HPSP Financial Analysis

[BenzylAcetate]

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In the process of applying to some of the pricier DO schools and wanted to get some feedback on my financial analysis of the HPSP program for CCOM. I understand that a military commitment is about much more than just the financial aspect, however I feel that to make an appropriate evaluation understanding the finances of the decision are important.

For post tax income calculations I am using

http://www.paycheckcity.com/cokronos/netpaycalculator.asp

with the stipulations of Illinois residency and filling as single with 1 exemption.


I am assuming the military stipend will cover cost of living and am using the post tax value ($21,000) in my calculation for total debt through loans. I am assuming that if I do not go with HPSP I will be covering all expenses through loans.

CCOM Tuition + Fees : $56,977
Cost of living (Military Stipend) : $21,000

Annual Loan Value : $77,977

Assuming a 6.8% interest rate starting from day 1 this will leave me with a total debt load of ~$387k by the start of residency. It is my understanding that all of my loans will not be at 6.8% so this may be an underestimate.

Assuming I do not refinance and continue accruing interest at this rate over a 4 year residency while making payments of $6,000/year leaves a debt load of ~$451k at the completion of residency.

This next calculation may be a bit contrived, but it seems to make sense to me. Using the same parameters for interest calculation in residency (1.068*(debt-annual payment) = end of year debt) I am getting a value of ~$125k in annual repayment to completely repay the debt burden in 4 years post residency. This timeline would coincide with the end of the HPSP commitment and an ability to enter the civilian world.

Given that the majority of debt payments are made with post tax income this $125k in repayment would translate to an added $190k in pre-tax salary. Combined with a military salary of 90-130k pre-tax gives a total "salary" value of $280k-$320k for each year of military commitment.

It is my understanding that this level of "salary" coincides with higher paying specialties and would significantly outpace expectations for primary care fields (IM, Peds, FM). Are there other non-salary incentives from the civilian side that I am not accounting for that would tip the scale in favor or loans, such as loan repayment programs through individual employers?

I understand there would be a lost potential from employer 401k matching during this 4 year repayment period, however that may be somewhat mitigated by increased pay from military residency and the potential to fund a Roth IRA during med school, residency, and my 4 years as a military physician.

Given the high cost of this particular school I am inclined to believe that the HPSP scholarship would be a positive financial move (for this specific instance). Thoughts?


Edit : Sorry for the wall of text, tried to bold some things for clarity

 

[dpmd]

There was a time I considered doing HPSP, and while I didn't do such a detailed financial analysis, I did come away with conclusions similar to yours (that the benefits of not having loans would translate into an acceptable salary equivalent). Something to consider: if you end up enjoying your service you may decide to stay in long enough to be eligible for a retirement which could end up further sweetening the deal. Not every physician will be in a situation to get 401K matching or loan repayment so I wouldn't factor them in to your scenario.

Ultimately, I didn't go through with it because I ended up getting a scholarship from the med school I wanted to attend and the numbers no longer worked out.

Besides the obvious potential downsides to military service (such as getting killed or sent to unpleasant locations, or even as simple as dealing with administrative nonsense) there are a few other things that I didn't realize about HPSP until my friends were affected by it. The residency thing can be a big deal. If you try for a competitive specialty there is no guarantee you can get a waiver to also apply for civilian residencies (which can hinder your ability to get in to your specialty of choice), and if you don't get in you either have to have a backup specialty or end up doing a GMO tour (which delays your reapplication for the specialty of your choice). Plus, if you do get a waiver for a civilian residency your payback time is increased. It doesn't have to be a deal breaker, but just something you should know about.

 

[BenzylAcetate]

There was a time I considered doing HPSP, and while I didn't do such a detailed financial analysis, I did come away with conclusions similar to yours (that the benefits of not having loans would translate into an acceptable salary equivalent). Something to consider: if you end up enjoying your service you may decide to stay in long enough to be eligible for a retirement which could end up further sweetening the deal. Not every physician will be in a situation to get 401K matching or loan repayment so I wouldn't factor them in to your scenario.

