Scotty6278

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I am a bit older than your avg student starting medical school, by no means am I going into medicine for the money, but I have to admit that at this stage of the game I would be foolish to ignore the financial implication of my decision. I have chatted with quit a few doctors about going to medical school and I have to say that about 70% tell me that I would be crazy to do it....some have went as far as to say I will not be able to pay back the loans due to high malpractice and low HMO reimbursments. I trully believe that I belong in medicine but I just wanted to get a feel for what you guys thought about medicine as an "investment"...I realize doing something you love is priceless, but at the same time I will have to pay back about 170K in student loans when it is all said and done. I have looked as salary data and to me it doesn't seem to bad....IM apprx 140K/yr, EM about 185K/yr, surgeons about 220K/yr (all after about 3 yrs in practice).....to me this seems fine and certainly more than enough to pay back loans. Are these realistic numbers? I have also seen data that says some docs (even specialists) are starting much lower than I would have guessed (about 130K) and internests (90K)....Just wondering what everyone thought. Thanks
 

12R34Y

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I'd love to hear a response from someone on this board who has had to actually pay off six-figure debt after medical school.

how fast could you reasonably do it? what was your lifestyle like while you were repaying etc...?

later
 

EMRaiden

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I am currently paying off 100k in debt... and at 4% will happily do so for the next 30 years. Why should I try to pay it faster when I can use the money I "save" to 1) buy a house, 2)pay bad debt (primarially credit cards), or 3) save/invest. My student loans are insured, so if I die my wife doesn't have to pay them, and if I hit hard times I can forebear them.

My suggestion is to consolidate at the lowest rate you can get and settle in for 30 years of payments.
 
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NinerNiner999

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EM Raiden:

I am thinking about consolidating for 15 years. With my 130k of debt, that comes to about $730/month for 15 years (at 3.1%). I chose this amount because it would be just high enough to qualify me for deferrment/hardship during my three years of residency. If I consolidate for 30 years, my monthly payment is like $380, which is a nice chunk of change that I would have to pay while in residency unless I qualify for hardship. Can I still qualify for deferrment/hardship with that low of a monthly payment? If I can - I'll definitely do the 30 year thing.

More important than the three years of residency, would I be able to afford $730 a month straight out of residency? This is the tough question I face and I would like information about first year and starting salaries in EM before I pull the trigger on consolidation. If I can't afford $730 out of residency, I'll have to suck it up during residency and pay $380 a month...
 

edinOH

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Originally posted by NinerNiner999
EM Raiden:

I am thinking about consolidating for 15 years. With my 130k of debt, that comes to about $730/month for 15 years (at 3.1%). I chose this amount because it would be just high enough to qualify me for deferrment/hardship during my three years of residency. If I consolidate for 30 years, my monthly payment is like $380, which is a nice chunk of change that I would have to pay while in residency unless I qualify for hardship. Can I still qualify for deferrment/hardship with that low of a monthly payment? If I can - I'll definitely do the 30 year thing.

More important than the three years of residency, would I be able to afford $730 a month straight out of residency? This is the tough question I face and I would like information about first year and starting salaries in EM before I pull the trigger on consolidation. If I can't afford $730 out of residency, I'll have to suck it up during residency and pay $380 a month...

You won't qualify for financial hardship during residency with a $380/month payment. Payment has to be at least 20% of gross monthly income. My payment is $572/month and I barely qualified. Otherwise I would have had to forebear and rack up the interest.

With incentives and current interest rates, you can lower your effective rate to around 1.5% during repayment. Considering inflation is around 2.5% roughly, the cost of repaying your loans will essentially decrease with time. You can take the difference in your minimum payment and the money you would use to pay the loans off and invest it most likely with a much greater return.

I plan on keeping my loans around for a long time. Maybe giving them names like pets.

