Debt pay-off: What am I missing?

just of the top of my head....


Family. What if you get married/ have kids during residency. Thats a HUGEE expense right there.

Plus, at some point it would be smart to buy a home instead of renting. It is a much better investment. There is another huge expense.

Also, I think at most private institutions ( at least the ones that I have applied and gotten into the average debt is going to be more near 250k than 160 k).

I think it is reasonable to estimate 10 years after residency to pay of your debt. But again, many docs after residency go by a beemer right away...or start taking luxurious vacations. I think it is very important to live like a resident 3-4 years after completeing your residency.

Again those are just a few off the top of my head. Goodluck.

Sounds to me like the average debt is from med students who started school at least four years ago. Tuition has skyrocketed since then and I think it is fair to say that your debt, if you start in 2008, will likely be $200k+. Also keep in mind that average debt, by definition, includes those fortunate enough to receive merit scholarships or who come from wealthy families that can pay some or all of the tuition in cash. As a result, it is lower than your expected debt if you are not one of the lucky ones.

Also, the income of $200k+ includes doctors who do fellowships, and therefore defer their loans for more than 3 years. All this time, those loans can be accumulating interest.

I'm sure there are other points to consider as well. But that is my quick and dirty rebuttal.

Nice try, but you are missing the point of the difference between having debt from an in-state public versus the private or OOS public medical school and justifying the added burden of that...your numbers on the private debt are a tad low, too...the annual COA at some of these schools is around $70k, so some people will have over $250k in debt after 4 years, added to any debt from undergrad...lots of people will have well over $300k in debt to pay off...

Just wait until you are cutting $3000 a month debt repayment checks before putting a scrap of food on the table, clothes on your back, or a roof over your head...do you really think the added debt will be worth it then?

Your current living expenses are not going to sustain even a minimal lifestyle...in addition to taxes and debt repayment, what about family obligations? Children? School tuition? Health insurance? Funding an IRA? You aren't doing any of that now...and with the kind of debt you are talking about, in an era of falling physician salaries, you aren't going to have any of those "extras" then, either...

First of all, the above poster is correct -- debt for people graduating in 4, 5, 6 years will be close to 300k at private schools.

Depending on the interest rate when you graduate medical school (aka the interest rate at which you will consolidate), it may be wiser to take, in fact, a very long time (decades) to pay off your loans and instead use disposable income to invest. If your consolidated interest rate is low (as it was for folks graduating 3 or 4 years ago), you'll gain more in the long run to invest with your money rather than using it to pay off loans.

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Little Etoile said:

All this talk of debt and "easier" professions with higher income had me thinking and for the first time I sat down to crunch the numbers. People keep saying that it's unrealistic to think that you will pay off you loans in five, even ten years, but when I calculate it out it seems completely reasonable to do it within that time frame. What am I missing?

Here's my math:
Average debt for private medical school student post-graduation: $160,000
(https://services.aamc.org/Publicati...rsion103.pdf&prd_id=212&prv_id=256&pdf_id=103)

Average debt for private medical school student post-residency who deferred their loans: ~$200,000 (https://services.aamc.org/Publicati...sion103.pdf&prd_id=212&prv_id=256&pdf_id=103_

Average salary of a physician: ~$200,000
(http://www.medfriends.org/specialty_salaries.htm)

Average salary of a physician after the current 33% tax rate + $37,675.50: $94,325 (rounded up)
(http://www.irs.gov/formspubs/article/0,,id=150856,00.html)

Average take-home monthly salary: $7,860 (rounded down)

Now, I'm not living large right now, but I would say I'm living comfortably. My monthly expenses probably run me around ~$2,000, including an unnecessary car payment, in one the of the most expensive areas in the country (San Francisco Bay Area). I plan to maintain this simple standard of living for quite some time after residency, but for the sake of adding in unexpected expenses as I age, let's say we bump that figure up to $3,000/month and be smart and put aside $860 in savings/month. Plus I'm sure there are unforeseen miscellaneous costs associated with being a physician, such as dues, so let's subtract another $1,000/month for that, as well (pulled that figure out of my ***, so who knows how accurate it is). Thus:

Monthly money remaining after expenses: $3,000

Let's assume we dedicate this entire amount to loan repayment.

