Cost of Attendance vs. Average Indebtedness

[punkedoutriffs]

Financial question here:

On the MSAR, the "Average indebtedness" is often way lower than would be if all four years of expenses were accounted for given the data for "Cost of Attendance." For example, with "X" University (Don't wanna publish copyright info.),

Average indebtedness: Just a shade over $200,000

The school is 50% IS, 50% OOS. Averaging their yearly cost of attendance multiplied by four years:

$316,218 to attend "X" university.

Now I know there is the fact that "92% are receiving aid," but what does that even mean? That on average, assuming that no one is carrying undergrad debt (which I know is absurd), the financial aid on the aggregate comes out to ~$116,000/student (I know that's not what it means and that some students receive more, some less)? How does one go about getting this aid? It seems pretty easy to get, if 92% are getting it. But then, at that point, why even make tuition that high? Why not just lower it from the baseline?

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[Frazier]

Financial question here:

On the MSAR, the "Average indebtedness" is often way lower than would be if all four years of expenses were accounted for given the data for "Cost of Attendance." For example, with "X" University (Don't wanna publish copyright info.),

Average indebtedness: Just a shade over $200,000

The school is 50% IS, 50% OOS. Averaging their yearly cost of attendance multiplied by four years:

$316,218 to attend "X" university.

Now I know there is the fact that "92% are receiving aid," but what does that even mean? That on average, assuming that no one is carrying undergrad debt (which I know is absurd), the financial aid on the aggregate comes out to ~$116,000/student (I know that's not what it means and that some students receive more, some less)? How does one go about getting this aid? It seems pretty easy to get, if 92% are getting it. But then, at that point, why even make tuition that high? Why not just lower it from the baseline?

It means 8% are off the grid and paying for their education some other way.

"Aid" includes loans, grants, scholarships, etc. The fact that the particular item includes loans makes it useless really.

Tuition isn't lowered because A) they don't have to -- students can always get more loans, and B) they don't know how much money they will have for grants/scholarships in the future -- as it is a dynamic figure for most schools.

The school gets their money either way... whether it be from uncle sam or rich alumni donating 500k for scholarships. Why lower tuition?

Maybe pure merit scholarships are a slight exception, but that is why they are so rare.

 

[punkedoutriffs]

It means 8% are off the grid and paying for their education with straight cash, coke, and/or blood diamonds.

"Aid" includes loans, grants, scholarships, etc. The fact that the particular item includes loans makes it useless really.

Tuition isn't lowered because A) they don't have to -- students can always get more loans, and B) they don't know how much money they will have for grants/scholarships in the future -- as it is a dynamic figure for most schools.

Well, loans count toward the indebtedness, the others don't. So that's ~$116,000 in grants/scholarships per student? It just seems absurdly high.

 

[AnthonyBourdain]

I wouldn't even bother looking at the average indebtedness unless the school is known for giving out large scholarships.

Unless you have parents willing and able to foot some of the bill, plan on paying the whole amount through loans. Some people get large scholarships or help from parents and that drives the average down. Most people don't get either. As Blais said, they count loans as aid.

 

[Frazier]

Well, loans count toward the indebtedness, the others don't. So that's ~$116,000 in grants/scholarships per student? It just seems absurdly high.

we both forgot the fact that, for the most part, medical students come from very wealthy families (cue chart with avg 6 figure family income).

many students get a "little help" from mommy, daddy, granny, pappy, etc.

 

[Ellie Arroway]

(cue chart with avg 6 figure family income).

Yep.

 

[Barcu]

Yeah, average indebtedness isn't great because it counts people who get money from their parents to pay for school or who get scholarships (including full tuition ones like military, health scholars, etc). Also, since tuition rises every year, your indebtedness will be higher.

The bottom line is that you should expect to pay the full COA, unless you have parents who will help or plan on applying to a scholarship like the military or health service. Some schools are good with financial aid, but most are not. Some people at my school also don't take out the full amount of loans either (the package is usually quite generous on living expenses or they get some extra money from family) so that contributes too because you don't have to take out the full COA.

The best course of action is to hold onto all acceptances until March, when financial aid info comes out. Then you can make a monetary decision about all the schools. It's an important factor.

 

[AYCES]

Yeah, you can't look at just the average. Also a good idea to ask if fees are included.

 

[punkedoutriffs]

Crap. That puts me out of luck, since my parents just bought a new house and my sister is on the way to college in two years.

That leads to a follow-up question. This is something I've been wondering for a while:

I've gotten the impression that loans weigh heavily on people, but I've sometimes thought that people make a bigger deal out of it than it is. I'll hear about how, "Oh, he's still paying loans after 25 years." But then I'll think, "That's more to do with a lack of sense/responsibility in managing finances than the nature of the loan burden itself."

I guess I don't know what it's like because I don't have firsthand experience, but I've often thought that even if a doc has a high amount of debt and a relatively low salary (for a doctor), like say, a $250,000 loan debt and a $120,000 salary after taxes, it's not difficult to just continue living like a resident and paying down the loan principle in just 3 or 4 years, after which you're loan free.

