By Dr. Jim Dahle, WCI Founder
I heard a call on The Dave Ramsey Show from the wife of a soon to graduate dental student. She was asking about whether he should use a doctor loan to buy a house. Here are the two segments in case you missed it:
I thought the call was illustrative of two things.
First, the call demonstrated the unbelievable burning desire of graduating docs, and especially their spouses, to buy a house. I’ve discussed this many times before and regular readers know how I feel about buying a house right away (i.e. don’t, especially if you still have years of training ahead of you.)
Second, the call illustrated just how debt-numb most doctors are at the completion of their training, as discussed in this guest post by a “profligate borrower.” You see, Dave quickly asked this lady the key questions — “How much student loan debt?” and “How much income?” The answers were not particularly surprising to someone like me who has a pretty good feel for the pulse of the current professional educational environment, but it apparently was to Dave. She said “$480K in debt and $120K in income.”
The problem here may not be obvious to someone who has not had to deal with a significant student loan burden. To those who have, the issue is very clear. You see, you cannot actually pay off that loan with that income during a normal career length. Let me demonstrate.
Doing the Math on Student Loan Debt
Consider the amount of interest that accumulates each year on a $480K debt burden at, let’s say 7%. It’s about $34K. Let’s assume this couple is relatively tax savvy and only pays 20% in taxes. That’s $24K. So, $120K-$34K-$24K= $62K.
Now, let’s assume this family of four lives relatively frugally on a resident’s salary, $40K. That leaves $22K with which to actually pay down the debt, save for retirement, and save for college. Just for fun, we’ll say half of it, $11K, goes to debt pay off each year.
How long does it take to pay off $480K at $11K per year? $480K/$11K per year = 44 years. What? You wanted to have your loans paid off before you’re eligible for Social Security? Not going to happen. Not to mention you’re never going to become wealthy when you’re only putting $11K a year toward it, and that’s totally ignoring helping the kids with college.
Now, before the critics get after me, I know that it’s not quite as bad as I illustrated. In fact, if you put $45K ($34K interest and $11K principal that first year) toward the 7% debt each year, you actually pay it off in just over 20 years because more of the payment goes toward principal each year. But whether it’s 20 years or 44 years is largely irrelevant in this scenario, because we’re talking about someone who busted his butt in high school to get into a good college, busted his butt in college to get into a good dental school, and then ends up with the equivalent of a resident’s salary for nearly his entire career. Now, I know dentists are really into teeth, but I doubt very many of them are into teeth enough (at least after the first 5 years) to do it for the equivalent of a $40K/year salary. (Correct me if I’m wrong, dentists.)
The problem is that the debt is just too large for the potential income. Some people look at it as an “investment” of $480K to get a job that over a 30-year career will pay $3.2M. As you can see, that’s a very bad way to look at it. Perhaps a better way to look at it is to consider the ratio of student loan debt to peak earning salary.
What Is the Ideal Student Loan Debt to Salary Ratio?
What is the ideal ratio? Well, it’s 0X, but that’s the wrong question to ask. The right question is what is the maximum ratio you should tolerate before deciding additional student loan debt just isn’t worth it?
My general debt recommendation is to not exceed a 1X level for your student loans and a 2X level for your mortgage. Obviously, people in the Bay Area often have to stretch that recommendation to get a home. But when I say stretch I’m talking 3-4X. And that stretch is going to have a significant effect on minimum career length, vehicle driven, school attended, etc. Likewise, perhaps some physicians and dentists attending an expensive school without parental or spousal support have to stretch a bit. But when I say stretch, I’m talking maybe 2X, not 3-4X. And again, that’s going to have a significant effect on lifestyle.
I think most docs should aim to have their student loan burden gone within 5 years of the completion of training. What percentage of income must go toward student loans to accomplish this? Let’s take a look.
Let’s assume an interest rate of 7%.
- 1X: 24% of gross income
- 2X: 48% of gross income
- 3X: 72% of gross income
- 4X: 96% of gross income
My nine-year-old descending Pingora, Wind River Mountains
Basically, 3-4X is impossible. So don’t ring up 3-4X in student loan debt. Either choose a different profession or find someone else (i.e. the military or similar) to pay the bill.
