What are the implications of so much debt?

[tatchle1]

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Hey all:

I was recently accepted into an OOS school that I really like. I really want to go there, however it costs around $70k/year (with living expenses). I am going to have very little help from my parents paying for this, and I'm wondering what the implications of taking so much debt on will be when I graduate.

I believe most students think that they are going to pay this off easily because they are going to make a hefty salary being an MD. However, I'm a bit skeptical and nervous that way of thinking, really. Do most med students just take on federal loans (Stafford loans and Graduate PLUS loans) to pay for their debt? And don't you have to start paying these off when you enter into your residency? How can you possibly do that making only 40-45k/year?

I'm seriously thinking of doing the HPSP through the Air Force, but most people on SDN seem to think negatively of this, and I really don't want to be limited on what residency options are available to me. So my overall question: what are the implications of so much debt, and what advice do you all have for an incoming medical student to finance their education?

 

[sunset823]

I truly feel your pain, I'm paying OOS tuition, no help from family (not their fault, I'm a slightly older student who's been independent tax-wise for several years, and I really didn't want to get my family involved since they helped me get through a (public, in-state) undergrad with no loans). I'm taking out over 70k/year in loans, and that is living pretty meagerly in a cheap town.

Anyway, you're not alone. Even in-state tuition in a lot of places is over $30k/year, and most med students these days will end up with at least $150k, some closer to $300k debt by the time we're done.

How you handle it all depends on your philosophy toward money. I've been raised to be smart about my finances and conserve. I HATE being in debt, and I am in a situation where (being single with no dependents for the foreseeable future, most likely forever), I can pay off everything rather fast. I'm hoping to do residency in a good school in a relatively cheap city (NY, SF, etc. are out, no way no how), so I can start paying off loans during residency, then I'll dump at least 50%, probably more, of my attending salary on the loans once I get there, living like a student/resident till they're paid off.

However, that's not everyone. For people who already have or plan to get married/have kids/get a house during residency, paying loans is not that easy. If you cannot afford to pay off at least minimum payments during residency, you have to take a forbearance, which means your interest will continue to rack up during residency. If you can't go the lump sum dumping method, you're going to make student loan payments for at least 20 years after you finish residency, probably longer.

Really, if I had been in the latter situation (aka, living in the 'real world'), I would not have gone to med school. The only way I went in was knowing I could live the hermit lifestyle needed to pay my debt off.

HPSP (or if you don't want to make the commitment to it too early, something else I'm considering, FAP) and the National Health Service are options. I'm sure more of these things will become available as the average debtload skyrockets and physician salaries go down. But, in the end, you have to make the decision based on your own situation. If you have a spouse and kids or plan to, I'd think twice before taking on that kind of debt. Also, go to the cheapest school you get into, hands down. In no way is any specific medical school worth paying more money for.

 

[Pianoman32]

Hey all:

I was recently accepted into an OOS school that I really like. I really want to go there, however it costs around $70k/year (with living expenses). I am going to have very little help from my parents paying for this, and I'm wondering what the implications of taking so much debt on will be when I graduate.

First, see if you can talk w/ a financial aid officer at the school you want to go to. Next, most people do not receive financial help from their parents so do not feel as if you are being left in the dark. You will take out loans and you will just have to suck it up like most other U.S. medical students. I would recommend going to your IS school if you are that worried about the debt. The education you receive will not differ between the 2 schools. Only go to the private school if it is truly worth $100,000 to wear a shirt that says "insert top ten private school" for the next few years; otherwise, try to save money.

Almost every medical student takes out loans. You can defer the amount you pay during residency. When you become an attending, many choose to spread out their payments over 20 years because the interest is so low that it becomes more profitable to invest the would be extra money you were going to pay on your loans. Personally though, I would rather just pay it off fast so that there is no cloud looming over my head. With a salary of $200,000 a year and $300,000 in debt, it should be possible to pay off the debt in 2 years if you live like a person on a $50,000 salary.

I'm seriously thinking of doing the HPSP through the Air Force, but most people on SDN seem to think negatively of this, and I really don't want to be limited on what residency options are available to me. So my overall question: what are the implications of so much debt, and what advice do you all have for an incoming medical student to finance their education?