As far as the loans being worth it. Look at it as an opportunity cost. If I'm in a career making 50K yearly and you tell me for a debt burden of $600/month for 30 years I can increase my yearly income four-fold, I think I would jump on that, with all else being equal. Of course you have to consider the cost of leaving full-time employment for four years for school and then under-earning for 3 or more years (depending upon specialty) before increasing income. I still think financially it is a winner.
 

juddson

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Those are pretty low interest rates. What makes any of you think that rates will not edge up to the 5's and 7's (or even 8's) in the next couple of years. While I wan in undergrads, my rates were a solid 8.25, the maximum. That was less than 10 years ago. I'm NOT convinced that rates will stay belwo 4% over the next 5 years. I think 7 or even 8 is more realistic at least over the next five years.

Also, what are the rules for forbearance? Are these generally available to anybody during residency just for the asking, or are thier qualifying hurdles? How does hardship work. does the loan NOT acrue interest while in hardship. If it does, how is hardship better than forbearance?

In any event, I can't see why even paying $1500 a month ( ten year payment plan on about $150,000 of debt at 4% interest) would be tooo much for somebody making even just $100,000 a year. I used to work as an attorney and made a tad over 100k. My take home each month was about $5700. Plenty of money to service that kiind of debt, even if you want a house, kids, etc. plenty.

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You won't qualify for financial hardship during residency with a $380/month payment. Payment has to be at least 20% of gross monthly income. My payment is $572/month and I barely qualified. Otherwise I would have had to forebear and rack up the interest.


Do these numbers change if you have dependents?
 

beyond all hope

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Scotty,

These income figures are averages for a reason. There are huge disparities. eg in EM you can work at Yale and make 85K, or work in a private group in Texas and make 500K after making partnership (takes 2-3 years at least).

If you want money it's out there.

The real monetary challenge of medicine is not the debt, it's the amount of time you're NOT making money. The next 7-10 years of your life you will be mostly accumulating debt or breaking even. Compare that to working in another field - within 10 years you can save some serious cash, especially if you invest well.

However, if you talk to doctors who are a few years in practice, many of them can't imagine doing anything other than medicine, and they're making 200-500K/year doing what they love.

It's been said a million times: don't sweat the debt. Medicine will take care of you if you enjoy what you're doing.
 

EMRaiden

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You won't qualify for financial hardship during residency with a $380/month payment.

While you may not qualify for a forbearance, you can probably get a defferment during residency... While interest will still accumulate you don't have to make any payments.

What makes any of you think that rates will not edge up

With consolidation you can "lock in" your rate for 30 years.

In any event, I can't see why even paying $1500 a month

If the government is willing to give you money at 3-4% (possibly less), with no risk (if you die it's forgiven, if you lose your job you can get a deferment/forebearance later)--- take the money and run. Instead of paying $1500 a month for 10 years, pay $500 a month for 30 years and do something with the excess... for example invested monthly over 30 years that $1500 becomes 500K, AND your loans are paid.
 

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I have recently spoken with my lender about consolidation, deferment, etc, and I thought I'd contribute what I learned.

First of all, the current interest rate is at 2.8% (I'm pretty sure this is across the board and includes all lenders, although each lender can offer their own incentives/benefits). It is a good idea to find out what the interest rate will be for next year before you consolidate. The rate changes on July 1st, but you can find out what that rate is going to be in May-June. So you will know if you should consolidate right away, or if you can wait until after July.

When you consolidate your loans (and you can only consolidate FEDERAL loans like Stafford, Perkins, etc), your unsubsidized loans will accrue interest (at 2.8% or whatever you lock in at) just like they did while in med school but your subsidized will not IF you qualify for economic hardship deferment (meaning that your monthly loan payment would be greater than 20% of your montly gross salary). Also, you can only qualify for this for THREE total years, after which you have to go about it differently (i.e., forbearance) and your subsidized loans will start to collect interest as well.

In my situation, I have about 100K in just federal loans, and they told me that I definitely qualify for deferment if I figure a yearly resident's salary is approx 40K give or take.

Since you can't consolidate your private loans, it is a good idea to try to pay off the principal for those loans as soon as you can and wait on the federal loans since the interest rate is so low nowadays.

