Paying for medical school
All right, how are you feeling today? Hi.
My name is Jim Dawley. I'm a practicing emergency physician and the founder of the White Coat Investor.
The White Coat Investor is the most widely read physician specific personal finance and investing website in the world. It is a blog, a newsletter, a book series, a podcast, a forum, a Facebook group, an online course and even a live conference.
A doctor who doesn't have to worry about money can concentrate on her patients, her family and her health. Today, we're going to talk about five things.
I wish I had known about paying for medical school. Medical school is expensive 20 years ago when I enrolled but is dramatically more expensive.
Today in state tuition in my school has gone up four times in those 20 years. While physician incomes have only doubled.
The squeeze between those numbers is very real and particularly felt by young doctors just becoming a doctor is no longer enough to guarantee financial success.
The first thing I wish I had known about paying for medical school is the key to paying off student loans. That key is encompassed in four words, live like a resident that means you need to do well in medical school and match into a residency to start with.
The non match rate has been climbing and some doctors end up with an MD 100s of thousands in debt and no job. That's a serious financial catastrophe.
So make sure you do well in school and match into a residency. It also means that you stop borrowing money when you graduate from medical school, some doctors just keep borrowing money during residencies so they can live like attendings that's not going to work out well.
You must learn to live within your means as a resident and preferably even start saving money on that salary. Residents get paid about $60,000 a year.
The median US household income if you can't save on that, how do you expect most Americans to be able to do so? But mostly live like a resident refers to that most important year in the financial life of a doctor.
The year you leave residency in that year, you're used to living on $60,000 but you are earning 100 and 5200, 300 or more $1000 a year.
If you will simply keep living on 60,000. You can take the difference between what you earn as an and attending and what you made as a resident and throw it at your loans.
Even 300,000 student loans doesn't last long when you're throwing $10,000 a month at it. This is the key to paying off student loans and really to becoming the rich doctor, your friends, family and patients already think you are.
I'm not saying you have to do it forever. But if you will live like a resident for 2 to 5 years after residency, that will make up for nearly any other financial mistake you can make in your life, including the ones you've already made.
The second thing I wish I had known is that a certain amount of medical school debt is no big deal, but that a lot of debt is absolutely crushing to your sole and your finances as a medical student, it all feels like monopoly money.
You probably borrowed more in your first year than you have ever made in your entire life. You have no idea what it really takes to earn and pay back that much in after tax dollars in attending physician tax brackets.
So I'm going to tell you how much is. Ok.
One X, that's the number. If you can finish residency owing less than one X or one times your gross salary, that's ok.
You can knock that out very quickly if you throw one third of your newfound attending income. At that debt for three years, you will pay for school and less time than you spent in school as that ratio moves toward two X.
Meaning you owe twice as much as your gross salary. Things become much harder.
Now, you might have to put fully half your income at the debt for five years as you move toward 3 to 4 X. We're talking about spending half your career living like a resident just to pay for school and beyond four X, this is pretty much impossible if the only way for you to become a professional, whether that is a physician or a vet or an attorney or a nurse or whatever is to borrow four X, your eventual income.
That is not a good investment. You should not do that.
You will dig yourself into a hole where your only option is to throw yourself on your fellow taxpayer and beg for mercy.
Do not assume that you'll be able to get rid of that sort of debt using public service loan forgiveness or similar programs.
They are far too legislatively tenuous to make that kind of a bet. So if you're looking at a potentially high debt to income ratio, it would be best if you could do something to just that ratio, that might mean avoiding a low paying specialty.
I know it sounds like blasphemy. This is your dream.
You're supposed to do what you love but guess what if you borrowed $600,000 to go to school, you can't afford to be a pediatrician.
Much less a veterinarian. You just can't, you already closed that door when you chose to borrow that much, the other side of the ratio is keeping that debt level down.
That means living frugally. This isn't the time for expensive vacations or restaurants.
If you're married, send your spouse to work. If you're not get roommates or live at home to cut expenses, buy used books and equipment and only what is absolutely necessary.
Remember that everything you buy really costs three times what the sticker says. The third thing I wish I had known about paying for medical school is you don't have to take out all of your loans in August.
It only takes a couple of weeks to process a student loan. So you can wait until later in the year to borrow money for the second semester.
In fact, some students put their expenses on 0% credit cards for up to a year and then take out the student loan to pay off the credit card that 6 to 7% interest starts ticking as soon as you take out the loan.
So delay that date as long as possible to minimize the size of your loans. The fourth thing I wish I had known about paying for medical school is that there are scholarships for medical school while they are much less common than undergrad scholarships they still exist and should be applied for.
I keep running into medical students on full ride scholarships that I didn't even realize existed when I was a student. In fact, the White Coat Investor now has a scholarship program that you can apply for each summer.
Last year we gave out over $60,000 in cash and prizes. The last thing I wish I had known about paying for medical school is that many scholarships are misnamed, for instance, the military Health Professions scholarship program and the National Health Service Corps scholarship program.
These aren't really scholarships, it would be better to call them contracts. In essence, you are getting money now in exchange for working for these organizations later, since these organizations generally pay you less than you would make as a private practice physician.
It is all about the same in the end. If you want to be a military doctor, then by all means, take the H PSP contract likewise for the N HSC.
But don't mistake this for free money, they will get their pound of flesh out of you. The most important thing to know about the military H PSP contract before signing up is how the military match works, especially with recent cutbacks in non wartime specialties.
Basically everything but emergency medicine, general surgery, orthopedic surgery and anesthesia. You may find the military match to be far more competitive than the civilian match.
Those who don't match will be put into an internship, then serve out their military commitment as general medical officers before being able to attend residency.
Overall medical school is a wonderful experience and the profession of medicine is still the greatest profession, but it has very real financial consequences that can have a dramatic effect on the rest of your life.
If you need help with financial issues, come on by the White Coat investor and the whole community will do what they can to help you start your free trial today at osmosis.org.
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