What If You Already Have Too Much Student Loan Debt?
Unfortunately, this is the real question. There are tens of thousands of docs who are either in this situation or soon will be. What can they do? Well, there are a few options to consider.
#1 Boost Income
What if that dentist figured out a way to make $250K instead of $120K? Now his ratio is less than 2X. How can he do that? He can go to an area with more demand, he can work harder, or he can learn a thing or two about business and own the practice, bringing in some associates and keeping part of what they generate. He can also take a second job, such as real estate investing or another entrepreneurial pursuit.
#2 Find a 501(c)(3) job and Go for PSLF
There aren’t nearly as many of these for dentists as for physicians, but they do exist. Even if the job pays 25% less, it also means your loans are gone in less than a decade.
#3 Go for IBR/PAYE/RePAYE Forgiveness
This isn’t a great option since it takes 20-25 years and the forgiveness is taxable, but when you’re desperate, you’re desperate.
#4 Get a Partner, Especially a High Earning One
There are many doctor couples I have run into where one of them is either not working at all or barely working. That’s fine. It’s not tough to live on a single doctor's salary — I’ve done it for years. But in this situation, the family isn’t living on anywhere near a doctor's salary. So if your spouse has the ability to earn, especially earn a lot, send them to work. You simply cannot afford the luxury of a stay at home spouse given your previous financial errors.
I almost put a # 5- live really frugally, but that’s pretty much a given. You don’t even really have the option to do otherwise, and you can only squeeze so much blood from a turnip. Clipping coupons and reusing paper towels isn’t going to do a lot when it’s up against a debt churning out $30K+ a year in interest.
If you’re in this situation, I’m sorry. If you’re not yet in this situation but heading that way — do all you can to minimize your student loan burden and maximize your income. It might seem like monopoly money now, but I assure you the bill will come due eventually.
What do you think? What is the maximum acceptable ratio of student loan debt to income? What is the best way to deal with it if you find yourself already in this situation? Comment below!
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Great article. Its so tough for young undergrads who have started down the path to dental school to even consider this stuff and think this long term. Its easy to imagine how one ends up in the “What if you already heave?” scenario. But you’ve just got to think about this stuff. Thanks WCI!
This is a big problem that I’m glad you are discussing it. There is a student loan crisis in our country especially of medical student loan debt and it getting out of control. I went to medical school with the aspirations of becoming a pediatrician. My wife and I had two children when we started medical school. We lived very frugal lives, drove crappy cars, etc. When I completed residency I had $480,000 of student loans earning 7% interest. However, my colleagues who were single had about the same. I’ve been working now for 3 years past residency trying to pay down my loans and still living like a resident but the task is impossible. I know have 5 kids and the student loan burden is too much. I am now considering quitting my job and working for the government agency or 501c so I don’t have to pay on these for the rest of my working life. I feel I don’t have a choice. I think you will see a lot of primary care doctors start to do this. Esoexially if you ever want to pay off your debt in a timely manner.
Very good article. I think the article is trying to get at at what point should you decide to become a physician if the payout is not substantial enough to cover the debt associated with the degree. I am fortunate to go to a public medical school but that was a very conscious decision. Having been accepted to other schools that were significantly more expensive, I would to have thought very hard about what I wanted out of life if I would take on 400k in debt. I think the problem is that a lot of my peers have not thought about the repercussions until its too late. Why that is? I have no idea, because the information is out there. Furthermore many probably have never worked before and have no idea how much you need to work to pay off a couple hundred grand in debt. Lifestyle inflation for many even in school is excessive. Thank you WIC for continuing to share these and I hope that more students decide to control their own fate.
I think a WalMart greeter is in a much better position than that dental resident with $480k debt at 7% and a $120k salary. Just saying. Maybe you can humor us and show us the numbers.
That would be a really depressing post to write. But here’s one that is similar.
https://www.whitecoatinvestor.com/the-deceptive-income-of-physicians/
I still think it would be a great post!! Maybe you should hit up a walmart and find out the information.
1x seems like a good cap to me but i think it is getting harder for low paying specialties to find this. Average debt of 170k for graduates makes 1x the minimum fot many. The problem is that all applicants generally are concerned with is getting into school any way they can and at the end sticker shock sets in.
