Congratulations for even thinking about this. Most 21 year olds have been raised to simply fear leverage, most likely because their elders were taught the same thing. The fact is that debt, if used wisely, can be a great enhancement to your investment in your education.
The critical question you have to ask yourself is what is debt, and what does it mean to your daily life? You also have to ask yourself how much the debt costs you
in the context of your overall financial picture.
The critical financial mistake I see people taking the HPSP scholarship for the money is that they mis-value their ability to choose. As you hopefully have read, you give up a host of freedoms, professional choices among them, when you sign up for the military. This is a huge, HUGE non-monetary cost that you really have to consider.
At the end of the day, keep in mind that educational debt is the
cheapest money you will ever have access to. Figure it this way: almost any investment other than a checking account will yield more interest than that charged to you by the government on a student loan. Literally, almost anything. So the government is effectively PAYING you to take their money.
To analyze this numerically, look at it this way. Let's use your numbers:
- You claim you have $42,000 outstanding in undergraduate loans. As you will be continuing as a full-time student, you will not be responsible for any payments until you graduate (or fail out!
). Assuming an interest rate of 5%, this amount will grow to around $51,250 by the end of medical school. Upon graduation, this debt will start to cost you around
$250, pre-tax, a month.
- Let's assume you rack up $180,000 in expenses during your 4 years of medical school. The amount may be higher, may be lower, depends on what school you go to and what city you're in, right? But I'd suspect this is in the ballpark. At the end of your four years, the monthly payments required (assuming you pay this loan back over 40 years) is
$928 a month in pre-tax dollars.
Now, you're probably thinking that sounds like a lot: $1,175 a month is quite a bit to a college kid making precisely bupkis per month. However, the critical things you need to remember here is a) you'll be pulling down around $120,000 minimum when you finally get out of residency and
b) the interest is tax deductible.
A) While youparents may not have been very successful financially (or simply unwilling to part with their success), being in medicine has the advantage of significant financial stability. You don't necessarily need to worry that $10K is coming in the door every month, because there is a significant need for doctors into the foreseeable future. For all the long hours and endless schooling, you can at least expect an OK income with low volatility.
B) Keep in mind that the interest in student loans is deductible. Ask someone more familiar with taxes what this means if you don't understand it. Suffice to say that on your initial payments, when you're making the least, your after tax payments at the 35% tax bracket will only be $784 in real dollars. Trust me, it doesn't seem like it now, but it's a pittance. It works out to about 12% of your after tax salary. It works out to about 14% of your after tax salary in your first year (your income will hopefully rise logarithmically over time).
All of this is well and good, but what you should really consider is that this monthly nut you have to cover buys you much, MUCH more than a medical education. It buys you the freedom to pursue whatever residency, in whatever part of the country you want. It buys you the freedom to pick which job you want, in which part of the country, after finishing your residency. It buys you to decide if you even want to practice medicine. It buys you the choice of whether you want to get shot at or not. It buys you time with your loved ones. Some will argue that it buys you a better residency experience, with better training, case loads, acuity, equipment, and professional environment. It buys you the freedom to finish your residency without a 2-4 year interruption of treating sprained ankles and jock itch.
Being a doctor appears to be stressful and tiring enough without the constant worry that you're going to be shipped off to a faraway and dangerous land. The money is pretty inconsequential in the scheme of the compensation. The only calculus that you need to do is figure out if your desire to serve your country outweighs all of these other benefits to being a free man.