I hope that all of this is correct, and if not...let me know. I wrote this out so I could get it all straight in my mind.:)
 

DrQuinn

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Originally posted by edinOH
I plan on keeping my loans around for a long time. Maybe giving them names like pets.

:laugh:

Good one.

I consolidated at like 2.8% or some ridiculously low percentage (much like everyone else who grad' in 2003). Sallie mae will give me a 1% decrease after 48 months of payment, and then another .25% if i do direct deposit. So that brings me down to like 1.6% for 30 years.

My payments on (currently 180k) will be ~700. I am doing economic hardhship for three years, so likely it might end up around 200k. But ~750-800 a month for 30 years is nohting at 1.6%. I can put the money i WOUDL put towards my loans in a dang CD and make mo' money mo' money.

Still haven't come up with a name for my loans, though, although "Freeeeeeeeedom" sounds like a fun name for them.

Q, DO
 

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What about living poor for a few years and just dumping as much cash as possible at the loans? I would HATE to have loans hanging over my head for 30 years. This "out-of-debt-quick" plan would also be nice with an SO who makes good money.
 
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DrQuinn

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Originally posted by JPHazelton
What about living poor for a few years and just dumping as much cash as possible at the loans? I would HATE to have loans hanging over my head for 30 years. This "out-of-debt-quick" plan would also be nice with an SO who makes good money.

Why rush and pay off something that is only at 1.6%? You can find CDs higher than that. You'd be throwing away your # (IMHO) trying to pay off the loans any faster.

Q, DO
 

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JP- I work with an em doc who did just that. lived like a student for 3 years after residency, drove old car,no big vacations or toys, etc and paid off > 100k loans in those 3 years. now he lives like a king.
 

fun8stuff

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Originally posted by emedpa
JP- I work with an em doc who did just that. lived like a student for 3 years after residency, drove old car,no big vacations or toys, etc and paid off > 100k loans in those 3 years. now he lives like a king.

This sounds like the smartest thing to do to me. Especially if you don't have a family to support.

If you make 150k a year, why not live off from 50k and put 100k/ year toward debt? Is it not possible to live off from 50k? I know after taxes and such, this drops income down, but still... put 70-80k toward debt. What is wrong with that?
 

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Originally posted by fun8stuff
This sounds like the smartest thing to do to me. Especially if you don't have a family to support.

If you make 150k a year, why not live off from 50k and put 100k/ year toward debt? Is it not possible to live off from 50k? I know after taxes and such, this drops income down, but still... put 70-80k toward debt. What is wrong with that?



If you are single and you make 150K a year, your take home will be 85K
 

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Originally posted by fun8stuff
This sounds like the smartest thing to do to me. Especially if you don't have a family to support.

If you make 150k a year, why not live off from 50k and put 100k/ year toward debt? Is it not possible to live off from 50k? I know after taxes and such, this drops income down, but still... put 70-80k toward debt. What is wrong with that?

This gets down to how financial decisions aren't always a logical decisions. The concept of being in debt causes some people a serious amount of axiety. Those are the kind of people who rush to pay pack any debt regardless of the interest, and that's fine if they want to do that. From a strictly logical financial standpoint, though, that's not always the best option. If your debt only has 1.5% interest, and you have an investment opportunity that can guarantee 4-5% returns, you are in reality throwing away the 2.5 to 3.5% that you should be making above the interest cost. Most of us are talking about > $100,000 of total debt here. That means you're throwing away more than $2500-3500/year the first year before we even start talking about compounding interest. Just a thought...
 

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Originally posted by Hercules
This gets down to how financial decisions aren't always a logical decisions. The concept of being in debt causes some people a serious amount of axiety. Those are the kind of people who rush to pay pack any debt regardless of the interest, and that's fine if they want to do that. From a strictly logical financial standpoint, though, that's not always the best option. If your debt only has 1.5% interest, and you have an investment opportunity that can guarantee 4-5% returns, you are in reality throwing away the 2.5 to 3.5% that you should be making above the interest cost. Most of us are talking about > $100,000 of total debt here. That means you're throwing away more than $2500-3500/year the first year before we even start talking about compounding interest. Just a thought...

