance.
Dr. Jim Dahle:
What specialty do you anticipate going into? And do you think you'll have any trouble at all matching?
Sophia:
Yeah. I'm applying into psychiatry. Obviously, psychiatry is getting a lot more competitive, and applying in general is really tough. But I think I have a good application. I've been writing my personal statement, and I just got my step two score like a week ago. S I'm sure there's a program out there for me.
Dr. Jim Dahle:
And it's fine. You didn't get some terrible step two score.
Sophia:
No, I was shocked. Oh, my gosh. Yeah, I was very proud. And I do think like you said, I'm working a lot. And so, it does take a toll on my academics, and it can. I was very proud that I was able to, in my book, do well, and still handle all this extra stuff.
Dr. Jim Dahle:
Very cool. Well, congratulations to you. You have been very financially successful for a medical student, maybe one of the most financially successful medical students I've ever talked to. And you should be very proud of what you have accomplished and are accomplishing. Thank you for your service. I don't know what that's going to look like going forward. But we appreciate people being willing to serve whether it's guard or reserve or active duty. And thanks for being willing to come on the podcast and share your story with others to inspire them to do the same.
Sophia:
Yeah, thank you. Thank you for having me.
Dr. Jim Dahle:
All right. I hope you enjoyed that interview. It's fun to talk to a medical student. This one's going to be very successful financially. Tons of hard work, tons of financial literacy there. It's pretty awesome to come out of medical school debt free.
But let's be honest, most of the time, why do people come out debt free? Because their parents gave them $300,000. And don't get me wrong, it's wonderful if your parents do that. Congratulate your parents on that when White Coat Investors save up those sorts of $529,000, I definitely congratulate them.
But it's not nearly as hard as what our guest has been doing. Made some commitment to our country, did a lot of hard work both before school and during school, found a way to balance that with the rest of life. It's pretty impressive. And it demonstrates just what can be done to get out of school debt free or with very limited debt.
Obviously, if you're willing to live like a resident after residency, you can pay off substantial student loans in one, two, three years afterward. You don't have to graduate debt free to be financially savvy, be financially successful.
But I also don't want you to have student loans in mid-career. These things live in your basement, never go away the whole time you're in your career. There's no reason you should be in your 50s still with medical school student loans. If that's the case, it probably reflects maybe some decisions you haven't made that were optimal. It's still time to clean it up. Don't get me wrong. Don't hang up the podcast, turn off the podcast and quit listening. There is still lots and lots of hope for you. But I hope most White Coat Investors don't end up in that situation.
FINANCE 101: THE PENNIES ISSUE WITH BACKDOOR ROTH IRA
Okay, I promised you at the top of the hour, we're going to talk about the pennies issue. And that's what I called it when I first wrote about this in 2017 I think. I wrote a blog post called Pennies and the Backdoor Roth IRA. And here was the issue.
Remember the backdoor Roth IRA is a two-step process. You put the money into the traditional IRA. And then you do a Roth conversion on that money in the traditional IRA into the Roth IRA. Two-step process. And what would happen is while that money sat in the traditional IRA for a day or a week or whatever, it made money.
Hopefully you weren't dumb enough to invest it into stocks and mutual funds and that sort of thing. Hopefully it just sat there in cash. That causes more problems when you put it into stocks, but it'd make a little bit of money.
Back in 2017, interest rates were super low. So it didn't make very much money. It was literally pennies. People would be like, “I got 42 cents in my traditional IRA. Am I going to get prorated? What's going to happen?” I'd get these frantic emails. Well, technically you'd get prorated, but it was on 42 cents. That rounds down to zero. So, you're really not getting prorated, but people worried about it.
The solution to it was to just go do a second Roth conversion, whether that was 42 cents or whether that was a buck 50 or whether that was $25 or $400 or whatever it was, you just convert that. Hey, you already did the big Roth conversion of your $7,000 or whatever. Now you're converting the $18 in interest that it earned while money sat in there. Now that $18 is going to be taxable. That doesn't come over tax-free like the rest of the backdoor Roth IRA, but you got to pay taxes on that $18.
But the best way to clean it up is to just do a second Roth conversion that same year. And the sooner you do it, the better, the less it's going to cost you. So do that second conversion, go back and look after you do your backdoor Roth IRA, see what money is still in traditional IRA and convert it over to the backdoor Roth.
Now, if you don't do that, it's not the end of the world. Yes, you're going to be prorated. But what are you getting prorated? Well, in essence, you're paying tax on $18. It's not a big deal. And next year when you do a Roth conversion, you can just convert that $18 with your next $7,000 that you did with your backdoor Roth IRA the next year. It's not a big deal.