Ultimately, I didn't go through with it because I ended up getting a scholarship from the med school I wanted to attend and the numbers no longer worked out.

Besides the obvious potential downsides to military service (such as getting killed or sent to unpleasant locations, or even as simple as dealing with administrative nonsense) there are a few other things that I didn't realize about HPSP until my friends were affected by it. The residency thing can be a big deal. If you try for a competitive specialty there is no guarantee you can get a waiver to also apply for civilian residencies (which can hinder your ability to get in to your specialty of choice), and if you don't get in you either have to have a backup specialty or end up doing a GMO tour (which delays your reapplication for the specialty of your choice). Plus, if you do get a waiver for a civilian residency your payback time is increased. It doesn't have to be a deal breaker, but just something you should know about.

Thank you for the response. I appreciate your time and am glad to see that my thought process makes sense. I didn't factor in military retirement benefits because I haven't run the numbers comparing to independently financing retirement on the civilian side. I also don't necessarily see myself being career military, but that could easily change if I were to enjoy my time in service.

I agree that if I am accepted to a less expensive school or receive a sufficient scholarship the financial incentives most likely won't outweigh the cost of required military service and the other headaches you mention.

 

[TexasPhysician]

A few things to consider:
1. Many residents can pay on their loans during residency to minimize increasing debt.
2. Private jobs in many locations offer debt repayment. The last offer I got in the mail mentioned 40k/year.
3. The military has minimal retirement benefits unless you stay 20 years. The VA and similar government entities have similar pensions without risk of deployment.
4. Work hours. Consider being deployed away from home and working whatever hours are needed of you. If you did the same thing in the private world by finding the job with horrible hours in a bad location, the salary is often quite good because no one otherwise would take it. You still come home to your spouse, partner, children, and whoever else at the end of the day.
5. Some residents moonlight and earn an extra 30k+ each year to pay down debt.

 

[dpmd]

A few things to consider:
1. Many residents can pay on their loans during residency to minimize increasing debt.
2. Private jobs in many locations offer debt repayment. The last offer I got in the mail mentioned 40k/year.
3. The military has minimal retirement benefits unless you stay 20 years. The VA and similar government entities have similar pensions without risk of deployment.
4. Work hours. Consider being deployed away from home and working whatever hours are needed of you. If you did the same thing in the private world by finding the job with horrible hours in a bad location, the salary is often quite good because no one otherwise would take it. You still come home to your spouse, partner, children, and whoever else at the end of the day.
5. Some residents moonlight and earn an extra 30k+ each year to pay down debt.

All of the above is true and should be considered. Doing HPSP solely for financial reasons is never a good idea, but the OP mentioned that at the beginning. A couple of things about the above:
1. Not sure paying towards your loans in residency would really change the equation for most situations (because then you figure the money going towards loans could have been going towards retirement).
2. Loan repayment may be specialty or area specific. None of the jobs I have seriously considered had any. Even if they do, the repayment is usually considered income and the tax consequences of that have to be taken into account
3. True, but those places would also be a place to transition to working after your military obligation in order to use your time served to earn a retirement. Forgot to mention that part. I was enlisted in the Army before I ever went to medical school and have been considering getting a VA job at some point to get the years I need to finish for a retirement.
4. Most physician deployments are only a few months, but you could just as easily get killed in a few months as a few years so yeah, deployments are a huge issue. I was lucky enough never to deploy anywhere dangerous but I was away from my spouse for an extended period of time and worked as much as was needed during mine. It was a tough 14 months, but I consider it a really amazing experience (even if it did disrupt medical school for me-something that wouldn't have happened if I had been on HPSP). Attitude about it is the key. Helping fellow military members can be really rewarding.
5. I will go with the same thing as #1 on this

 

[BenzylAcetate]

