Medical Student Debt and Personal Finance

A Medical Student Series: On the Road to Graduation

By pursuing medicine, you have made the investment in yourself so that you may serve others. I hope my monthly series of articles provides you with valuable information and tips that I have learned along the way. 

Hey there! I am a fourth-year medical student who grew up in central Missouri. I attend A.T. Still University – Kirksville College of Osteopathic Medicine and am applying to residency in Emergency Medicine.

Medical Student Debt and Personal Finance

After I received my acceptance to medical school, one of the biggest thoughts on my mind was how I was going to finance such an expensive venture. Like many students across the country, I needed to take loans to pay for my education. Student loans are a specific type of loan. Each year, medical schools calculate a total “cost of attendance,” which is an estimate of how much money a student will need each year for school (including tuition, living, etc.) You cannot take out more student loans than the cost of attendance. Plan your finances at the start of medical school and pay attention to them as you go along. You should know how much you are spending in a month and how much school is costing you. You might be surprised!

You likely know between the different kinds of loans such as federal direct unsubsidized, federal direct Grad PLUS, private, and personal. (https://www.whitecoatinvestor.com/ultimate-guide-to-student-loan-debt-management-for-doctors/) I filled out my yearly FAFSA and opted to take the maximum amount of federal direct unsubsidized loans because of benefits like better interest rates, repayment options, discharge on death, and temporary 0% interest with payment pause during the COVID pandemic. However, this loan did not even cover my tuition, and I still had living expenses to consider. The federal direct Grad PLUS is a good option for many students as it carries many of the same benefits as the unsubsidized. However, the interest rates are higher, and the origination fee (4.3%) is much higher than the unsubsidized. With help of savings from my prior job and a working partner, I elected to take out private loans instead. Having a cosigner and electing to make automatic minimum monthly payments reduced my interest rate significantly. I was also given a monetary reward for good grades from the loan company each year. Private loans worked out in my favor because my partner and I could afford the payment burden each month, but if you don’t have a source of income, it may not be the best option for you.

If your goal is to take minimal amounts of loans, I recommend keeping a basic spreadsheet to track expenses. This way, you can better estimate how much money you will need year to year (https://students-residents.aamc.org/premed-navigator/living-student-s-budget). I have heard fellow medical students say things like, “Oh, who cares about an extra $1000?” Just remember, the more loan money you take out, the faster compound interest works to increase your debt burden. Let’s give an example of taking $30,000 at 6% interest your first semester of medical school. In four years, that one loan has increased to $37,784. Then, by the end of a three-year residency (when you can finally start paying off the debt), the total of that same loan has increased to $45,108! That means 50% of your original borrowed amount is added onto your bill in interest. You can use the links below to learn more and do some math on your own loans. (https://www.investopedia.com/terms/c/compoundinterest.asp)( https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)  

Before we start to think about repayment, you need to know who your loan servicer is. (https://studentaid.gov/manage-loans/repayment/servicers) You can find most anything you want to know about federal student loans on the Federal Student Aid (FSA) website. A few options for loan repayment include standard repayment, income-driven repayment (IDR), and public service loan forgiveness (PSLF). A gem on the FSA site is a Loan Simulator, which can help you determine the right plan and estimate your payments. Income-driven repayment has seen significant changes within the last year. One IDR plan to consider is Saving on a Valuable Education (SAVE).  (https://studentaid.gov/announcements-events/save-plan) Another federal repayment plan that has seen some recent reform is Public Service Loan Forgiveness (PSLF) (https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service). In this program, you need to be employed by a government or not-for-profit organization, and if you make 120 qualifying payments, the rest of your loans will be forgiven. The amount you pay on loans could be minimal in comparison to the grand total. Of course, each of these programs has its nuances. It will likely pay dividends to explore each option and how it may affect your future. Also, there are loan repayment options such as the Health Professions Scholarship Program with the military and various other government forgiveness programs (https://www.aafp.org/students-residents/medical-students/begin-your-medical-education/debt-management/funding-options/forgiveness.html).

 Is medical school a good investment? Absolutely! After running the numbers, you will find that you can pay debt very quickly with physician income. It will take some financial discipline and perhaps delayed gratification, but you CAN do it! Achieving financial independence allows you the freedom to spend time on your terms. I will challenge you to incorporate various finance books, blogs, and podcasts into your days. If you have read this article, look at that, you have already gotten started!

Here are some of my financial favorites:

Podcasts:

• The White Coat Investor with Dr. Jim Dahle (I would say this is the gold standard for physician finance. There are also books and a website full of blog posts.)
• Student Loan Planner with Travis Hornsby (Lots of pearls about taxes and loan repayment)
• Erika Taught Me with Erika Kullberg (Not all of the episodes are about finance. I think her content and interviews are fun and interesting)

Books:

• Get a Financial Life by Beth Kobliner (This book is about general finance, and I think everyone should read it to establish foundational knowledge)
• I Will Teach You To Be Rich by Ramit Sethi (Author delves more into the psychology of money)

Blogs:

• Physician on Fire (I believe the original content creator is no longer involved in this blog, but you could probably still find some interesting reads.)
• Money Mustache
• Nerdwallet (Articles cover all sorts of topics that are easy to understand. They also give recommendations and updated deals from companies.)

All the best,

Hannah Bisoglio, OMS-IV