I mean, unless when you get out of residency, there's an obvious bull market or you KNOW that any real estate you buy will rise in value, basically that investing money elsewhere will yield a higher dividend than the interest accrued on your loans, then why not just pay it off in a couple years and be done with it?

 

[410322]

Crap. That puts me out of luck, since my parents just bought a new house and my sister is on the way to college in two years.

That leads to a follow-up question. This is something I've been wondering for a while:

I've gotten the impression that loans weigh heavily on people, but I've sometimes thought that people make a bigger deal out of it than it is. I'll hear about how, "Oh, he's still paying loans after 25 years." But then I'll think, "That's more to do with a lack of sense/responsibility in managing finances than the nature of the loan burden itself."

I guess I don't know what it's like because I don't have firsthand experience, but I've often thought that even if a doc has a high amount of debt and a relatively low salary (for a doctor), like say, a $250,000 loan debt and a $120,000 salary after taxes, it's not difficult to just continue living like a resident and paying down the loan principle in just 3 or 4 years, after which you're loan free.

I mean, unless when you get out of residency, there's an obvious bull market or you KNOW that any real estate you buy will rise in value, basically that investing money elsewhere will yield a higher dividend than the interest accrued on your loans, then why not just pay it off in a couple years and be done with it?

People have families and other expenses beyond student debt. Factor in malpractice insurance, COL in your area, a mortgage, and children. Now it's understandable.

 

[Barcu]

People have families and other expenses beyond student debt. Factor in malpractice insurance, COL in your area, a mortgage, and children. Now it's understandable.

Exactly. You emerge out of med school and residency with a ton of debt right about the time that you get married, have children, buy a house, etc.

Being able to just suck it up after residency for a few years sounds like an option, but it isn't realistic for most people. I've also heard that after 8 years or so living like student, it's a bit easier to convince yourself that maybe taking a few extra years to pay it off and live a little better post-residency isn't a horrible idea.

Some people are very debt-adverse, and having a large amount of debt seems scary. In the end,however, if it is manageable debt, it isn't a terrible thing. Physicians, no matter their debt, have been able to maintain a comfortable lifestyle and take years to pay off their debt. It's not really an issue most of the time.

 

[linebacker57]

I agree with the above point, especially because student loan debt typically bring down your credit score a lot, and shouldn't effect your rate for a home loan

 

[notbobtrustme]

I've gotten the impression that loans weigh heavily on people, but I've sometimes thought that people make a bigger deal out of it than it is. I'll hear about how, "Oh, he's still paying loans after 25 years." But then I'll think, "That's more to do with a lack of sense/responsibility in managing finances than the nature of the loan burden itself."

No, it has everything to do with interest rates. The rates used to be so low that paying the minimum was the best option you could do, since you could invest the extra money and earn 3-4x in interest. Rates used to be as low as 1% on loans; if you pay that off in less than 25 years, you are taking money and flushing it down the toliet, since you could invest and earn 8% interest (on average) in the market. On top of that, loans didn't compound from day 1 and the amount you had to borrow was much less. It was really a great ****ing deal until the late 90s, when tuition began to skyrocket and then in the late 00s, when interest rates ballooned.

Now, we take out more loans, it starts compounding from day 1 and the market isn't nearly as predictable as before. That's why you should prioritize paying down loans; no other investment vehicle out there will reliably generate 6.8 - 8% ROI, which is what you would need to do to break even against loans taken out.

 

[MedPR]

I agree with the above point, especially because student loan debt typically bring down your credit score a lot, and shouldn't effect your rate for a home loan

Student loan balance is not in the score calculation for any of the three major credit bureaus.

Home loan rates are very dependent on credit scores.

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[markyb03]

Big fan of this thread. Money has become a huge concern for me and will be a large factor in my choice of medical school

 

[CsHead]

No, it has everything to do with interest rates. The rates used to be so low that paying the minimum was the best option you could do, since you could invest the extra money and earn 3-4x in interest. Rates used to be as low as 1% on loans; if you pay that off in less than 25 years, you are taking money and flushing it down the toliet, since you could invest and earn 8% interest (on average) in the market. On top of that, loans didn't compound from day 1 and the amount you had to borrow was much less. It was really a great ****ing deal until the late 90s, when tuition began to skyrocket and then in the late 00s, when interest rates ballooned.

Now, we take out more loans, it starts compounding from day 1 and the market isn't nearly as predictable as before. That's why you should prioritize paying down loans; no other investment vehicle out there will reliably generate 6.8 - 8% ROI, which is what you would need to do to break even against loans taken out.

Winner, winner chicken dinner...

 

[darkjedi]

I agree with the above point, especially because student loan debt typically bring down your credit score a lot, and shouldn't effect your rate for a home loan

student loan balances are typically not taken into consideration for credit scores and should not negatively impact your credit rating.

Edit: oops it seems MedPR had already said that

 

[NickNaylor]

Student loan balance is not in the score calculation for any of the three major credit bureaus.

Home loan rates are very dependent on credit scores.

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It may not impact your credit history, but it will almost certainly impact your financial life. A grand plus per month in student loan payments for a decade or more is nothing to sneeze at.