A few things to consider:
1. Many residents can pay on their loans during residency to minimize increasing debt.
2. Private jobs in many locations offer debt repayment. The last offer I got in the mail mentioned 40k/year.
3. The military has minimal retirement benefits unless you stay 20 years. The VA and similar government entities have similar pensions without risk of deployment.
4. Work hours. Consider being deployed away from home and working whatever hours are needed of you. If you did the same thing in the private world by finding the job with horrible hours in a bad location, the salary is often quite good because no one otherwise would take it. You still come home to your spouse, partner, children, and whoever else at the end of the day.
5. Some residents moonlight and earn an extra 30k+ each year to pay down debt.

1+5. My calculation includes a $6000/yr payment during residency. I'm assuming the ability to moonlight easily is somewhat specialty dependent so I'm not sure it is something to definitively include in the calculation.

2. This was something I hoped to hear more about. Any idea how available opportunities like this are as well as repayment terms? Was this a 1 year type deal or something that required other commitments?

3. True the non-vested retirement is an issue during the 4-6 yrs of military repayment, but it is somewhat mitigated by the ability to fund a roth IRA during med school, residency, and the repayment period. I would need to run some more numbers with a fair spread of hypotheticals, but my gut feeling is the hpsp comes out slightly ahead for lower paying specialties.

4. Deploying is probably not a highlight of the military, but the hypothetical civilian position you described may not be available in the future and may not provide the same financial incentive. It's probably overly cautious, but I am hesitant about depending on the availability of repayment programs down the line. I agree the military commitment is not something to take lightly and would have a significant impact on family.

The non-financial implications of HPSP are significant and something I am absolutely considering along with the financial analysis. I simply wanted to have a thorough financial analysis to paint a more complete picture of the realities of accepting an HPSP scholarship.

Thank you for taking the time to share your thoughts. If you feel comfortable discussing it more I would be very interest to hear about debt repayment offers you have received from civilian jobs.

 

[TexasPhysician]

You mention that civilian repayment programs may not be available in the future. I'm not sure you understand. Some hospitals will provide repayment incentives to work there. No program other than your employment. There are under served programs that repay loans, but work incentives will not disappear.

Military incentives can disappear. Terms, payment, stipends, etc. can and have changed. I thoroughly support the military, but unless it is a calling for you, I would not advise it.

 

[TexasPhysician]

Add in the value of time away from family:

I work at a place that has a 48 hour in-house call shift paying $5k each shift. You sleep - not great sleep with 9 hours straight, but enough to do fine. You stay in the hospital for 48 hours with TV and leisure time and time to call family. Consider it a 48 hour deployment for comparison.

Another poster above mentioned a total of 14 months of deployment.

(14 months x 30 days) / 2 (days of my fake not life threatening nor as brave deployment) = 210

210 shifts lasting 48 hours each away from family in the civilian world x 5k = $1,050,000.

The military is a life changing experience that protects our freedoms and should be honored. I respect everyone willing to enlist, but no one is paid civilian money in the military.

 

[Perrotfish]

A few things to consider:
1. Many residents can pay on their loans during residency to minimize increasing debt.
2. Private jobs in many locations offer debt repayment. The last offer I got in the mail mentioned 40k/year.
3. The military has minimal retirement benefits unless you stay 20 years. The VA and similar government entities have similar pensions without risk of deployment.
4. Work hours. Consider being deployed away from home and working whatever hours are needed of you. If you did the same thing in the private world by finding the job with horrible hours in a bad location, the salary is often quite good because no one otherwise would take it. You still come home to your spouse, partner, children, and whoever else at the end of the day.
5. Some residents moonlight and earn an extra 30k+ each year to pay down debt.