With $3,000/month at average 6.8% interest rate, number of years to pay off total debt of $244,125: Six
(http://mappingyourfuture.org/features/loancalc.htm)

So what am I missing here? Six years seems perfectly reasonable and that's with plenty of financial wiggle room calculated in. I'm sure I'm leaving out expenses associated with being a practicing physician that I'm unaware of at this point, but even still, I can't imagine that they're *that* monumental. Also, yes, I realize that pay outs are going down, there's inflation, etc. etc. Even with that, it seems that it would only add on a couple years, still leaving you under or around a total of ten years for pay-off.

I should also note that I suck at math and finances so I am definitely the wrong person to be figuring this out on her own. 😛

So enlighten me. Are you all just planning on moving into that big mansion as soon as you get your first paycheck or something? 😉 I'm confused.

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A lot of this depends on where you attend medical school (OOS, private), where you end up being a doctor (New York vs. Marshfield, WI), what type of medicine you pratice (primary care, internal medicine, radiologist, derm), family, housing, unfortunate accidents, hobbies, and so many other factors.

There are a lot of choices that you can make from here until you become a doctor to help keep your debt load down.

If you do get married, you can try and live off the salary from your wife or husband and use every single penny you make go to paying off your loans. This will only work if you are married BEFORE medical school or residency. For example, if you are married when you are in medical school, you do have the chance to keeping some of the debt down. But if you have children while you are in medical school, you will end up with a lot of debt.

If you were to talk to people who are experts in this area, you will find there are many ways to go about it. A lot depends on where you live. If you live in an area where the cost of living is low during residency, than you will have the chance to put some money away towards interest. Thus, when you get done with residency, you can at least make a small deposit towards your loans. But even so, you will still have a crap load of debt left.

If you have $250,000 in student loans and you want to repay it back in 10 years with a 6.8 percent interest rate, you will end up paying close to $100,000 in INTEREST alone. So your debt is closer to $350,00....not $250,000. The longer you keep paying the loan, the more you keep paying in interest. So that $250,000 student debt could easily turn into $450,000 with a repayment plan of 20 years. If you make the repayment plan in 30 years, ouch, you would be paying over $350,000 in INTEREST alone. This would lead to paying back $586,000 in a 30 year period. OUCH!!!!!!!!!!!!!!!!!!!

Little Etoile said:

Average salary of a physician: ~$200,000
(http://www.medfriends.org/specialty_salaries.htm)

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I think this assumes you get into a better salaried specialty. You need to crunch the numbers based on the lower end, because that is the group that will have issues. The average salary for FP on your link is $132k. That is an average, so half of those folks will earn even less. But those same people probably still have the $200k in debt post residency you suggest. Will they be able to service that debt with that salary? Sure. Will it get tight, particularly if they have other expenses such as family, and/or live in a higher cost of living part of the country? You bet. If you are single and happy to eat in every night and drive a clunker of a car and live in a modest apartment, you can pay down your debt pretty comfortably. If you are married with kids trying to service a mortgage on a starter home, it gets harder. And you will be surprised at how easy it is to end up living paycheck to paycheck, even with what objectively ought to be a decent salary.

just a minor correction because that take-home salary seemed insanely low. you pay 33% on everything that you make OVER 154,000 plus that 37675 which is the tax for everything less than 154,000. SOOO, the total tax bill would actually be $52,591 in this scenerio leaving a much higher take-home pay (of course then you need to add social security, state taxes, possibly city taxes, etc)!

To the OP:

If you are going to do a meaningful financial analysis of your anticipated debt, you have to project the indebtedness for future med school grads, not ones as recently as 2 years ago. The "average indebtedness" figure in the MSAR is fairly meaningless for the individual. Instead use the annual COA (cost of attendance) figure and mutliply x 4 for the total cost...subtract from that the "cash" you expect to be able to provide from savings (yours, your parents, a rich uncle)...and then assume that the balance will be borrowed - if there are grants and scholarships, well that is a bonus, but don't build them into your analysis (which is precisely what you are doing by using the average which includes people who have won full scholarships and others who have rich parents who paid their tuition, etc.).

If you are going to do a projected financial analysis of your future cost of living, again, your current "student lifestyle" costs that don't include any extras like a spouse, insurance, housing beyond the minimum, funding retirement, etc., is kind of meaningless. There are plenty of financial guides available to give you the idea of how much "after tax" income you will need to support a lifestyle, and $2000 a month is way too low...unless you intend to live in some semi-rural environment which will potentially impact your earning potential.

Finally, my point about public instate debt vs private debt is that most of these discussions revolve around people "choosing" to take on the much higher private school debt for various reasons (most commonly along the specious reasoning of "because it is my 'dream school' and I will be happier and I will get better residency placement => higher income = better able to pay off the higher debt"), usually asking the question "is it worth it" to take on $300k debt vs $100k debt?