I wonder if there are companies / systems that will help pay off loans for relocation? I know they exist for PCPs and for hospitalists, wonder if they are there for dentists.
There is nothing substantial. Some public health clinics can offer some loan repayment incentives, but it is never enough to touch $480k in loans. 10 years of public health in one of these same clinics is the only way to pay off these loans making $120k.
I wonder if you above ratios (1-2x for student debt and 2x for mortgage) become additive in your mind. For instance, I was hesitant to buy my current home at 3X my salary but I live in the Bay area. My student debt, on the other hand is 0.5x my salary. So all in all I am still in 3.5x debt to salary ratio. Not ideal, because as you mentioned no debt is the way to go. Still, hopefully I am not killing my financial future.
I was actually thinking the same thing. I’m pretty sure that, just like money itself, debt is fungible. The idea is simply not to bite off more than you can chew as a whole.
And probably not to bite at all if it doesn’t contribute meaningfully to your goals.
Well, mortgage debt is quite a bit more attractive than student loan debt. Not only is it lower rate and deductible, but it also helps reduce your rent. Student loans, at least once the education is paid for, don’t do anything. High rate, not deductible to attendings etc. They’re not interchangeable.
At first I was going to comment about “there’s no way Dental school costs that much, this means this guy lived lavishly in school, taking the max student loans he could get…”
But then I googled “cost for dental school” and the first thing that came up was Tufts university which is literally about $85,000 per year before living expenses. And then going down the line of other schools on google’s first page, it looks like this is a pretty typical model.
This is what happens when the government subsidizes education lending and the customer has an endless pot of money to throw at the universities. Eventually the cost of education will become so high (if it is not already) that it’s simply not economically feasible to go to school, defeating the whole purpose of subsidized loans in the first place.
For those in the know… do most people go to dental school and pay full sticker? Or is it like undergrad where only the dummies with a lot of money pay up? Here we have Tulane which supposedly costs $50k/year for undergrad, but hands out 50% and 100% scholarships like candy on Halloween.
Pretty much everyone pays full price. I got an 18k scholarship for mine, but that was the only one of the ten schools I got into that offered anything. Even with the scholarship it was still the most expensive though.
http://dental-schools.startclass.com/ and you can sort it by tuition. Most expensive is over 100K in tuition alone each year, cheapest is in Porto Rico and is 27k a year.
This is definitely a growing problem for new residency graduates. I think WCI’s typical example of an “average” graduate having $200k in debt is becoming a thing of the past. My wife and I lived frugally in medical school, both worked part-time, and even paid down some debt while in school. Despite all of our efforts, our debt reached a maximum of $385k upon completing residency. Unfortunately, many of my co-residents wish their debt was that low.
Believe it or not, that’s the average as reported by graduating medical students. And that doesn’t even include those who don’t have any debt at all. That’s just the average of indebted students.
Those of you who feel like “everyone has $400K+” are fooling yourselves. Part of it is residency. I mean, you might leave med school with $200K and it grows to $300K during your training. But mostly, if everyone around you has $400K+, you just happened to have gone to a really expensive school in a high cost of living area.
Of course, I suppose it is possible that many students are in denial or ignorant of how much they actually owe and answered the question wrong.
For the average to be at $200k, there must be quite a lot of grads with substantially above that. Many students heavily subsidized by their parents come out of medschool with “student loans” of $8k, $26k, or even $60k which isn’t really their med school debt, and should probably be ignored along with the ones with zero debt. If we were able to take a snapshot of MD grads who really had to go it alone, I imagine $200k would be near the very low end of the spectrum.
First hand, I can tell you that if you took the standard amount of loans at LSU, you ended up at just under $200k when you got your MD, and that is already a several-years-old figure. You probably could have skated by taking only $150k if you were very frugal (more likely living off parents), but many took private loans on top of that and were well, well over $200k, let alone any undergrad debt. At the time, LSU was literally the second cheapest med school you could attend in the nation. Right next door, Tulane was over double the cost. Since then, everything has only gotten more expensive.