Well, thats assuming you'll live LIKE your paying off debts and invest >$100k.

My plan:
Stage 1- make cash
Stage 2- spend all of it
Stage 3- wait for next check

...philosophy adopted from the "underpaints gnomes" School of Profit.
 

NinerNiner999

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Originally posted by Docgeorge
If you are single and you make 150K a year, your take home will be 85K

Not to be that "anal" person, but here are the tax breakdowns for the two hypothetical salaries discussed above (these also assume the entire salary is taxable income which, after either standard or itemized deductions, will not be actual amount taxed):

$150,000/yr
Married Filing Jointly: $37,925 tax ($112,075 take home)
Single : $56,473 tax ($93,527 take home)

$230,000/yr
Married Filing Jointly: $66,428 tax ($163,572 take home)
Single: $71,257 tax ($158,743 take home)

These values were taken from the 2003/2004 Tax table approved by the Fed.

Original thread:

"some docs (even specialists) are STARTING much lower than I would have guessed (about 130K) and internests (90K)....Just wondering what everyone thought"

That being said, Can somebody PLEASE post the average "STARTING SALARY" expected for recent EM residency graduates. This would help clarify how much disposable income would be expected, as per the original post in this thread...
 
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Originally posted by NinerNiner999
That being said, Can somebody PLEASE post the average "STARTING SALARY" expected for recent EM residency graduates. This would help clarify how much disposable income would be expected, as per the original post in this thread...

I've heard $160K for academics, and a place (community) in SE NC that cold-called our chief, and said $320K to start - so it is WIDE open.
 

proman

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I ran the numbers using my debt figures. I'll have 225K in loans by the time I'm done. Assuming current interest rates, if I paid those loans over 30 years, I would have paid $109,981 in interest. So, if I were to do what that other doc did and live cheap for a couple of years and dump all my cash into the loan, what would I have saved? $109,981 (+/-) and some debt anxiety.

What would happen if I were to invest that chunk of change (ie 225,000 of cash) into investments for 30 years. For ease of calculation I'm combining all those years of living cheap into 1 year. Makes the numbers easier to work with.

Average Return Scenario:

I invest $225,000 at the historical average (11%) over 30 years. That account would be worth $5,150,766. Subtract what I'd pay for the loan (225 +109 = 334) and I come out $4,816,000 ahead.

Bad Return Scenario:

Underperform the market (rate of return = 8%). Total worth over 30 years = $2,264,098. After paying for the loan: $1,930,098

Pathetic Return Scenario:

I do really bad and have a return average of 5%. Total worth over 30 years = $972,436. After paying for the loan: $638,436

Better Return Scenario:

Assuming 14% return (not unreasonable), total is worth $11,463,785. After loan: $10,825,349

All this assumes that you haven't contributed anything else to retirement (in reality you should contribute much much more). So, since I can stand that anxiety, I'll be investing and keeping my loans for as long as possible.
 
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rustybruce

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Not to kill your buzz, but you won't be investing $225,000 in one lump sum anytime soon unless there's something we don't know about you

If you payed off your loan slowly and used some of the difference towards investment, you would still do well, but it would not be nearly as dramatic as you've presented. (oh, I guess you already knew that, sorry)

Rusty
 

proman

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Hey Rustybruce the point was to look at the finances of living like a student for a few years after residency. It's simple, if you live off of 15K a year, and your after-tax income is 93K (the lowest NinerNiner999 had). Do that for 3 years and you've accumulated 234K. What woudl be the best use of that money? Investing, hands down. It's better by hundreds of thousands of dollars, minimum. I combined those 3 years into 1 just to make the calculations simpler.
 

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Just wanted to say that I really appreciate this discussion. I know less than nothing about this kind of thing, and my institution hasn't exactly been helpful in educating me about it. This is extremely helpful!
 

dry dre

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Originally posted by proman
I ran the numbers using my debt figures. I'll have 225K in loans by the time I'm done. Assuming current interest rates, if I paid those loans over 30 years, I would have paid $109,981 in interest. So, if I were to do what that other doc did and live cheap for a couple of years and dump all my cash into the loan, what would I have saved? $109,981 (+/-) and some debt anxiety.

