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December 09, 2011

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I don't really see any holes in your financial planning but I would set aside a little extra money when the time comes for ERAS applications. I would cast a relatively wide net and consider one alternate choice from Primary care and Psychology. I'd recommend Pathology as it is great pay (to tackle your debt) and has fixed hours so you get to spend time with your family.

If you go into primary care, you will probably have a tough time making enough to cover your loans and still have a reasonable quality of life. There will likely be additional cuts in Medicare reimbursement and insurance companies will also follow with the demands in savings. Also, you will see the trends ate going away from solo practices as you will not be able to be included in many of the insurance plans without the bargaining power of a health system or large practice to give you bargaining power. You either need to think specialty medicine to increase earning potential or find some way to not take on as much debt. Primary care is not as high earning as many people think.

Your last line about money not being a barrier is, unfortunately, what will get you into big trouble.

Keep it up and whatever you do, stick to your plan no matter what. I have 2 very close doc friends. One went all out and paid off 300 K in students loan debt after her residency in just under 2 years (she is in cardio) and the other had the same intentions but end up with docitious. Bought a big house. Nice car. Opened a practice and too out a bunch of debt for working capital, now all he does is spend his life worrying about money and how he is going to get out from under it all. And the sad thing is, there are so many out there like him from what I understand.

MA,

It's great that you are aware of your past mistakes and the huge burden the med school debt will have. My suggestions for you are:

Determine exactly what you want and focus. It sounds like you could potentially shave a year or two off the time you are not earning a high salary that will allow you to pay off that debt with a determined focus.

It is much harder to follow two paths than one- even though the master's in ethics tuition is covered- it will cost you a year which you are not earning $200K (at least). Will that extra MA degree really be worth that much to your career?

-Rick Francis

It's a really sad commentary about today's world that students have to go into so much debt in order to get a university education. It never used to be like that. My daughter obtained her BS in Marketing from San Jose State university in CA while living at home and the tuition costs were "peanuts". She paid for everything herself through a variety of part time jobs and that was in the late 70's and early 80's. In 1963 when I obtained my MS part time while I was working, even at a private university the tuition was only $30/semester unit and that was paid by my employer.

It seems that I am always reading about the state universities having to increase their tution because of the state's budget deficits. This is what happens when countries start living beyond their means and borrow 40c on top of every dollar they spend. Unfortunately it's the recipe for Decline.

$200,000.00 Pre-Tax Income
$(66,000.00) Federal Taxes (33% bracket)
$(6,621.60) SS (6.2%) Future, 4.2% now
$(2,900.00) Med (1.45%)
$(12,000.00) St Taxes (6%), Est could be higher/lower

$112,478.40 Est. After-Tax Cash Flow not incl. deductions, etc

Does not factor in health, life, disability, mal-practice, liability insurance either. Just be realistic about how much you'll bring home because rates are projected to go up in the future for high earners leaving you with less to pay off that debt. Depressing - I know.

Chris, keep in mind how tax brackets work - you don't pay 33% on 100% of the income, just on 100% of the income above a certain amount, that excluded amount being taxed at lower (also bracketed) rates. Also, student loan interest is deductible.

@Jonathan,

Student loan interest is only deductible up to $2,500 and only if you make below a certain amount of money -- maybe $100K, I don't know the exact figure.

Regardless, MA won't be able to deduct his student loan interest.

Thanks for all the suggestions. Carnegie said something like "put all your eggs in one basket, and watch that basket very closely." I have had many people discourage me from getting my master's in Ethics, and also about going after dual specialties. Honestly, doctors make good money. In fact, looking at Chris' post, (adjusting for the fact that 33% tax is NOT for the entire $200k, and loan repayment/house/etc are tax deductable), a take home in the range of $100k is GREAT. If I could do what I want without working myself to the bone, and make that much, I am set! I could make $500k doing surgery, but I don't want to. Not my style. In fact if I make the EXACT same amount of money, but get to sit on ethics boards, round as a clinical ethicist, etc, then losing that year's wages was worth it.

And about money not being a barrier, I stand by my statement. The problem is that people have unrealistic expectations and leverage future earnings/effort for present enjoyment. I know plenty of schoolmates $100k in debt who partied and "enjoyed" college, and now have degrees that earn them around $50k at the only job they could manage to get, doing whatever pays the bills. I am working my butt off, borrowing money to afford the opportunity to work my butt off, for a job I know I will enjoy, will always be available, and pays enough to provide for my family and enjoy my time off.

