I find it interesting that the number of students going to medical school from very wealthy families is decreasing. Do you know why I think that is? I think it’s because the rich know that there are easier ways to make money than becoming a doctor. The age-old adage that people go into medicine for the money is nothing more than a lazy, preconceived idea. After all, there are far more straightforward and less expensive ways of making money.
The average student in the USA graduates with a student debt of $37,500 (as of 2020). But the average medical student debt is $201,490. And that’s a median average, so half of the medical students in the USA have graduated with more debt. And that’s just at graduation. Depending on your loan plan – and we’ll go into this in a moment – interest will continue accruing. Because of this, most doctors end their residencies with more outstanding debt than when they graduated.
So how do you handle the burden of medical school debt?
How to Stop Your Medical School Debt Spiralling
As an inexperienced undergrad, you’d be forgiven for thinking that as a doctor, you’ll become wealthy upon graduation. It’s a sure-fire route to prosperity, right? You’ve probably already realized that’s not the case, and thank goodness for all those other motivations to pursue this career. What you do need to become immediately upon graduation is money savvy.
You start earning money as a resident, but it’s not going to feel like a lot. You just might make enough money to cover the interest on your loan, but then again, you might not. Depending on your loan plan, you may be able to pause or defer payments, but interest will keep accruing, and your overall debt will increase.
You could opt for an income-driven repayment plan, so your income will determine the amount you pay back. But you might find that the required payments don’t even cover the interest once again, so the principal is untouched – and increases. Over three years, your $200k debt can quickly become a $237k debt.
Don’t forget, as the debt increases, so does the interest, and covering just the interest payment alone becomes harder. This example during residency illustrates how easily debt can spiral upwards and out of control. Getting on top of your debt as soon as possible can stop the burden of debt from getting the better of you. Here’s how to do it.
Know Your Enemy, Know Your Debt
The official figure of the average medical school debt is potentially way off. Do you know why? Because it’s self-reported. The data comes from exit surveys of medical graduates. They’re asked to estimate their debt and give a rough figure. And I’m willing to bet that most of them, like me at their age, have no idea of the exact amount. (I’m not the only one who thinks so.) Psychologically, they’re extremely unlikely to overestimate their debt because, again, like me, they have their head in the sand, blissfully optimistic and unaware of the realities.
For a medical graduate, getting to grips with her student loan is the very first and most crucial step to sorting out their finances for the rest of their lives. It’s the first building block. You want to know what you’re dealing with, and you need to have a plan. But some students will graduate not just unaware of the amount of debt they have, but who those loans are held by.
It’s possible to accumulate debts held by multiple lenders; you can have different federal student loans and different private loans by the time you graduate. To find out more information about your federal student loans, you can check your account at My Federal Student Aid. It will tell you about your different loans if you have more than one, your balances, and your repayment plans. Finding out about private loans is trickier, as you have to track down each provider. Your school’s financial aid office may well have details, but you can also find the information on your credit report.
Streamline Your Finances for Peace of Mind Now – and Later
When you’re a resident, you barely have time to eat, sleep, shower. You’re not going to have the time to think about debt, and it’s all too easy to toss the letters or skip over the emails and not give your finances the attention they need. I’ve been there, I promise. And I can tell you the relief of knowing where I was on the road to student debt repayment was huge. Just knowing there was a plan was invaluable.
So once you’ve figured out your medical school debt in detail, make sure your current repayment plan is appropriate. Most federal student loans have standard plans (which will be the default if you don’t select another option), graduated plans, and income-based plans. There are also options to consolidate your federal loans, which brings your loans all together under one interest rate, usually fixed at an average of the rates of the separate loans. This can often get your interest payments down, meaning it’s easier to make some headway against the debt.
Debt consolidation can also be an option for private loans too, as can refinancing. You might find that privately refinancing your student loans looks, on paper, like a good idea. Rates are low right now – you might feel that lower interest rates are a convincing enough reason to refinance federal loans.
If you do that, be aware that you risk losing all the borrower protection that comes with federal loans. The CARES Act, for example, has been pretty good to student borrowers, and you’d have no guarantee of any leniency with a private lender in similar circumstances. So get advice, and think very carefully before refinancing federal loans.
Reduce the Burden of Your Medical School Debt Now
Being in the medical profession is extremely rewarding, and despite the burden of medical school debt, in the end, it can pay off financially too. But you have to have your financial house in order – and as early as possible.
You’re going to work extremely hard throughout your career, and you’re going to want and deserve to use your time outside of work happily and constructively. That doesn’t mean poring over money issues and worrying about your financial security in the future.
The most critical factor in managing your medical school debt is awareness of your financial situation and having a proactive plan to react to any challenges or challenging circumstances. If you can get on top of your medical debt early, it’s going to pay dividends later. If you’d like to get in touch to discuss your student loans, please schedule a call today.