I think all of the Texas medical schools are cheaper than LSU. Currently, tuition is only 18-20K/year at them. I think you could pretty easily get out of med school in Texas with 150k in debt, even now. If you’re single, you can have roommates, and rent in Texas is cheap. And if you’re married, hopefully your partner is working and you can get out with significantly less debt. So I don’t think the only way to end up with less than 200k in debt is to have parental support. Also, everyone should move to Texas to go to med school 🙂
Good to see! LSUHSC has gone up over the past few years with our state’s budget crisis. I think they’re still among the cheapest but no longer at the bottom of the list like we used to be.
Move to Texas for med school, and stay in Texas for no income tax 😀
I am not speaking to you directly but many individuals idea of frugal is subjective. One might find that buying a year old car instead of a brand new one for medical rotations is frugal, yet in the grand scheme of things neither is a frugal decision. Just an example, but I think if I surveyed my class, 50% may say they live frugally until you dive into the details. Point is, there is no universal standard of frugality, and what one considers frugal others may consider quite a luxury.
I think it is highly dependent on the area where the school is. Where I did medical school I got out wtih $170,000 in in-state tutiion. Where my husband did dental school with in-state tuition it was $375,000. Fortunately his was paid for via the military. Many of his friends graduated from a public school with in in-state tuition wtih $350-400,000 and are making between $80,000 and $120,000.
The other component is being willing to live anywhere. We were willing to relocate to an area where he is making $140,000 base as a dentist. Most of his friends are NOT willing to do that. Others chose to relocate and work with family or friend of family and therefore were not able to negotiate a reasonable salary.
agreed – but there’s only so much you can do during med school and residency to pay those off. really the problem is in taking too much. i’m at a private academic institute and tell all of my students to at least start out pursuing PSLF. many are in 500k of debt by the time they graduate because lots of them go to the “elites” prior to med school.
I agree, but I feel that it really doesn’t address the crux of the problem in that people overspend when they shouldn’t in general. Most people you talk to usually want to become a doctor at a younger age (ie before they enter undergrad) yet most don’t attend their public college or a school they receive a scholarship for. If they deem them self smart enough to go to an Ivy, then they do so even though they end up in the same place as the kids who attend public university and have at least half as much debt. These conversations were common in my household about just making sound financial decisions and I did not have any family guidance on the medical school process. So I don’t think you need to know how the process works to plan ahead as best you can.
Best financial decisions I ever made were (1) going to a good in-state undergrad on a full ride vs. $100k+ debt to go somewhere private/more prestigious and (2) staying there for med school, instead of going out of state and racking up $150k of debt for that phase.
Granted, sometimes private / prestigious institutions ARE worth it. But I ended up matching right where I wanted in a good program / specialty, and having low 5-figure debt when I graduated.
These numbers are, of course, from 15-odd years ago. I’m sure they’d be doubled now. In fact my in-state med school tuition went up by about 15% PER YEAR during my four years there! Current students have only more expensive options…
I took out $211,164 in loans to make it through medical school starting in 2005. That was when tuition and fees were just over $40,000/year. I had no debt prior to that. My only big purchase was a $6500 car to replace my old one that was hit. By the time I paid it off 2 years after a 4 year residency, I had made $296,929 in payments. $85,765 in interest payments (post tax at a higher tax bracket).
I am going to be judgmental and state that taking out more than $250,000 in loans today is not frugal, because you’ll be well into the mid to upper $300,000’s in total payments if you are quick about it. And if you don’t go into a high paying specialty, that might be too much.
I am very fortunate that I have a wife with a financial mind oriented much similar to my own. She has not demanded a large house, cars, or other things. Just cloth diapers for the baby. Things could be much worse.
I thought cloth was cheaper than disposable. Isn’t that the point? Or is she throwing the cloth diapers away instead of washing them?
It ends up either being a wash or more expensive when true costs are factored in (electricity, etc..). Thank you globalization!
Cloth diapers will come out cheaper if they are used for multiple babies, but a little more expensive if for just one baby. At 23 months we have so far spent nearly $1100 for the cloth diapers and their supplies, like special detergents, wet bags, overnights and different styles inserts, and a sprayer. Our costs should not go up much more, so this number will stay the close to the same for the next year. I have not factored in water, electricity, and gas.
We are hoping for a bigger family, but one never knows how easy or hard that will be. But even if this turns out to be more expensive by a little bit, it is not a bank breaking loss, unlike my potential hobbies.