So if you know what you want to do, and someone says it's expensive, ask, "what can I do now to afford it." Work part time, intern, save up, scholarship, etc. If that's not enough borrow consciously and treat it like a job while you are in school, get that job you want, enjoy your work, pay off that debt.

MA,

Go talk to some primary care doctors. I deal with them every day. There are significant issues with respect to reimbursement trends. You will not be making $200k once you enter practice. It will take several years to hit that level, provided the government does no go through with some of the anticipated Medicare cuts (which could increase your risk even further) You may really struggle in paying your debt and you are totally wrong about money not being a barrier. There is nothing magic just because it happens to be a dream. We need to live within our means or we will suffer the consequences.

JimL,

A few things. First of all, I worked for a few years as an EMT and did medical research as an undergrad. I know a few doctors. I think the unhappy ones came into medicine with unrealistic expectations and were disheartened to find it was a business. Here in California, HMOs are offereing ~230k starting for primary care. Healthcare reform will only increase primary care repayment, and while I am against government healthcare, higher reimbursement for primary care lowers overall cost. This is the basis of my ethics work too. There are also Income Based Repayment plans on government loans, and my wife makes about $100k a year, so she helps. Again, the point is I will in no way be poor, and I will have a job I want that isn't going anywhere. We live frugal and I like medicine, including the business.

Also, there IS something "magic" especially in regards to school. If you are passionate about something, it leads to more focused, intense work. You will explore and pursue the avenues to the job you want and open the doors yourself. I was working at starbucks making 8/hr. It was nice, but not what I wanted. Then I worked as an EMT for 10/hr. I worked my butt off, became a field training officer, and maxed my wages to 12/hr. Now at 12/hr, I NEVER could have pursued my dream of medicine without debt. I chose to live frugally, (and disregarded the idea of "means" as I lived on $12k year and payed $30k/year in tuition). That got me grades and reccomendations to get into medical school. If I would have done that from the beginning (and not goofed off in junior college) I would be in a cheaper, higher rated state school instead of a public school, but still would have taken on debt.

I am betting on my future so that I don't have to work for decades at something I don't want to do to save up the cash to pursue my dreams. It's hedging. Not in the same way as taking out a loan on a BMW. (In fact I still have the $500 car from HS I bought by mowing lawns). I am betting that I can do this medicine thing. The "consequences" are that I will have to work a lot as a doctor to pay back that debt. Shucks.

The crux is whether reform drives costs up or down. Good points on both sides. Your spousal income is a good hedge. Also sounds like you're determined to make it work. Tenacity is very valuable. Good luck!

MA, if you think you want to pursue a career in primary care, you should do it and don't let anyone talk you out of it. If you're interested in politics and academics, you know that a strong health care system is built on a foundation of good primary care. Maybe you won't have the glory and income of being a cardiothoracic surgeon, but the rewards from building long-term continuity relationships with patients and lifestyle are satisfying in a different way.

As a doctor, period, you are probably never going to starve. Depending on where you work, you could find a job with regular hours and not too much call so you can be home with your family. The challenging part I find is as you make more money, you have to spend more as well - repaying student loans, buying proper life/disability/umbrella insurance, paying taxes, and socking away a greater percentage of your income for retirement than the average American.

Good luck!

My reflection has been that most doctors to be seek specialty residences and then those with the poorest marks fill the leftover slots in primary care and psychology. In other words passion for medicine lies in advanced fields. You may start in high gear but then lose your love after years of never ending basic health checks antibiotic prescriptions and specialist referrals.

MA,

I work very closely with reimbursement in the medical industry. I have been in the business for over 20 years. Healthcare reform will not be able to sustain the rate trends given the large growth taking place with Medicare. I also work very closely with many primary care doctors that have come out of their education and into practice with crushing debt. You will be in that same position. I am speaking from very direct experience with these doctors. It is not just a guess.

A further challenge you face is that you are starting you key earning years later in life and, as such, will be paying catch up with your retirement. When you have to focus you initial years on debt repayment, you will not have the resources to put meaningful amounts into a retirement account.

