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It comes as no shocker to most of my readers but becoming a doctor is an incredibly expensive process.
There are two negative financial forces at play because of medical school.
The first is that it typically creates a substantial financial burden to the medical student as tuition and boarding typically have to be financed.
The second negative financial force is that those 4 years also delay your entry into the working force and actually earning an income.
We all know that one of the greatest forces for building up wealth is time and the effect of compounding, so this time delay is indeed a big financial blow.
I mismanaged my student loan debt repayment, taking almost 22 years to pay it off, further magnifying the financial impact.
Andrew, a content writer for Lendedu, contacted me about this very dilemma that physicians face and wanted to submit the following post.
[Disclaimer: I have no financial relationship with Andrew or Lendedu.]
Attending medical school and becoming a physician has its perks.
Successful graduates have the opportunity to help people every day, not to mention having a relatively high salary compared to other professions.
The work is equally challenging and rewarding, but it does come at a price.
The rising cost of college, and the subsequent need to take on student loan debt to cover it, plays a role in the financial health and well-being of many medical school graduates and physicians.
Analyzing the Rising Cost of College.
Over the last several years, the cost of earning a degree has increased by an average of 5% per year.
This growth does vary by factors such as private versus public education as well as if the education is classified as in-state vs. out-of-state.
Whatever the classification, however, students indeed experience higher price tags for attending college.
In 1997 the average total cost of attendance for a private college averaged $16,233 annually; 20 years later, the cost skyrocketed to an average of $41,727 according to data from LendEDU.
Public in-state tuition was not spared and also increased.
Students paid an average of $3,168 during the 1997-1998 school year, but now fork over $10,691.
Adding to the problem, college expenses have increased far more than inflation over the same period – as much as eight times faster.
This causes issues for physicians as they start paying back these student loans.
Looking at the Cost of Medical School.
After finishing an undergraduate program, medical students still need to pay for medical school.
The average cost of medical school has risen in line with the broader education expense statistics.
In 2016, the average cost of medical school was $32,495 per year, while private medical school tuition averaged $52,515 annually.
The total quickly adds up, leaving medical students with a bill between $120,000 and $250,000, depending on the school.
Keep in mind these costs are in addition to paying for an undergraduate degree.
Conservatively, an average medical school graduate may incur up to $172,744 in student debt after both public, in-state undergraduate and medical school; alternatively, these costs could reach up to $376,968 in private undergraduate and medical programs.
These substantial college costs often drive the need for student loans and other financial aid.
The Association of Medical Colleges reported that median medical school debt in 2018 was $200,000, including both undergraduate and medical school expenses.
Such high debt is problematic for obvious financial reasons, but it poses additional risks for medical school graduates looking to take the next step in residency.
How Excessive Student Debt Impacts Physicians.
Many physicians struggle to manage student loan repayment once they are in residency or even entering their full-time career.
Physicians are not paid a high salary when they are completing residency requirements; despite this, they are still expected to make payments on student debt balances that regularly exceeds six figures.
To put it in perspective, standard monthly payments on a balance of $172,744 at 7% interest amount to $2,006, while payments on a $376,968 balance more than double at $4,377.
The average 2018 salary in residency was $59,300 according to data from the American Osteopathic Association.
Notably, the same report reiterated student debt levels.
Nearly a quarter of surveyed residents had over $300,000 in debt, and another quarter had between $200,000-$300,000.
For starters, the combination of a relatively low income and a six-figure student loan balance limits a resident’s options and flexibility.
Discretionary income may be especially tight depending on the location’s taxes and living expenses.
These expenses may bar certain high-cost locations from medical graduates who need to find cheaper areas, therefore effectively limiting their initial career options.
While some physicians may seek out forgiveness opportunities, this too may considerably limit career options.
Forgiveness is only offered to those working in certain regions for qualified state or government agencies, which may not pay as much as private-sector healthcare jobs.
Excessive debt could therefore force a physician towards certain unfavorable positions with lower earning potential and fewer career advancement opportunities.
Student debt can be more than financially challenging; it can also cause serious stress and impact work performance.
Money is a leading cause of stress, and dealing with high student loan payments can be a significant stress-driver.
This may directly impact a physician’s performance during residency.
Studies have shown that high levels of stress reduce productivity in the workplace.
Many residents may experience these issues since a high proportion of residents have high student debt.
How to Address Student Loan Debt.
The good news is that physicians have several options for addressing their student loan debt.
Many of these options can be taken advantage of either at the start of repayment or during residency.
The following are some common options, including how they work, and the advantages and disadvantages that come with them.
Graduated Repayment Plans.
Medical school students who have federal student loans can opt for a graduated repayment plan through their loan servicer.