I don’t want to de-rail the conversation here, but $1100? You can definitely do it for less than that if you are doing cloth to save money. I accrued my cloth diaper stash while in med school and we did not have that kind of cash to throw around. And now I’m using it again with the second kiddo. So it’s saved us a nice chunk of change over the years. And kept a lot of diapers out of landfills 🙂
Some things are worth spending money on and filling landfills.
This is the funny thing about that, turns out all that water, electricity, gas, etc…is more of a resource hog and “wasteful” than todays disposable diapers. While it was at one time the reality, it changed and the perception hasnt. Ymmv of course, but its not the slam dunk thing we’re conditioned to believe it is. It became a fashionable thing to do a number of years ago and prices to be fashionable increased.
Yea, that’s what I recall. My mom used cloth for half of us to save money. Then she decided it wasn’t worth it!
Y’all are hilarious 😉 I guess the other benefit is that cloth diapers actually keep the poop in the diaper, rather than dealing with blowouts all the time. And they’re cute 🙂
I suspect there is a recent generation of med school grads for whom the information about what was going on with education costs and debt burden never really trickled down while they were undergrads pursuing their dream, so their med school graduation present was the shocking realization you describe. But what happens as this realization become more and more widely known (e.g. via this blog) and it subsequently gets harder and harder to convince people to go into primary care, or even go into medicine at all? Does the public know enough about this? Do lawmakers? Can we ever hope for any improvement in this situation?
I graduated dental school 4.5 years ago with $250K in debt. The average for my class was $325K. The financial disclosure I received during application said my total expected debt at time of graduation was $190K. Why the vast discrepancy?
First, I had less debt than my peers because my spouse worked at a good paying job with good benefits so we only needed to borrow for tuition. My friends whose spouses stayed home with the kids and borrowed for cost of living are in much worse shape. Second, the discrepancy between our expected debt and actual debt occurred because the school raised tuition every year. 15% in year one, 11% year two, 14% year three, and 14% again in year four.
They claimed it was due to changes in some tort law at the university, reduced state funding, and increasing cost of materials. That may or may not be true but it doesn’t change the fact that we all felt we were on the bad end of a massive bait and switch.
When I started school the average dental salary (according to my undergrad pre-dental society) was $150K. Thus my debt burden of $190K would have worked under the suggested 1-2X rule. Also, all the dentists I talked with had their student loans at 1-2%, I assumed (bad mistake by me) that would be reality also. When I graduated with $250K in debt at 6.9% and found dental starting salaries to be in the $80 -120K range I was suddenly on the wrong side of the 2X rule but I felt like it happened despite my best efforts to a prudent borrower and life planner.
I am very happy to say I made my last student loan payment on Thursday! But that is only because I realized my terrible situation as a junior and secured a job where I received NHSC loan repayment. I received $110K over 4+ years of tax free money for my loans and along with the discovery of WCI and MMM I have been redeemed from the depths of dental loan hell.
The point is, this problem has many layers and is more complex than a rule of thumb can solve (To be clear, I love the article and am in favor of the rule). The problems are:
1. Lack of financial literacy with pre-med and pre-dental students
2. A generation of “mentor” dentists who did not live this horror and don’t properly advise prospective dentists
3. Lack of transparency and accountability of dental schools to charge what they say they will
4. Unfettered lending
5. Government interest rates on student loans that do not match up with current economic realities (my mortgage is at 3% and my student debt was at 6.9%…..weird)
6. Declining dental salaries as reimbursement rates fall and corporate dentistry rises
7. The cost of entry to private practice. Not mentioned in WCI suggestion to “Boost Income” and “own the practice and have associates” is that you have to purchase your way into that position; often to the tune of $400 – 800K. That may boost income but now with 3X student loan, 2X mortgage, and 5X practice loan you are 10X debt to income! Not a viable path for most young dentists.
Fabulous article. Should be mandatory reading for all pre-dental societies nationwide and for all admission deans at all dental schools.
Thank you WCI for all you have done to help me achieve peace and financial stability despite the tough economic realities of our time.
Congratulations! You should be very proud of yourself. Your life just got 10 times better this weekend. What a great Christmas present to yourself.