1) Not really. An average private school student takes out 280K in loans that is 330K in loans by the time they hit residency. With a, say, 45K resident salary, they would need to put more than 60% of their after tax income towards their debt just to keep the debt from gong up. Technically possible, rarely feasible.
2) Not really. There's no tax benefit to repaying debt vs. just paying physicians (unlike, for example, health insurance). While debt repayment is a part of a lot of packages out there, the money has to come from somewhere and its usually pay. The average physician's salary for your field, I think, should be taken as a realistic estimate of what your going to get in compensation for your work. The military is sending retirement checks to people in their late 30s and early 40s. The checks even go up each year to adjust for inflation!
3) The VA and similar government entities have pensions that vest after 30 years of post-residency work and that don't start paying out until you turn 65. Not a bad retirement deal if you're willing to be a lifetime VA employee, but its not even close to the the deal the military is offering: a pension at 1/2 of base pay that starts 20 years into a career that includes your residency and fellowship.
4) This is a reasonable point.
5) I have yet to meet any residents that pulled more than a few thousand of income out of moonlighting, most of my medical school classmates haven't managed any. Residency just isn't designed to be friendly towards a second job. Moonlighting not only has to work within the limits of your 80 hour work week, it also has to work within your almost non-negotiable insanely random resident work schedule. I have no weekends this month but every Tuesday and Wednesday off. Then next month I have every Thursday off and a half day on Sunday. Over December I have Sundays off... except for one weekend when the Intern is doing something on Sunday, so I work an Intern shift while an attending covers me and I get Wednesday off. And of course if someone gets sick, or hurt, or pregnant, the whole thing goes out the window and my schedule completely changes

I know there are people out there who make moonlighting work but I can't for the life of me figure out how. Are there really employers who want someone who is available that randomly?

 

[Perrotfish]

In the process of applying to some of the pricier DO schools and wanted to get some feedback on my financial analysis of the HPSP program for CCOM. I understand that a military commitment is about much more than just the financial aspect, however I feel that to make an appropriate evaluation understanding the finances of the decision are important.

For post tax income calculations I am using

http://www.paycheckcity.com/cokronos/netpaycalculator.asp

with the stipulations of Illinois residency and filling as single with 1 exemption.


I am assuming the military stipend will cover cost of living and am using the post tax value ($21,000) in my calculation for total debt through loans. I am assuming that if I do not go with HPSP I will be covering all expenses through loans.

CCOM Tuition + Fees : $56,977
Cost of living (Military Stipend) : $21,000

Annual Loan Value : $77,977

Assuming a 6.8% interest rate starting from day 1 this will leave me with a total debt load of ~$387k by the start of residency. It is my understanding that all of my loans will not be at 6.8% so this may be an underestimate.

Assuming I do not refinance and continue accruing interest at this rate over a 4 year residency while making payments of $6,000/year leaves a debt load of ~$451k at the completion of residency.

This next calculation may be a bit contrived, but it seems to make sense to me. Using the same parameters for interest calculation in residency (1.068*(debt-annual payment) = end of year debt) I am getting a value of ~$125k in annual repayment to completely repay the debt burden in 4 years post residency. This timeline would coincide with the end of the HPSP commitment and an ability to enter the civilian world.

Given that the majority of debt payments are made with post tax income this $125k in repayment would translate to an added $190k in pre-tax salary. Combined with a military salary of 90-130k pre-tax gives a total "salary" value of $280k-$320k for each year of military commitment.

It is my understanding that this level of "salary" coincides with higher paying specialties and would significantly outpace expectations for primary care fields (IM, Peds, FM). Are there other non-salary incentives from the civilian side that I am not accounting for that would tip the scale in favor or loans, such as loan repayment programs through individual employers?

I understand there would be a lost potential from employer 401k matching during this 4 year repayment period, however that may be somewhat mitigated by increased pay from military residency and the potential to fund a Roth IRA during med school, residency, and my 4 years as a military physician.

Given the high cost of this particular school I am inclined to believe that the HPSP scholarship would be a positive financial move (for this specific instance). Thoughts?