How did you figure the $109k in interest?

As EdinOH and others have pointed out, loan interest rates are quite low. The inflation rate averaged over the past 10 years is ~2.3%. If your loan interest rate is less than the inflation rate, your loan is interest free.

If you lock your loan at ~3% or less, you should be able to count on a near interest-free loan for many many years.
 

Leforte

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NinerNiner999 -

Another thing to factor in you take-home pay deductions are social security, disability and state-taxes - these can easily be another 15% of gross income... so your calculations can become....

$150,000/yr
Married Filing Jointly: $37,925 tax -22.5 k other = $90k take home
Single : $56,473 tax - 22.5k other = $70k take home

Gotta love Uncle Sam.

On top of that, take out the student loan payments.... say $1500 per month ($18k per year) after taxes...

No wonder the med students have better cars than the Peds attendings!
 

proman

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Originally posted by dry dre
How did you figure the $109k in interest?

As EdinOH and others have pointed out, loan interest rates are quite low. The inflation rate averaged over the past 10 years is ~2.3%. If your loan interest rate is less than the inflation rate, your loan is interest free.

If you lock your loan at ~3% or less, you should be able to count on a near interest-free loan for many many years.

I would consider it dirt cheap, not interest-free. I got the interest amount by running an amoritization for a $225K loan over 30 years 2.8% (I think don't remember the exact number).
 

dry dre

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Originally posted by proman
I would consider it dirt cheap, not interest-free. I got the interest amount by running an amoritization for a $225K loan over 30 years 2.8% (I think don't remember the exact number).

Again, if Quinn's rate is less than 2%, and if the inflation rate is greater than 2%, the loan is interest free. Of course the inflation rate varies, but likely will remain above 2% for far into the future (if not 30 years).
 

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Of course the inflation rate varies, but likely will remain above 2% for far into the future (if not 30 years).

Since the dawn of Paul Volcker and his replacement Alan Greenspan the inflation rate has been under great control. Ever since the seventies the reserve bank kinda got it on how to maintain monetary policy and control the money supply. If it edges above 4 anytime while he is around I will be greatly suprised. The ten year avg. has been about 2.3% Running cyclically to mid 3's every 5 years. Last year it was 1.9%. On the flip side it is even less likely that there will be deflation. So as long as loans can be consolidated at less than inflation, but more importantly yearly income increases in % points they are interest free in a sense. But as long as you can squeeze an easy 15% out of your portfolio it is crazy to pay the loans off any sooner. Unless Loans make you anxious then that is another thing. If businesses were run in the way where loans were paid off just because they had them and did not let their income make more money, most of them would fail.
 

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For those that are afraid they will blow the money they would used to pay back their loans instead of investing it, how about getting a portion deducted from your paycheck or directly deposited into an investment account? Discipline is key though. Because even though our student loans are at a very low interest rate, you will be worse off if you delay paying them and don't invest.


By the way, someone mixed up forbearance and deferment earlier in the post. Forbearance is when you can't afford to pay but you don't qualify for deferment so you accrue interest on everything. You really gain nothing from forbearance except putting off your loan payments.
Deferment is when the government pays the interest on the subsidized portion of your loans. You can still make payments or pay off accuring interest while in deferment while saving money on interest. An important part of deferment is that when your deferment period is over and you are going to renew make sure you submit the paperwork before your deferment period is over. Otherwise the interest will capitalize (get added onto the principle balance) and you will be accrueing interest on a higher balance for the next deferment period.
 

