[Editor's Note: The following guest post was submitted by Barbara Hamilton, MD. There are some great quotes in this inspiring article about decimating student loan debt — with my favorite being the very last sentence. I have no financial relationship with Dr. Hamilton, but one of my student loan refinancing partners, CommonBond, just increased their cash back bonus for WCI readers to $550 when you refinance with them!]
There is No Fairy Godmother to Wish Student Loan Debt Away!
I mean, your godmother might be a wonderful person, but don’t imagine that your attending salary will rescue you, from rags to riches, like Cinderella. This is just too easy a trap to fall into, and interest rates on student debt are far higher than they used to be (sorry). It used to be educational debt was subsidized to 2 or 3%, but now grads are facing interest rates of 6% and higher.
Not only that, but overall debt burdens have risen in the last decade. At my public medical school, in 2008, the average student debt balance was around $135,000. This included some who graduated with no debt, so the average for borrowers was a bit higher. At that time, students who graduated from for-profit medical schools in the Carribean were the only ones I knew sporting loan balances of $250,000 or higher. Sorely, this is the current reality for many in our profession.
I Paid Off My Student Loan Debt and You Can Too
Have you heard the expression “Pay yourself first?” It’s a personal finance adage meant to convey the idea that you should contribute to non-negotiable expenses and savings first, before using the remainder as disposable income, i.e., for new things or luxuries. I consider educational debt repayment in the “pay yourself first” category, and I focused on it keenly.
You’re carrying a debt of $150,000, $300,000 or $1,000,000 on what’s inside your brain. That’s crazy, right? I thought of my student loans like a mortgage on the mind. Makes you want to wear a helmet at all times, doesn’t it?
If you find yourself with a huge student loan balance, throw that fancy school name around whenever you get the chance, you are paying for it! If, however, you find yourself reading this at the beginning of your medical journey, think about what a school’s name really means to you, and how much financial sacrifice it’s worth, relative to your other available options.
For people that claim student debt is “good debt,” I’d argue that point. Say you graduated in the early 2000's and had an interest rate of 2%… that’s cool for you. That’s not the reality any longer. At current rates, interest compounds, and the principal loan balance won’t move much, as you pay chiefly interest. There are simply better things to do with your paycheck and your headspace than to amortize your student loans for thirty years.
What’s wonderful about paying down your debt, is that it’s a guaranteed return on your money. When you invest in the market, you hope for an average return, and pray the value of your holdings doesn’t plummet. When you pay down a 6% loan, it’s like getting a guaranteed 6% return on your money.
When you finish training, your income will increase suddenly, you will lose the ability to deduct student loan interest. So when you repay your loans, you pay in post-tax money. If you’re paying a third of your income in taxes, you have to earn $30,000 gross to pay back $20,000 in loans. It’s sad but true. You have reached a higher tax bracket, and the government is not going to give you a break for it once you’ve attained an attending level income.
If you’re aiming for public service loan forgiveness, there is great advice on how to deal with the uncertainties of the future of this program. Basically, use incredible discipline to save a large loan pay-off fund in case the program evaporates, or you don’t qualify. Since I don’t work for a non-for profit entity, I didn’t qualify. Further, since my principal was average, I was not going to make any major life or job decisions based on my debt. It was up to me to pay off, and I did it! You can too.
I Paid My Student Loans Off By Bucking Tradition
If you find yourself living an average life, and struggling to get by, examine the big expenses. I’ll offer an example.
Consider the example of an average wedding. If you have hundreds of thousands in student loan debt, you do not have to have a fancy wedding. You do not have to have a wedding fitting of a doctor. Have a humble wedding.
Growing up in the Northeast, everyone I knew spent thirty thousand dollars or more on a wedding, whether they could afford it or not. It’s cultural. Coming of age, I never knew that people in the west, in states like Montana, commonly have barnyard weddings, with simple food served at picnic tables. Where I come from, there is a four-figure donation to a church, and a huge family to feed. There is a cocktail hour that could feed a small nation. There are too many courses to count. While having a large wedding is valued by many with large families, the fancy factor is often excessive.
I bucked tradition by getting married in California, where I was living. Since my extended family lives in NJ, many people declined to come, slashing our guest list. Therefore, instead of hundreds of guests, we had about 75. We got hitched on the front lawn of a little hotel, officiated by a long-time family friend. Our reception was a mid-century modern pool party. We celebrated under string lights and palm trees. Instead of an expensive band and disc jockey, talented guests played music and sang all night.
When a local catering estimate threatened to consume half our budget, my fiance found a two-woman catering outfit in a nearby desert suburb. For a fraction of the cost, they prepared a delicious buffet, better than many of the wedding meals I’ve had. The smaller catering team came with a bartender, so we bought our own booze. Guests enjoyed high-quality vodka, champagne, and garnishes, all from our local price club. It was delicious, concocted into signature drinks by our caterers.
Floral arrangements were likewise steep, and my husband-to-be balked at the cost of decorating. There was a $1600 minimum to work with a Pinterest-worthy florist. Instead, my Mom, Maid of Honor and I made a trip to the Los Angeles flower market. We walked the stalls with cash, spending just under $500. We were tickled when asked if we were industry professionals. It was a fun experience to buy, then arrange the buds, flexing our creativity. I acquired glass vases from a craft store and tied leather sashes around each one.
The wedding was a far cry from that expected by my family, but with student loans, I simply couldn’t afford more! Despite the irked Aunts and Uncles, in terms of money, time, and stress, we chose the better option. Social pressures are powerful, and they can ruin your financial life if you allow it. After all, it’s normalized in our culture.
Maybe you’re already married, and realized you overspent; that ship has sailed. Or maybe someone else paid for the wedding; good for you. The point is that sometimes you have to break the “rules” to meet your financial goals. This way of thinking can be applied to other expenses in your life. Don’t let other people dictate what you can and can’t afford.
Sometimes, women are especially susceptible to these social forces, which push us to care for everyone all the time. You’re asked to help your brother’s family with financial trouble, i.e., enable your brother’s gambling addiction? You think, “Maybe I can help them out a little bit…” You’re asked to pay for your sister’s kids’ private school education. “Sure, I mean, I don’t have kids of my own…”
These scenarios are built on the myth of the (automatically, effortlessly) rich doctor.
In my view, the rich doctor is the one who has empowered herself. She has paid herself first and chased down her financial goals. Consider that you could actually control your interest rate or your student loan balance. You can!
I re-fi’ed with Sofi, and found the process transparent and motivating. You can choose a fixed or variable rate, depending on your balance and risk tolerance. To get a truly fantastic rate, I chose a variable rate, and I was motivated even more, each time I received notice of a small rate hike.
#2 Lump-Sum Payments
The loan term you choose will determine how quickly the principal balance goes down. Making a lump sum payment is a powerful move: your principal decreases by the amount you contribute, not less. It’s beautiful!
Decimate Your Student Loans!
I developed a passion for decimating my student loan debt and felt empowered as my balance got smaller. I battered it with lump-sum payments. The loan servicer automatically decreased my monthly payments to reflect the five-year term I’d agreed to. Still, I paid the balance down ahead of schedule. Now, that monthly payment is history.
If you marry rich, or have a windfall, maybe you’ll be rescued from your student loans, like a fairy tale. More likely, you’ll combine debts with a partner. For most of us, there’s no fairy godmother to wave the student loan debt away. Since you don’t practice medicine in a fantasy world, empower yourself!
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How have societal pressures influenced your spending, investing, savings, and student loan debt management? What societal “rules” did you break to reach financial goals? What advice do you have for docs that are struggling with societal pressures? Sound off below!