You came for financial advice and I am giving it to you. You can choose to take it or leave it, but it doesn't change the truth. $300K in debt is still debt, no matter the source or cause of that debt.

I suggest again that you find a way to avoid that amount of debt or consider specialty medicine. Otherwise, you will face a very tough financial future based on my extensive experience in this area.

Your story makes me feel glad that I never chose a career in medicine, especially now with all of the uncertainties going on about the future funding of medicare and the proposed cuts in payments to doctors. My education up to an MS in engineering cost me nothing and I started my 36 year career in aerospace, debt free, in 1956 at the age of 22. We went to our clinic on Monday for my wife to have a bone density scan and I was amazed at the large numbers of vans from assisted living centers disgorging loads of very old people in wheel chairs. Now that we are all living longer the strain on both medicare, medicaid, and the healthcare system is growing at a rate that was never anticipated when these programs were initiated. The unfunded liabilities of these programs are incredible and will consume the federal budget if something isn't done to bring the costs and the budget into equilibrium.

Health Spending Per Capita in 2008:
Health spending per capita in the United States is much higher than in other countries – at least $2,535 dollars, or 51%, higher than Norway, the next largest per capita spender. Furthermore, the United States spends nearly double the average $3,923 for the next 15 industrialized countries.

This is even without the expansion of healthcare to all citizens as projected. We have been retired since 1992 and get great service under medicare at a fantastic clinic for $290/month for both of us under my former employer's group insurance plan, but it is obvious that the system is unsustainable. Something is going to have to give.

@Old Limey +1 to everything you said. I'd be miserable as a physician too.

Thus, I'm immensely thankful that people like MA are passionate enough about medicine to become doctors anyway. The money is reason enough for some, and that's all right, but I'd rather have a doc who loves the work! Which brings me to...

@JimL Okay, you're an expert in this area. Do you think there's a serious risk that primary care physicians will become generally unable to support families, or unable to support themselves after they are too old to practice? If that's your point, it's very sobering. A compelling quantitative defense of that prediction would make me rethink a lot of things.

Thus far, though, you've only said that young GPs devote a lot of income to debt service, resulting in low standards of living and late retirements relative to specialists. It sounds like MA thinks that's an acceptable price for being happy to go to work each day. I'm inclined to agree, and I think it might be better for his patients that way, too.

I can't fault you for choosing primary care if that's your passion, but planning on doing up to seven years of dual residency when your end goal remains to become a primary care physician is an insane financial move when you actually want to have kids and your wife wants to be a stay at home mother. No, it's not *exactly* the same as affirmatively becoming further indebted for a useless master's, but you are missing out on several years of higher income AND your med school loans will incur additional interest, which means that you'll end up paying many thousands more before the loans are paid off, especially if you go on to an income-based repayment plan.

I can relate to the large amount of professional school debt (with two professional degrees between my partner and I, we're also around $300k), but there comes a point when you have to recognize reality when it comes to pursuing your dreams. For someone with a useless college major, that reality comes into focus a lot sooner. For someone going into medicine, it sounds like you need to decide whether fulfilling your professional dreams to the utmost is compatible with the lifestyle choices that you want to make with your family. I can't imagine going through seven years of residency only to be stressed and working even more than normal primary care physicians do in order to pay back to loans when being a parent is so important to you. Fortunately, you're only an MS1, so with any luck your views will sharpen dramatically before you make your residency choices.

MA,

I hope you have a successful medical career. The problem with front end loading the debt costs for education is that you have to follow through and focus on making a good salary to pay back the debt- I hope medicine continues to be fun and well paying for you in the future.

I was never put into the position of having to accumulate large amounts of debt to start my career, I'd find the prospect pretty daunting as I've always wanted the flexibility to be able to change fields or industries so long as I could keep learning new things.

I guess it's a case of different strokes for different folks.

-Mike

08graduate,

While some primary care physicians take on huge debt and suffer, that is not the case for a large number. As highlighted on this board many times, people find ways of saving money and other strategies to minimize schooling debt. Many of the primary care docs I know have very manageable debts when starting off their careers.

P makes a good point by bringing up the other dreams mentioned by MA. Can you imagine starting a family, buying a house (in California) and having a $300K debt load.

@JimL

No, I can't really, particularly since the plan for starting a family involves his wife leaving her well-paid career. Good points.