I agree with your pointed list, excepting #6. I think in large part the decline in salaries is mostly due to doctors and dentists exhibiting point #1. Doctors and Dentists are almost all financially illiterate (not those posting here obviously). Thus they are poor business owners and operators. Exhibiting generally poor business acumen, the solo practitioner had no effective knowledge on how to combat insurance carriers and have largely been forced to accept lower reimbursement. The huge failure is organized dentistry, not corporate dentistry. Had the ADA and ADPAC truly had dentists’ interest in mind, the dental insurance industry would have been forced from setting ridiculously low, restrictive reimbursement policies decades ago.
Every other point is spot on and highlights the tenuous position for most newly graduating dentists. Great job!
I agree with what you said, but corporate Dentistry does play into that. The big companies can get higher reimbursement than the solo practice simply because they cover more area so it looks like the plan has more options. Insurance pays for that.
However the companies also hire the new grads and are deceptive when hiring. I’ve had quite a few offer 25% of production instead of the typical 30-33%, and they try to sell it as only being 5% less (30%-25%) and you can make it up in volume. In reality it’s about a 20% drop in pay, (5%/30%).
Yes, this happens all the time. They use math and setups like this and for the most part people are none the wiser and dont understand the magnitude of the concession theyve given up. Something similar was used on me in my first contract.
Last year I was able to rearrange the fee section of our group and negotiate an increase to cover certain costs without affecting the surgeons, which nominally was very small but in reality was a 25% pay increase on the worst paying procedure. If you can get someone else to think about things superficially and make it look easy, sometimes these breaks can fall in your favor.
I don’t disagree that corporate models have restrictive and difficult contracts. But the counter point continues to reside in your first point. Most doctors and dentists lack financial literacy and sign those contracts. You can blame corporations for running efficient business models. But dentists weren’t doing those things for themselves. If the going rate for an associate dentist is 25%, then the guy/gal paying 30-33% is overpaying and losing money himself/herself. It sucks because we all thought it’d be different leaving school. But it’s just not.
And the only thing that can be done for you and me is to be those mentors you discussed in point #2 to help #1 change. As that happens, hopefully we as a profession can change the old guard in the ADA and advocate for ourselves, our profession and its future. Otherwise government or equity will completely take over.
I agree with that, but I do put more blame on the corporate model. It takes advantage of the new grads, and hurts the patients by having new doctors rotate in every 6-12 months because they keep leaving for a sign on bonus or something else. The going rate has never been 25%, and still isn’t, but enough grads come out that they are afraid to ask for more without being replaced or getting told no.
I’m probably still a little naive, as I’ve only been out of dental school 10 years, but just because you can do it, doesn’t mean you (and by that not you personally) should, in personal or business life. I still can’t separate the two,
I do agree about the ADA old guard. Every meeting I go to is sponsored by some big corporation.
I have so many reactions to articles like this.
I am bewildered at the number of intelligent individuals whose stellar grades in years of algebra and calculus failed to translate to the ability or desire to spend 10 minutes with a calculator before signing for their student loans.
I am sickened at many of my peers, two of whom have 7 figures of debt between themselves and their spouses, who eat/travel/live lives of relative opulence because they can make “the government” (that is, their patients, coworkers, and neighbors) pay for it through PSLF.
I am grateful for parents who taught me financial sense when I was young. In-state tuition. Two jobs through medical school. Married someone of a similar mind. Calculated expected debt for medical school down to the dollar. Nearing the end of my training, my debt/future income ratio is about 0.2.
No offense, but I think that anyone considering buying a house with $480k of debt and only $120k salary is idiotic. “Good Lord!” I think my max student loan debt to salary ratio would be 2X. I graduated with about a 1.5X ratio and felt overwhelmed. I don’t think I would have felt comfortable buying a home even at that level of debt.
I did the math and had the world’s greatest Air Force pay for my dental school.
It’s a much better deal for dentists than physicians, unless they’re going to an expensive med school and end up in a relatively poorly paid specialty.
Used to be even better. When I went to school at a 3 year program the Army and Navy would only require 3 years of repayment, even thought the school was more expensive than the 4 year programs. Now all the branches require 4 years payback.
I love the Dave Ramsey show and the life changing debt snowball concept.