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According to the Wells-Fargo rep that spoke at our financial aid exit interview hardship, hardship deferments are always based on the monthly payment of a 10-year loan, even if you reconsolidated to 30. So for hardship deferment, there's no difference in eligibility if you reconsolidate.
 

m and m

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For those of you with debt anxiety :scared: , it is still more advantageous to pay the minimum possible :eek: , and invest your money.
Say you are paying $500 a month on a 30 year educational loan at a pathetically low interest like arround 3% (if you have any loans now, go ahead and concolidate them to lock it in. Even if they go lower it doesn't change much, but if they go up it will cost you). You have anxiety though, so you want to pay your loans off quickly. Take the extra money that you were going to put towards the loan and invest it instead -> you keep doing that until that investment is equal to or greater than your debt and at that point you pay your loans off. If you do the math you will realize that it takes you less money and time overall to pay your loan as long as your investment has a higher interest of return than your loan (not hard to do when your loan has an interest rate arround 3%).
BTW, as somebody mentioned, the forbearance and other hardship calculations are based on the ten year repament plan, regardless of what plan you have actually chosen. Also, you can change repaiment plans anytime you want. And finally, even if you don't qualify for anything else, you can always use the income contingent plan.
Cheers

P.S: Can somebody put in their $0.02 as to how taxes would affect the above strategy?
 

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Ok, this goes back to the OP's original question.

I think you shouldnt worry about loans in the long term, and just dismiss what those docs said about never being able to pay it back. Why? Think of it this way:

-If you do not go to medical school, assuming you're a middle class person, you'd be making 40-60k/yr, not accounting living expenses. Assuming you do not get laid off for a yr or 2, or get promoted, that is a constant pay.

-Now, if you do go medical school, you will end up not earning any money for 4 yrs, plus racking up loans of 80k-100k/yr, and to stay consistent, not accounting living expenses (at public school, this will be 40-50k). Then you will go back to being the normal middle class person as a resident making 40k/yr for 4-6yrs. Thereafter, you will be making 150-250k/yr. Mathematically, you can pay back ALL your medical education loans with 1 yr salary, plus earning at least 4x as much thereafter for the REST OF YOUR LIFE. The condition is not the money, but the time and quality of life. Instead of playing with your kids at the beach every weekend, you'll be stressing about exams and studying. On long term, lack of money is not even an issue here.

Another way to look at it is, how can anyone complain about 80k-100k to get a private school medical education, when out in California the *average* home in metropolitan areas (SF, LA, SD) costs 400k!!! Hey, if I can get an MD and be a doc for 100k, you can add that to my home loan of 400k any day.

Again, I think the issue here is not going to be money at all. It'll be time. If you dont mind being busy as hell for 4 yrs stressing about exams, and then 3-6 yrs working your butt off, being money-less most of the way during this long education process, and then getting the monetary compensation aftermath of all that hardwork, then medicine is the way to go. It's sort of like a long long term investment, and you'd need endurance, but towards the end, you will pay back your loans and much more.
 

premedmom

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in response to your question about taxes there is an easy formula to figure it out.

(1-tax bracket) x return on investment

For example, if you fall in the 25% tax bracket and expect a 9% rate of return, then

(1-0.25) x .09 = .0675 or a 6.75 rate of return after taxes.

For inflation you directly subtract the rate of inflation from the rate of return. So, using the example above and an assumed rate of inflation 3%

After taxes you are earning
6.75% - 3.0% = 3.75%

This is a standard formula so you can use it for any tax bracket or rate of inflation.

Hope this helps.
 

juddson

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Here's a question:

The stafford loans have variable interest rates (changes in July). How is it that the federal government cannot afford to fix these rates, but Sally Mae (a government guaranteed corporation) can afford to fix equally low rates for 30 years? I don't get it.

Can you consolodate your loans as soon as you get them, thereby locking in this ultra low interest rate for 30 years?


Judd
 

EMRaiden

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Originally posted by juddson
Here's a question:

Can you consolodate your loans as soon as you get them, thereby locking in this ultra low interest rate for 30 years?


Judd

My lender required me to wait until I had completed medical school... (I think)
 

rxfudd

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Actually, most lenders will let you. The problem is that it puts you in repayment. So you are now immediately repaying the loans that you just took out, but at 2-3% interest. It's like if you give me a dollar and I in return give you 97 cents - what's the point?
 
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