This repayment plan initially requires smaller payments that then increase every one to two years.
Through graduated repayment, physicians in residency or during their early career can make lower monthly payments.
Over time, they will start making larger payments presumably when they are earning more.
This option is widely available for federal student loans as a standard offer.
Some private student loan lenders (such as Sallie Mae for example) offer deferred, interest-only payments which is similar to graduated repayment.
While they can help residents stay current on their loans early on, graduated or deferred repayment plans increase the cost of a loan in the long run.
They allow interest to accrue at a greater rate earlier in repayment compared to standard repayment plans.
Income-Driven Repayment Programs.
Income-driven repayment (IDR) plans may also be an option for physicians and residents.
Monthly payments are calculated as a percentage of discretionary income – usually 10% to 20%.
Repayment continues at this rate for 20 to 25 years; afterwards, the loan balance is discharged.
For anyone starting with low wages, this solution can be incredibly helpful in making monthly payments.
However, as income increases, payments will increase as well.
IDR plans are only offered for federal student loans and not private student loans.
IDR programs may increase the cost of the loan as well.
If payments are capped too low, then interest may accumulate at a greater rate and cause the balance to actually grow over time – effectively locking up 10-20% of income for 20-25 years.
Student Loan Refinancing.
Some physicians address their debt by refinancing student loans.
Student loan refinancing is a loan product offered by private lenders and banks.
In brief, applicants apply for a new loan, use it to pay off previous federal and private student loans, and makes payments on the new loan which has a new interest rate and repayment term.
The main benefit of student loan refinancing is getting a lower interest rate, leading to lower interest payments.
The lower rate could be a significant savings factor over the lifetime cost of the loan.
There is also the option to extend the repayment term, which would reduce monthly payments.
Despite its benefits, refinancing lenders require strong credit (good to excellent) and high income from applicants.
It’s a challenging application to start, and only highly qualified applicants are likely to get a low-cost interest rate.
On top of this, extending the repayment term may also increase the cost of the loan.
Furthermore, if federal loans are refinanced, protections such as loan forgiveness, forbearance, and income-driven repayment programs are lost.
Those who are moving on to residency often find they are dragging along high student debt like a ball and chain.
Many wouldn’t feel sorry for these physicians-in-training who expect high incomes down the road; however, physicians typically accrue more student debt compared to other career fields.
High levels of student debt, alongside relatively low-starting wages in residency, can cause serious financial strain and stress, and the pressure of student loan repayment could limit career options and flexibility.
While steep payments can be problematic, there are ways to reduce the monthly obligation during residency.
Student loan refinancing, graduated repayment plans, and income-driven repayment can create breathing room for certain physicians, but despite their merits, they may also increase the cost of students loans.
The cost of higher education is a serious problem, but it certainly isn’t a new one.
For physicians, it can be a tough upfront problem, but can be made more manageable with the right planning.
Andrew is a Content Associate for Lendedu – a website that helps physicians, consumers, small business owners, college students, and more with their finances.
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College tuition and the system of easy loans from the government is a giant house of cards that will come tumbling down. Access to knowledge is easier and easier online and free. Obviously med school requires going to a college, but for most degrees the knowledge can be obtained on your own. The system will crumble at some point or change drastically.
I actually think your thoughts are pretty much on track with what will happen eventually. There is no way college tuitions can keep rising and dramatically outpace inflation. They are pricing themselves out quickly and at one point the balance is going to be too high to attend.
Are there inexpensive approaches to obtaining your MD?
For undergraduate degree, going to a community college for 2 years and then transferring to a private school would save a lot of money. Can you take the same approach in reducing medical school cost?
The only option that I am aware of is having medical school expenses paid for by the military which typically requires a year of service for each year of medical training.
There are public and in state medical schools which are the least expensive to attend. A few medical schools have offered tuition free training (Michigan is one) so that they can attract the best candidates (I am sure trying to get into these tuition free medical schools is even more competitive than an already competitive process).
Student debt is a massive problem. Despite the talk recently about some sweeping governmental forgiveness of all student debt, I’m not holding my breath. As the public student loan forgiveness program is showing us, even established debt forgiveness programs may not be as straightforward as they seem. Avoiding massive debt is always a good thing. Though when I think back to my own medical school search, I was only concerned with getting into the best one. I had no concern over the cost. I should have considered that more back then. I also should have started paying it off in… Read more »
All great points TDD and unfortunately I followed the same path if not worse than you. I didn’t pay at all during residency and did deferment and forbearance. And then I did not attack it till decade later as an attending. It’s a great feeling when you no longer owe student loans and I hope you get there soon.