As far as the topic at hand, one of the above posters hit the nail on the head when s/he asked what is the tipping point at which the majority of potential pre-medical students (including dental, etc.) simply say becoming an M.D., D.D.S., etc., is too expensive creating a problem for undergraduate medical and dental institutions and for dental and medical practices down the line? This point must be on the, relatively near, horizon. The market can only bear so much.
I’m all for responsible borrowing and timely, focused repayment of student loan debt but it is disheartening that doctors and dentists work so hard for so many years and then have to live frugally for an additional “x” years after completing training before truly being able to enjoy the fruits of their decades of labor due to ridiculous student loan balances. We need to deal with the root(s) of the problem, namely usurious interest rates, and absurdly high and ever-increasing annual tuition and fees, instead of being critical of the symptom(s), e.g., how much debt graduating medical professionals have once they complete their training.
Totally agree with MochaDoc above. This total cost burden is ridiculous for young doctors who already have delayed earning years due to length of time in training.
Tuition increases have been insane. I just checked my school’s tuition rates which at the time I graduated in 2009 were about $21k a year for in-state….they are now asking $35k a year. Out of state is now $62k a year…so an easy $248K without living expenses or interest if someone went there out of state.
Also add the mandatory yearly tuition increase…
I feel terrible for the next generation of dentists. I’ve been practicing for 13 years… 10 of them in my own practice. With student loans it’s very difficult to purchase a practice with that debt burden. The problem is that to make great money as a dentist you have to borrow more money to start or buy a practice. It is a debt spiral. I love dave Ramsey–for my personal finance stuff/motivation. I absolutely ignore him when it comes to running my business which goes through cycles of debt. I won’t be encouraging my kids to be dentists. Right now I make great money working 3 days a week… but I think about selling my office every week. Practice values are high, corporate dentistry is taking over, and I’m sick of reinvesting in my office. I’m sick of managing associates. I need a few more years of debt reduction/super saving before I am really ready to sell it…. but it’s crazy times right now in our industry. That said… my brother in law is a MD and works crazy hours taking call and in clinic… and I make about 2x what he does. He jokes he should have been a dentist.
I love that you did the math to show how this doesn’t work for most dentists. Unfortunately, I think the day of reckoning that other comments reference won’t happen until the great IBR scam unfolds in 20 years, or until massive graduate student loan default occurs. Since the Dept. of Education holds most of those loans, the general tax payer will end up holding the tab for that future shortfall.
And they will have gotten their moneys worth. Its not as if even those on these programs wont have paid significantly into the system and are not generating large tax receipts and generally being good overall citizens.
I’ve more than paid my total loan burden (496k) in taxes alone in just a few years of being an attending in addition to the significant amount of principal/interest. To act as if even outright forgiveness isnt an overall large net positive on the system is looking at things far too granular. We generate lots of taxes, spend money we dont have (propping up economy) and gainfully employ several people for every one of us, it is a large net positive, not even close. Everything else is politics.
I often feel a huge burden, thinking about my growing student loans (over 300K). As awful as they are, 1 good thing has come from them. They have motivated me to become proficient in personal finance. I’ve been reading the blog for 3 years now. I’ve read the book along with The Millionaire Nextdoor. I’ve read a lot on MMM and bogleheads. While I am overwhelmed at times by the debt, I feel adequately prepared to handle it appropriately as I start residency next summer and attack it head on come attending-hood.
Some things affected my school decision and I probably would have chosen a different, less expensive school. I planned for years to have the military pay for my school. I filled out all the application, scheduled my physical, then decide with my wife not to relinquish all our decision making to a government I’m already not so fond of. Because of the military plans, I didn’t even consider tuition when choosing a medical school. My hindsight goggles seem to be drastically clearer than my foresight ones.
You’ll be better off than I was even though you have more debt. Stay the course that you’ve learned from WCI and tthe books and you’ll be absolutely fine.
