How To Deal With Medical School Debt
In the long run, medical school is worth the investment many times over. But it sure doesn’t feel like it sometimes when you’re making those big payments! If you’re just starting out on your medical career, here are some things to keep in mind as you create a strategy to minimize the burden of your student loans over the course of your career.
1.) Keep things in perspective. The average cost of medical school over four years is $215,000, according to the Association of American Medical Colleges. That’s including required health insurance, room and board. Even if you borrowed every cent of it, nearly all of you will be earning that much every year within six or ten years of beginning to practice medicine. The lowest-paid specialty, family medicine, still brings in $122,000, on average, after six years in practice. If someone gave you a chance to pay a dollar to get between 65 cents and $3 back every year, for 30 years or more, and could show you a long track record of successfully doing it for others just like you, you’d be crazy not to take as much of that action as you can!
2.) Don’t delay commencing an IBR. Yes, some new doctors try to keep loans in forbearance until they are done with residency at a reduced income, preferring to begin repaying their loans when they start making more money as an attending physician. This is not a good strategy for several reasons:
- Interest will continue to accrue, adding thousands of dollars to the balance of the loan before you even begin to pay it off.
- Every dollar you add to that balance will generate more compound interest – every day, until you have the loan paid off. Yes, as interest rates go, the rates on most student loans are not very high, and are generally at least partially tax-deductible. But think of yourself as the hare in Aesop’s famous tale about the hare and the tortoise. Even though you are way faster than the tortoise, you don’t want to give him a head start if you don’t have to.
- Under current law, unpaid balances on student loans in an IBR program are forgiven after 10 years of consecutive payments. In the long run, you want to set your repayment rate based on a relatively low income at the outset of your career (excluding spousal income, if possible). And then start that series of payments as soon as you can, so that the remainder of your debt is forgiven. Even if you’re charged income tax on the forgiven balance, you’re still better off paying income tax on a forgiven balance than you are actually paying off the loan, in the long run.
- The sooner you have your student loans out of the way, either paid off or forgiven under the federal IBR program, the sooner you can take those same payments and commit them to your retirement savings plan – and you’ll have more time for those contributions to compound before you have to withdraw the money.
3.) Remain open to offers. Keep an open mind to new offers from employers, and consider student loan repayment assistance as an important part of your overall compensation. It may not be definitive, but it can certainly mean the difference between two close offers. As the economy recovers, employers are being forced to sweeten their compensation packages to recruit and retain workers – including doctors. More of them are adding student loan repayment assistance to their menu of benefits in recent years.
4.) Protect your income. When you start out in medicine, your most valuable asset by far is your ability to earn a doctors’ income for many years in the future. This asset is worth millions of dollars over the course of your career. But there are number of things that can go wrong early in your career and destroy that asset:
- Musculoskeletal disorders
- Cancers and tumors
- Car accidents and other injuries
- Mental illness and behavior disorders
- Diseases you incur on the job (needle pricks, exposure to tuberculosis, hepatitis, etc.)
- Pregnancy and childbirth complications
- Back injuries
- Blood disorders
The risk is significant – and the incidence is high. According to the Council for Disability Awareness, a typical 35-year-old normal-weight non-smoking male in good physical health has a 21 percent chance of becoming disabled for 3 months or longer during his career. If he does become disabled, chances are 38 percent that that disability will last for five years or longer. The average disability case remains on claim for 82 months.
That’s far longer than most young doctors can last on their personal savings.
Any of these medical problems can and do strike young doctors in their 20s and 30s. But for less than 5 percent of your income in most cases, you can protect the bulk of what you otherwise would have earned had you never become sick or injured. You can get a disability insurance quote here. Or better yet, call us today at 866-899-7318 for a personal consultation.