*Let me preface this by saying that I still think an MD is worth it, and if you are interested in medicine then you should definitely go for it! But you need to take the following into account.
YOUR STUDENT DEBT IS AN EMERGENCY! There. Someone had to say it. It’s not just a white elephant in the room, or an unpleasant spider under the rug. It is a FULL BLOWN HOUSE-IS-ON-FIRE EMERGENCY! You won’t often hear those words spoken in the hallowed halls of academia. In fact, voicing worries about the financial future of physicians can quickly earn a lecture about how you shouldn’t worry about money and your only motivation for becoming a doctor should be to altruistically sacrifice all thoughts of compensation while bringing every member of society back from the brink of death and blah blah blah. The fact of the matter is, many newly trained doctors right out of residency will say their biggest worries involve their debt. And it’s only getting worse:
1. Increasing Tuition – In 2012 the AAMC reported that public medical school tuition increased by 7.8%, and private medical school tuition increased by 4.3% in the previous year. That’s INSANE! Especially when you consider that inflation between 2014 and 2015 was only 0.8%. In fact, the highest inflation in the last 10 years was 4.1% in 2007. If your school charges in the 50 thousand range, that’s an increase of $3,900 in a single year. In simple man’s terms: the price of medical school is increasing FAST!
2. High Interest Rates – Several practicing doctors have told me that their loans have just become a monthly payment in the background of their budget, and they plan to pay the minimum payment for the life of the loan. Don’t fall into this trap! This may make smart financial sense for these doctors, but it will not be a good practice for the newer generation of doctors, and here’s why: Since June 1 2012, graduate and professional students have been ineligible for subsidized federal loans. This means higher interest rates. Direct unsubsidized graduate school loans taken out between July 1 2014 and July 1 2015 have an interest rate of 6.21%, and graduate PLUS loans have an interest rate at 7.21%. Why is this bad, do you ask? Let’s put it simply. If wall street investors had a guaranteed return of investment of 7.21% they’d be salivating buckets. Hopefully you’ve heard lectures about the power of compound interest in investing. Well, this powerful tool that can generate so much wealth for investors is doing the exact opposite to you at 7.21%! That’s $18,025 a year of extra debt on a $250,000 loan amount. Paying minimum payments for the life of the balance makes sense when your interest rate is close to the rate of inflation, but at 7.21% it’s like trying to dig a hole on the beach: Every time you think you’re making progress, a new wave crashes in and erases all evidence of your effort.
3. Uncertain Reimbursement – Long winded wars have been fought in medical forums about the changes to future reimbursement. My conclusion is that the only certain thing about doctor’s future salaries is uncertainty. If your debt repayment plan involves a massive salary that enables you to live a lavish lifestyle while simultaneously blasting your debt into oblivion, you are building on an unsure foundation.
So what’s the solution? Should we simply give up, trade in our doctor’s bags for a business suit, and move on? That’s a personal question that only you can answer. For me, the answer is a resounding NO! Because I believe there is still hope in the future of medicine. However, due to the previously mentioned reasons, the pathway to becoming a doctor is more full of personal financial risk than ever before. This is why I, Mr. DebtAnatomy, fully encourage every one of my readers to sit down and make a long term financial plan. You would never willingly enter an emergency situation without a plan, and you shouldn’t take on a massive pile of student loans without one either. This plan should include cost of training, years of training, debt repayment options, potential salary, housing options, current and future budgets, retirement savings goals, and lifestyle choices. Stay tuned for part two of this post, in which I will walk through a long term financial plan.