I think your article would benefit from some more facts instead of hopeful ratios. The average cost of attendance for a public medical school in-state is currently $33k per year. So let’s run a perfect scenario with the following hard assumptions and find the best possible ratio:
1) you had no debt from your undergraduate degree (which in actuality the average is $37k upon graduation)
2) you are able to afford the costs of applying to medical school without incurring debt
3) you have parents or a spouse who is able to pay your living expenses to keep you at the poverty line ($12k per year) without bringing their own debt
4) your family is not able to help for medical school tuition since most likely they are the reason you have no car/student/living debt already
5) you live in a state that has a public university costing near the average
6) your medical school does not raise tuition during your 4 years (at my institution it went up 20% for the coming year 1 month AFTER the official decision day and this is not uncommon)
7) you are an “average” student meaning you can obtain the “short” IM residency and receive the median salary for a hospitalist: $215k per year
8) you are able to get all of your loans at the new lower 5.3% unsubsidized level (lucky you!)
9) you are able to make through medical school without an emergency requiring more than $1000
After residency you would owe about $170k, yes you would have a <1 ratio. Congratulations!
If you had the average undergraduate debt you add $48k to equal $218k so just above the 1:1 income to debt ratio.
If you need to pay for your living expenses to stay at the poverty line: add $62k for $280k.
If you assume $60k per year like for most out of state programs or private schools it equals $310k after a 3 year residency. Adding undergrad and living costs equals $420k which is close to a 1:2 income to debt ratio. But if you attend a private school you are more likely (though definitely nowhere near guaranteed) to get a higher paying speciality which can increase your income. But remember this is offset slightly by longer training with at least $22k per year in interest accumulation.
Other factors that complicate these calculations and made the debt even larger.
1) Limited amount of 5.3% interest loans, requiring you to use 6.3% Grad Plus loans.
2) Loan origination fees greater than 1%.
I was lucky to NOT get in to a private school I wanted to, got a half scholarship at my public school, have a supportive spouse, no undergrad/car/life debt thanks to my family / need based aid / working during college, managed to be one of the few able to refinance during residency, and I still ended up with $143k in debt. But I love my EM job and my ratio is under 1. I just don’t think this article should be interpreted as if med students are not trying hard enough to be debt averse.
Whatever the cause the hard numbers have real consequences. If a doc has your hypothetical bad scenario (and I sympathize with them just as much as you do) they would be foolish to go into a low paying specialty in a job without hope of PSLF.
EVERYONE I’m in school with plans on doing PSLF and borrows accordingly (max federal loans – 60k/yr in state w/ 6-7% interest). They even complain that they aren’t “given” more money for step/interview costs, and no one plans on paying anything in residency. That’s about 400,000 after residency deferment for an in state MD in flyover country. If/when the bottom drops out of PSLF, these people are going to be unhappy folks. I also can’t see how this doesn’t (further) depress wages for govt/academic jobs.
Dental school costs even more, but I don’t think I’ve met a gray-headed dentists that makes less than twice $120,000.
There are plenty making less. And dentists, as doctors also I’m sure, are known for being bad with their money. Hence there are so many grey-headed dentist still working at 65+ because they have to, not because they want to.
Wow. I thought I had it bad. This is really scary stuff.
I graduated with around 240k in student loans (I think, I dont really know because I was as WCI described debt numb). However after working as a hospitalist for 4 years and THEN becoming aware of how much that debt was bothering me, I was able to ramp up my productivity, work extra shifts and work hard to earn quality bonuses. I pulled in 300k this year, refinanced my house, and poured money into student loans like crazy. I’m lucky because 1/2 of my loans were refinanced at 2.6% during med school right before the rates jumped. So I’m pretty good now and finally seeing my net worth climb (rather than remain negative as before).
My point is, that even my situation felt really bad for awhile there. I can not imagine how bad it would be if all of my loans had been at 7% or if I had debt in the 300-400 range. That should be illegal. Honestly. Why cant we protect people from that kind of predatory lending? I mean letting someone borrow 400k when they have zero income and only the possibility of someday getting a job that pays enough to pay it all back seems kind of crazy when you think about it.
I think part of it is that most all the doctors and dentists will pay back their loans. I don’t know of anyone that doesn’t, it just may take 30 years. The schools don’t have reason to cut rates, they get the money up front. The public loans are guaranteed and the private loans are at 6.8% right now, which is better than anything else the banks can lend at so I don’t see it slowing down.
You’re absolutely right. 6.8% guaranteed returns are phenomenal.