Edit : Sorry for the wall of text, tried to bold some things for clarity

Your numbers are good, but you're forgetting a major financial risk: The risk that you choose a residency that is more difficult to obtain in the military than in the civilian world, and are locked out of your chosen field. In that case you are left with three choices

1) Choose a less desirable field that is available to you within in the military. This minimizes your financial loss but can be a lifelong personal loss.

2) Do an Intern year in the military, work as a general medical officer for two years, and then come back to finish your residency. This usually extends your effective obligation, because the length of your obligation leaving residency is either the length of your obligation going into residency or the length of residency itself, whichever is more.

3) Do an Intern year in the military, serve out your time in the military without a residency, and reapply to the civilian match when you complete your obligation. In this case you face a significant loss vs your calculations in both your income during military payback (medical officers without residency are not entitled to residency special pay, and make only 30K less per year) and after residency (You effectively lose 3 years of attending salary as you complete residency in the civilian world). That would probably make the military a money loser for you.

I cannot emphasize this enough: When you join the military, you agree to participate in the military match. You must match at a military hospital: even if they don't have the kind of residency you want and even if the kind of residency you want is much easier to get in the civilian world. They might let you participate in the civilian match, they might even have so few requests for deferments that some people are given deferments without applying, but odds are you will match in the military . Do not join the military expecting anything but a military residency following a military match.

Which is not necessarily a bad thing. I really like my military residency so far, and most people like the GME system when they're training in it. However you should really understand how military GME works before signing anything.

 

[TexasPhysician]

1) Not really. An average private school student takes out 280K in loans that is 330K in loans by the time they hit residency. With a, say, 45K resident salary, they would need to put more than 60% of their after tax income towards their debt just to keep the debt from gong up. Technically possible, rarely feasible.
2) Not really. There's no tax benefit to repaying debt vs. just paying physicians (unlike, for example, health insurance). While debt repayment is a part of a lot of packages out there, the money has to come from somewhere and its usually pay. The average physician's salary for your field, I think, should be taken as a realistic estimate of what your going to get in compensation for your work. The military is sending retirement checks to people in their late 30s and early 40s. The checks even go up each year to adjust for inflation!
3) The VA and similar government entities have pensions that vest after 30 years of post-residency work and that don't start paying out until you turn 65. Not a bad retirement deal if you're willing to be a lifetime VA employee, but its not even close to the the deal the military is offering: a pension at 1/2 of base pay that starts 20 years into a career that includes your residency and fellowship.
4) This is a reasonable point.
5) I have yet to meet any residents that pulled more than a few thousand of income out of moonlighting, most of my medical school classmates haven't managed any. Residency just isn't designed to be friendly towards a second job. Moonlighting not only has to work within the limits of your 80 hour work week, it also has to work within your almost non-negotiable insanely random resident work schedule. I have no weekends this month but every Tuesday and Wednesday off. Then next month I have every Thursday off and a half day on Sunday. Over December I have Sundays off... except for one weekend when the Intern is doing something on Sunday, so I work an Intern shift while an attending covers me and I get Wednesday off. And of course if someone gets sick, or hurt, or pregnant, the whole thing goes out the window and my schedule completely changes

I know there are people out there who make moonlighting work but I can't for the life of me figure out how. Are there really employers who want someone who is available that randomly?

1. You can still put money toward your debt to minimize how high your debt rises. Just because you don't pay all of the interest doesn't mean you can't contribute. The amount you contribute directly relates to the lifestyle you want. A fellow resident at my program has roommates and pays $300/month in rent. Even with a car payment, he can contribute over 1k/month.
2. Repaying debt is still repaying debt.
3. The VA also vests at 20 years of service. I got offered a job from there. Like the military, the pension is not guaranteed until you vest. If the government changes the rules to require 25, 30, or even 35 years of service to get a pension, you can't argue it. This is probably quite likely now that government pensions have not been adequately funded and the government is pushed to take further loans to pay pensions .
5. During PGY-2,3,4, I have moonlighted and earned an additional extra 15k+/year. My best year was 46k extra. A classmate of mine works many extra shifts and earns an additional 100k/year. There are many jobs in my region that would let you work any day you are available. Many residents in my program moonlight. The IM residents also moonlight pretty often near me. Moonlighting obviously varies by program.