Doing HPSP for any reason that involves money would be the biggest mistake of your life. If you truly were a good fit for HPSP your train of thought would be......."hmmm, i really want to serve in the military as a doctor.......o wow, they would actually finance my medical education if I did this."

Your train of thought should not be......"hmmmm, I really don't want to be $300k in debt.....hmmm, the military will pay for my education.....hmmm, the military can't be that bad."

 

[TexasPhysician]

There are so many ways to conserve money. If you try, you could come out with a lot less debt that you think.
1. Apply for tons of scholarships
2. Part-time job (my roommate and I did this MSII and MSIII)
3. Get a roommate or 2 or live with family
4. Don't eat out
5. Summer preceptorships that pay or get a job
6. Get books from older students at a discount price or just use the library's books
7. Don't get a pet

These ideas will literally save you tens of thousands of dollars...

 

[Igor4sugry]

There was a long talk somewhere on SDN whether having 300k dept is worth it, and I think majority of people said it will not be.

The main issue for you will be the fact that Stafford, and grad plus will not cover your entire 70k tuition. You will have to borrow private loans, which is a poor option because of the lack of flexibility and penalties if repayment issues come up.

There are other options besides the direct military route. For example, you can join the national guard after med school/residency. Or you can find a hospital/private practice that will give you a loan repayment bonus.

 

[TMP-SMX]

Almost every medical student takes out loans. You can defer the amount you pay during residency. When you become an attending, many choose to spread out their payments over 20 years because the interest is so low that it becomes more profitable to invest the would be extra money you were going to pay on your loans. Personally though, I would rather just pay it off fast so that there is no cloud looming over my head. With a salary of $200,000 a year and $300,000 in debt, it should be possible to pay off the debt in 2 years if you live like a person on a $50,000 salary."

This is false. You can forbear and have your loans compound their interest but deferment is a thing of the past. What you can do is income-based repayment where your payments are reduced while you make the small amount of money in residency.

The main issue for you will be the fact that Stafford, and grad plus will not cover your entire 70k tuition. You will have to borrow private loans, which is a poor option because of the lack of flexibility and penalties if repayment issues come up.

Why not? Grad plus has no limit except for the cost of attendance (school's set budget). If the tuition really is 70k a year there would be no problem taking that much out. There is no reason to take out private loans. Even then, private loans usually don't let you go over the cost of attendance either. That's a thing of the past.

 

[devlyyn]

Also, I don't think you can just consolidate at 2-3% like you used to be able to. You're pretty much stuck with that 6.8% for stafford loans or 8.5% for gradplus. With those kinds of rates, you definitely want to pay them off as soon as possible. I was reading a book yesterday about residencies and one of the stats was the fact that inflation adjusted tuition has gone up 300% over the past 20 years while inflation adjusted salaries have stayed the same. Just something to think about, especially with even more dramatic changes are on the horizon. Just think about it: the doctors today complaining about declining reimbursements (those in their 50s) could likely pay off their debt in their first year of practice. Even younger physicians complaining of the same thing could consolidate their loans at 3-4%. We are facing the reality of >$200,000 debt for many of us at 6.8%/8.5% interest rates. That is a COMPLETELY different scenario.

 

[Villiers]

I'm a 2nd year resident who went to a private school and emerged with $220K in debt.

Here are the implications:

I had a 800 FICO score for my credit a few years ago. I just got turned down for a used car loan due to my (in the loan officer's words) "ridiculous income-to-debt ratio". Yeah, thats what she said. Don't expect a loan officer with a community college degree to understand the economics of medical education and the low salary residents make - I am 100% she thought I was lying about being a doctor with my $45K salary.

I am sweating bullets about leaving residency and making enough money to pay my loans off in my chosen field (peds). Some recent peds grads are getting offers of salaries BELOW $100K. An RN in a tertiary care hospital makes more than that.

My advice is to THINK LONG AND HARD ABOUT WHAT YOU ARE GETTING INTO.

Medicine is NOT worth $300K in debt.