For me, the answer is a resounding "no" - for you, maybe it is a "yes," but I and others are suggesting that your initial analysis is not taking enough into account. Be thorough in your analysis and push the debt numbers to the upper ends of the trends - bump up those interest rates, too, because they are most assuredly heading north per everything in the news - be more realistic about your future cost of living - and don't lowball the potential debt by using the "average" that includes people whose rich parents cut a check and people who get significant grants and scholarships given to only a handful of students...and be more realistic about the falling physician salaries which show no sign of reversing that trend...

What's up with all these people who don't know how taxes work cloggin up the threads.

To the OP...

It is possible to pay back your loans over the time frame you've speicified, but as most of the replies in this thread have highlighted, you've forgotten a couple of things:

1. Inflation (longterm average at approx 2.5-3.0%) vs. Decreasing physician salaries (see medicare reimbursement diminution over the next 2 years and every one of Law2Doc's posts in the pre-allo forum🙂)
2. Retirement savings
3. High probability of significant Federal Income Tax increases over the next 30 years as Medicare and Social Security plumet head-long over the precipice of insolvency
4. Inevitable lifestyle changes as you get older (family, etc.)

NewmansOwn said:

First of all, the above poster is correct -- debt for people graduating in 4, 5, 6 years will be close to $300K at private schools.

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I actually think it will be worse than $300K for a lot of students. Remember, the bulk of the loan package will be accruing interest during school. In rough terms, if you borrow ~$60K (assuming the usual blend of subsidized and unsubsidized Staffords with the remainder in GradPlus) for your first year, continue in a similar fashion throughout medical school (costs rise at a rate that exceeds inflation!), then defer/forbear for a four year residency (as an example) ... you will owe more like $380K at capitalization. Making matters worse: it's very likely that economic hardship deferral for residents is going to disappear next year (leaving forbearance as the only option if you don't want to make payments as a resident), and in the current credit climate, lenders are slashing borrowing incentives. So 10 year payments, in this scenario, may be in the neighborhood of $4500/m and 30 year payments more like $2600/m.

NewmansOwn said:

Depending on the interest rate when you graduate medical school (aka the interest rate at which you will consolidate), it may be wiser to take, in fact, a very long time (decades) to pay off your loans and instead use disposable income to invest. If your consolidated interest rate is low (as it was for folks graduating 3 or 4 years ago), you'll gain more in the long run to invest with your money rather than using it to pay off loans.

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The advice is not really relevant anymore. Student loans are now issued at fixed interest rates: 6.8% for Staffords and 8.5% for GradPlus. In the near term, private loans may have rates that look attractive relative to federal loans, but these loans have variable interest rates.

Finally, the idea that a professional with a six-figure income will have an overall tax burden (including payroll, federal income, state/local) in the 35-40% range is probably fair. Check out www.paycheckcity.com for a cool calculator. And don't pretend all those deductions are going to save your bacon. Personally, I am assuming I'll be hit with the AMT as soon as I finish residency.

if the stock market makes an average of 8% per year, why pay any more than the absolute minimum on your student loans and invest the extra money?

Agreed with Blade. If you can make more money in investments (IRA, 401k, stocks (esp energy/precious metals), mutual funds) than your consolidated loan interest rate, you are better off taking the full 30 yrs for loan repayment as you will have netted more money in your investments than your interest accumulations.

Because the interest on educational loans are non-compounding, you only accrue interest on your principal loan which is fixed. A good investment can net you 30%, and half that on average. If you don't know the first thing about investing, hire a financial advisor to do it for you. (Do your research/homework first and don't get suckered in by glamorous numbers or the first advisor you see).

At the end of 30 yrs, you may have paid a lot more in interest than your original loan, but the amount you would have made in investments would far exceed any amount lost in interest and you will be the richer.

For those of you petrified of stocks, investing, or business for that matter I would advise you to pay off your loans as soon as possible.

If you want to be rich, you should learn to invest. It's not really that hard to make a significant amount of money given enough time. Get rich quick schemes huge earnings in stocks are risky and pipe dreams but investing for long term is a very safe and realistic way for physicians to make a substantial amount of income outside of their practice.

As a physician, you will have a good deal more money than the general public, (yes even FP, IM, Peds), and will be afforded an opportunity for investments into very lucrative investment firms that the general public often cannot afford to invest in. These investments can net you millions (yes I said millions) if you invest correctly.