 

[dpmd]

During PGY-2,3,4, I have moonlighted and earned an additional extra 15k+/year. My best year was 46k extra. A classmate of mine works many extra shifts and earns an additional 100k/year. There are many jobs in my region that would let you work any day you are available. Many residents in my program moonlight. The IM residents also moonlight pretty often near me. Moonlighting obviously varies by program.

Definitely program dependent and also somewhat specialty dependent. Plus, some places expect you to be honest about how the moonlighting is affecting work hours, but don't actually track it. As a surgery resident the only moonlighting available was internal moonlighting for neurosurgery call and most people violated the hell out of their hours doing it.

I think you have to account for lifestyle when doing these calculations and either run the numbers with the same lifestyle (so no loan repayment or moonlighting during residency, or living bare bones and moonlighting a bunch but investing that extra money into retirement if on the HPSP-vs just paying off some interest) or decide how much the difference in lifestyle during residency would be worth.

 

[TexasPhysician]

Definitely program dependent and also somewhat specialty dependent. Plus, some places expect you to be honest about how the moonlighting is affecting work hours, but don't actually track it. As a surgery resident the only moonlighting available was internal moonlighting for neurosurgery call and most people violated the hell out of their hours doing it.

I think you have to account for lifestyle when doing these calculations and either run the numbers with the same lifestyle (so no loan repayment or moonlighting during residency, or living bare bones and moonlighting a bunch but investing that extra money into retirement if on the HPSP-vs just paying off some interest) or decide how much the difference in lifestyle during residency would be worth.

The problem is that if you account for lifestyle the military with deployment(s) will be far behind in finances, assuming you consider deployment away from family in a possible war zone to be a bad thing..

It all depends on what you are comparing though.

A psychiatrist working at a mental health center at only 40 hrs/week with all holidays off, no call, benefits, and paid vacation could only earn $170k/year. If that psychiatrist is cool with long term deployments and strapped with 500k of debt, the military looks not so bad financially.

If I am deployed, I consider the lifestyle to take a considerable hit and thus you need to consider the comparison to a very strenuous civilian gig. When you do, the civilian gig will be better financially even with loan repayment.

 

[The White Coat Investor]

I understand that a military commitment is about much more than just the financial aspect, however I feel that to make an appropriate evaluation understanding the finances of the decision are important.

I cannot emphasize this enough. In fact, it is so important that the financial aspects shouldn't even be on the same page. If you want to be a military doctor, the HPSP is a fine way to do so. If you do not want to be a military doctor, take the loans. It really is that simple. I wouldn't have believed it 15 years ago when I signed up with the military with a med school acceptance in hand either though, so I understand where you're coming from.

One of the biggest variables in whether you will come out financially ahead is your specialty choice. Some people walk out of residency/fellowship into a job making $700K as a civilian. There's no way the military can compete with that. And how can you know at this stage what specialty you want to do? You might have some idea, but you have better than a 50% chance of changing your mind in med school.

Learn about what your life will be like as a military physician. If that's something you'd like to do for a few years, then sign-up. If not, then take the loans, minimize them as much as you can, and live like a resident until they're paid off. You won't know for 10 years whether one decision will come out ahead of the other, and if one does, it is unlikely to be by such a large amount that it is worth making that decision based on finances.

 

[The White Coat Investor]

the financial incentives most likely won't outweigh the cost of required military service and the other headaches you mention.

This statement you make is very revealing of your motivation for military service. You don't sound like someone who is going to enjoy it. The people who do aren't doing financial calculations to see if it is a good idea. They're willing to be military docs KNOWING BEFOREHAND, that they'll come out behind financially.

But I could be reading too much into your posts and obviously don't know you personally. But I do know the military personally and I know lots of military docs.