 

[SteinUmStein]

Also, I don't think you can just consolidate at 2-3% like you used to be able to. You're pretty much stuck with that 6.8% for stafford loans or 8.5% for gradplus. With those kinds of rates, you definitely want to pay them off as soon as possible. I was reading a book yesterday about residencies and one of the stats was the fact that inflation adjusted tuition has gone up 300% over the past 20 years while inflation adjusted salaries have stayed the same. Just something to think about, especially with even more dramatic changes are on the horizon. Just think about it: the doctors today complaining about declining reimbursements (those in their 50s) could likely pay off their debt in their first year of practice. Even younger physicians complaining of the same thing could consolidate their loans at 3-4%. We are facing the reality of >$200,000 debt for many of us at 6.8%/8.5% interest rates. That is a COMPLETELY different scenario.

This is what is most terrifying to me... the general attitude among pre-meds that "Well, thousands of doctors before me have done it, so I can do it too, I'll make plenty of money to pay this all off in no time," is just plain wrong. We are NOT in the same situation as those before us, and tuition will only continue to skyrocket as physician salaries remain flat with inflation taken into account. We are not replaying the same situation today as graduating medical students were in 5 or 10 years ago.

 

[TexasPhysician]

I don't have experience with private med schools, but people at my public state school are easily coming out under $100,000 in debt. The public state schools even give most OOS students in-state tuition here. Do other states do this? Have you looked into financial aid for OOS students?

Cost is definitely something to consider when applying to schools. Still, $300,000 in debt is possible to pay-off. Will it be fun? - No. I have cousins currently doing it, and they are doing all right.

 

[TMP-SMX]

I don't have experience with private med schools, but people at my public state school are easily coming out under $100,000 in debt. The public state schools even give most OOS students in-state tuition here. Do other states do this? Have you looked into financial aid for OOS students?

Cost is definitely something to consider when applying to schools. Still, $300,000 in debt is possible to pay-off. Will it be fun? - No. I have cousins currently doing it, and they are doing all right.

Texas is not like the other 49 states in the union. However, I guess you knew that. $100,000 is unusually low for a public school average. Also, most states do not allow OOS students to get IS tuition.

 

[dragonfly99]

OP, you should think very hard about whether liking this OOS med school more on your interview day is worth paying that much more to go there. It's going to be quite a strain to pay that off. You can pay smaller payments during your residency, but then you're going to have gargantuan ones to pay later. The ideas above about saving money (like not having a pet, having a roommate, etc.) might help a little but they might at best save you <10k/year on living expenses. The main expense you are going to have is your huge tuition if you choose to go out of state.

I'd like to know what the OP's other options for school are. As someone who attended an expensive Top 10 private school, I would say that it was not worth it (financially or career-wise). I should have gone to a state school for 12k/year less. And I only have 130k debt...at 3%/year...OP will have much more.

Also, if the OP does HPSP then there is a good possibility that the military will tell him what residency to do, is there not? Or at least that he'll have limitations on where he can do residency, geographically speaking...a LOT of restrictions, from what I've heard. So I'd only do it if he/she is really in to the military lifestyle and would be able to accept doing multiple specialties, not just his/her first choice one.

 

[NTF]

I think the implications of medical student debt are still in flux. IBR is new and the rules can be altered by Congress at any time. Since it'll be awhile before the first physicians start discharging their debt via IBR (25 years of 15% gross above 150% of poverty) or public service loan forgiveness (10 years of 15% gross above 150% of poverty)no one can really say how it plays out. Also no one knows what if any impact healthcare reform will have on this scenario.

But as it stands now most of us will be using IBR and med school costs will keep rising because there's no incentive for med schools to cut costs. IBR essentially asks the taxpayers to shoulder the burden of rising costs and some of our debt when we discharge it after 25 years. Current rules state that the amount cancelled is considered taxable income so expect a hefty tax payment (potentially on the order of >75k for some) the year of your loan cancellation. But as stated earlier these rules can be changed at any time by Congress so who knows what the state of things will be in 10, 20, 30 years.

 

[devlyyn]

15% above 150% of the poverty level is actually quite a bit of money each year considering average physician salaries. The poverty level for a family of four is only $22,050 and 150% of that is $33,075. So even assuming you are only making $133,075/year you would be expected to pay $15,000/year correct? That works out to $375,000 over 25 years, which is more debt than the average medical student has anyway. If you are working in a higher paying specialty your expected contribution could easily jump to twice that amount. Given the rates of tuition increases this could be a good deal in the future assuming they don't squash it, but for now it seems like a raw deal to me.