So, don't stress about money that either gets left behind in there or money that you subsequently realize is left behind and move before the end of the year with another Roth conversion. It's not a big deal either way. You don't want to have thousands and thousands of dollars in a traditional IRA. That's going to cause you a prorated problem and makes it maybe not even worth doing a backdoor Roth IRA every year. But if you got $5 in there or 42 cents or $20, it's really not that big of a deal no matter what you do.
Now what you don't want to do is invest that money in the traditional IRA because one of two things is going to happen. Either you're going to make a whole bunch of money in the day or week or month or whatever in between your contribution to the traditional IRA and your conversion to the Roth IRA and you're going to have to pay a bunch of taxes on the money.
Or what often happens is you lose money. You invested the money in something that can go down in value and it went down in value and then now you're like, “Well, what do I do? Do I convert it?” Well, if you convert it, you're going to be carrying that loss forward on the paperwork on form 8606 every year, which is kind of a pain. Eventually it may be eaten up by these $5 or $10 amounts that people have to convert as a second conversion every year.
Maybe you can eventually use up your loss doing that, but it's just a pain. Don't invest the money in traditional IRA. Just leave it in cash, a money market fund or whatever the cash account is, the sweep account or wherever you're doing the IRAs. Just leave it in cash until you convert it, then invest it. Because otherwise it's kind of a pain to deal with.
The process is put cash into your traditional IRA, convert it as soon as possible to the Roth IRA and then invest it. Do it in that order, I promise. It'll make your life a little easier. It'll make your paperwork a little bit easier and you won't have to write me frantic emails about it. Thanks for paying attention to the proper way to do a backdoor Roth IRA.
It's worth doing. It's $7,000 for you, it's $7,000 for your spouse, whether they're working or not and all that money after compound interest applies to it over decades. It's a substantial amount of money in that Roth account. It's worth doing, you just got to understand the little bit of nuances to doing it.
SPONSOR
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Contact Bob at www.whitecoatinvestor.com/protuity. You can email [email protected], you can call (973) 771-9100. But the bottom line is the biggest problem with disability insurance that doctors have is they don't buy it. You almost surely need disability insurance, especially if you're a young doctor, if you're a sole earner, if somebody else is dependent on your income, if you're not already financially independent, you're depending on your income, you need to get disability insurance in place. Bob can help you do it. whitecoatinvestor.com/protuity.
All right. Thanks for listening to this podcast. We're glad you're here. It's not much of a podcast without an audience and we're grateful for you. We're grateful for the work you do day to day.
Every time I go see a doctor for myself or somebody else, I'm reminded just how important the work that you do is. It really does matter. Thanks for doing it. Let's help you be financially successful and help you do well while you're doing good. Let's see you next time on the Milestones to Millionaire podcast.
DISCLAIMER
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.
I understand SAVE will start accruing interest, but are payments not required/permitted on SAVE until it’s legal limbo is resolved? I am guessing that the interest will keep being added to the principal but we cannot pay down that interest either (unless we switch to one of these new plans)? I borrowed 2016-2020 and am not going for PSLF, so I was just letting it erode by inflation during the pause
thank you for all you do
Jack
I don’t think you can make SAVE payments now even if you wanted to.
If you’re not going for PSLF, I think I’d start looking into refinancing now.
SAVE payments will not count towards any PSLF and there are no required payments with the legal issues, but borrowers can still make payments anytime as far as I am aware. I haven’t heard this said, but I believe there is a good argument here to just wait on the SAVE plan until the legal issues are sorted out if you are unable to find a lower interest rate to refinance to.
If you’re goal in selecting SAVE was to minimize payments during a period like residency, the legal challenges have not ruined this option since those payments are still in place and there’s not even recertification anymore to change those it seems. The legal challenges have unfortunately taken away the huge perk of not allowing interest to balloon but that’s a problem on any loan repayment plan available currently while we wait for more details on RAP.
I completely agree with the idea to seek out a lower interest rate through refinancing, but if that’s not available and you have the means to pay off the interest as it accumulates or are ok just benefiting from those lower monthly payments for now (similar to the SoFi loan perks being marketed to residents of only $100 monthly!) then just stay the course until there is more info.
I agree. It’s controversial and it’ll be more clear later what the best choice today is.
Jack,
Correct, interest is starting up. Since you’re not going for PSLF you can look into refinancing to a lower rate.
Andrew SLA
Hi Andrew,
Have you heard anything about the SAVE interest subsidy carrying forward come Aug 1? I called my loan servicer and they said whatever interest I was accruing under SAVE before the legal challenge would be the same starting Aug 1. I previously had zero dollar payments making my interest also zero. Does this mean my interest starting Aug 1 remains as 0%? I feel like this is too good to be true.
Thank you all for the thoughtful replies and guidance. The added complication I forgot to mention is that I’m hoping to enroll in California’s loan repayment plan calhealthcares, which only forgives federal loans. Unfortunately that is still in limbo for funding, but presuming it were funded in the next year or so it would behoove me to stay in a federal repayment plan of some sort