There will be 3 types of doctors in the coming future. Those who honestly dont care much about their salary and are happy with any income that pays the bills, those who b**ch about declining re-imbursements and decreasing salaries who do nothing about it, and those that learn new ways to make money when their primary income begins to decline. While I applaud and wholeheartedly agree that physicians must fight for their incomes and future earnings ( I do), if you do nothing to improve your net worth, it's honestly your own fault.

Those who begin investing early will see the biggest rewards. Spend just 30 minutes a day to learn investing and how stocks, mutual funds work. Listen to financial shows or radio, and just become somewhat proficient and then have someone invest for you.

This is the biggest difference between physicians and people in business, i-banking, wall street: their salaries aren't that significantly different than physicians on average but they know far more about investing strategies and frequently discuss them between each other. This is often why they make so much more money and live more comfortably than many physicians. Most physicians I know are dumber than a pile of bricks when it comes to financial investing strategies because they are afraid of it and feel they can make enough on their salaries alone.

If you care that much about money (I do), then take some time to learn how to get it. I knew nothing 5 yrs ago and I already have learned a tremendous amount and am able to hold intelligent discussions with investors and people in business. If I can do it, anyone can. It's just a matter of determination...

how badly do you want to be rich?

Blade28 said:

Great point!

I consolidated my student loans at under 2%. That's basically inflation.

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Yeah, but consolidation rates have tripled or quadrupled since you did that...

Please refer to my post on UIC's thread. I don't think it's that easy. It'll end up costing me one million dollars to pay off medical school.

http://forums.studentdoctor.net/showpost.php?p=6469169&postcount=1383

Chizwheel said:

Agreed with Blade. If you can make more money in investments (IRA, 401k, stocks (esp energy/precious metals), mutual funds) than your consolidated loan interest rate, you are better off taking the full 30 yrs for loan repayment as you will have netted more money in your investments than your interest accumulations.

Because the interest on educational loans are non-compounding, you only accrue interest on your principal loan which is fixed. A good investment can net you 30%, and half that on average. If you don't know the first thing about investing, hire a financial advisor to do it for you. (Do your research/homework first and don't get suckered in by glamorous numbers or the first advisor you see).

At the end of 30 yrs, you may have paid a lot more in interest than your original loan, but the amount you would have made in investments would far exceed any amount lost in interest and you will be the richer.

For those of you petrified of stocks, investing, or business for that matter I would advise you to pay off your loans as soon as possible.

If you want to be rich, you should learn to invest. It's not really that hard to make a significant amount of money given enough time. Get rich quick schemes huge earnings in stocks are risky and pipe dreams but investing for long term is a very safe and realistic way for physicians to make a substantial amount of income outside of their practice.

As a physician, you will have a good deal more money than the general public, (yes even FP, IM, Peds), and will be afforded an opportunity for investments into very lucrative investment firms that the general public often cannot afford to invest in. These investments can net you millions (yes I said millions) if you invest correctly.

There will be 3 types of doctors in the coming future. Those who honestly dont care much about their salary and are happy with any income that pays the bills, those who b**ch about declining re-imbursements and decreasing salaries who do nothing about it, and those that learn new ways to make money when their primary income begins to decline. While I applaud and wholeheartedly agree that physicians must fight for their incomes and future earnings ( I do), if you do nothing to improve your net worth, it's honestly your own fault.

Those who begin investing early will see the biggest rewards. Spend just 30 minutes a day to learn investing and how stocks, mutual funds work. Listen to financial shows or radio, and just become somewhat proficient and then have someone invest for you.

This is the biggest difference between physicians and people in business, i-banking, wall street: their salaries aren't that significantly different than physicians on average but they know far more about investing strategies and frequently discuss them between each other. This is often why they make so much more money and live more comfortably than many physicians. Most physicians I know are dumber than a pile of bricks when it comes to financial investing strategies because they are afraid of it and feel they can make enough on their salaries alone.

If you care that much about money (I do), then take some time to learn how to get it. I knew nothing 5 yrs ago and I already have learned a tremendous amount and am able to hold intelligent discussions with investors and people in business. If I can do it, anyone can. It's just a matter of determination...

how badly do you want to be rich?

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👍 Thanks for that post! I needed it. LOL

flip26 said:

Yeah, but consolidation rates have tripled or quadrupled since you did that...

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Agreed. This is something that has changed considerably.

Law2Doc said:

Agreed. This is something that has changed considerably.

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unfortunately. i tried to consolidate my undergrad loans when i went into repayment a year ago and all they offered me was the current rate. 👎