So, what are the strategies for minimizing med school debt? The only one I've heard of is ROTC, but I don't know very many doctors or med students.

@JimL
I suppose it's only logical that the $300K debt load is going to make it even more difficult to qualify for a loan. I live in Silicon Valley and little flat top homes that were built and sold for $10K - $12K after WWII to returning vets with GI loans and $0 down now go for prices in the $550K - $600K range with land prices accounting for most of the value. The first home we bought in 1963 was a brand new 4br 2ba in a nice tract for $26,950. We sold it in 1977 for $90,000, then bought a 2 year old larger 4br 3ba home on 1/3 acre in a custom home development (the best in the city) for $107,000, it's now worth right around $1M. The entry level homes that young couples buy are nowhere near the value for money of the more expensive homes, but it's all they can qualify for.

The other thing I have noticed from looking at our HMO receipts is that primary care physicians cost about $190/visit, $20 co-pay, whereas specialists cost between $320-$475/visit, $40 co-pay. Another point is that residents get paid very little and work very long hours. I can't imagine being a resident for 7 years - I would go crazy putting my life and also that of my wife on hold before we could start off on our journey towards attaining the American Dream.

In the final analysis I have found that the success of one's life has far more to do with one's timeline than it does with your own skills and education. There have been wonderful times to start certain journeys and there have also been miserable times. I feel so fortunate to have left high school in 1951, obtained a no cost BS in 1956 and a no cost MS in 1963 - both while working, had a great engineering career in Missiles & Space programs with raises every year and nice promotions, a happy marriage of 55 years, and ending up with 3 successful kids, a beautiful home, and to retire in 1992 with a pension & 401K at the age of 58 with the time and the resources to fulfill all of our dreams of travelling the world.
The path we travelled actually closed soon after the fall of the USSR in 1990. The Healthcare industry is a great path for the current timeline but only if a solution can be found to put Medicare/Medicaid on a sound financial footing.

08graduate - most people don't minimize their med school debt in any meaningful way, which is just another factor contributing to the shortage of primary care doctors. Med schools generally provide VERY limited scholarship support.

Since it's fairly common to work a year or two before applying to med school, the best thing would be to establish residency in a state during that period that has a medical school and takes a relatively high percentage of its in-state applicants. The typical medical school tuition might be around $50k, but Massachusetts, for example, only costs about $15k per year for in-state residents.

Another strategy for minimizing medical school debt is attending a school in a rural or under-served area where they offer reduced tuition in exchange for committing to practice as an attending in that area some time after graduation. This was an option for my fiance, but since we are a dual career couple (law and medicine) and didn't know where I would end up, he didn't apply for this program. As it happens, I ended up taking a job in the area, but even though it was a large financial hit for us, hindsight is only twenty-twenty and the flexibility was important since we had no certainty whatsoever that I would land a job in the area, since it's a tiny legal market.

I have some insight into PCP income - I work in healthcare for a very large company (35k+ employees) and our medical system has been snatching up solo-PCPs left and right. This is mainly due to the rising costs in healthcare that smaller practices cannot keep up with. Most primary care docs have to see (and collect money on) at least 24 patients a day to cover expenses for the day. That means that they have to see over 24 patients before they can take any money home. Just something to consider before estimating a 40 hr work week and 200k...

I am really thankful for the opinions posted here, as they are sobering reminders of the decision I made. While there are Income Based Repayment plans, ROTC (which I'm not really interested in), and payback scholarships for practicing in underserved areas, I know I will get a job that will pay back the loans. I am pursuing more education so I can better choose and be competitive for the jobs I want. As a child, I saw my father work jobs he hated for more money, and jobs he loved for less. I never noticed how nice our house/apartment was, or how fast his car went, or how shiny his shoes were, I only noticed that he came home frustrated or happy.

To everyone that had negative things to say about going into prmary care, I understand where it's coming from. I have met very few people that say they WANT to be a doctor. Heck, even some here in medical school are more keen on the idea rather than the reality. But when I wake up at 5am and sit down to study in our tiny office (that I would gladly share with a crib) I am happy. I am happy through hours of lecture and lab. I am happy that my weekends are booked studying or rotating at clinics. I like sick people, I like their stories and our connection, and I like making them better. I like checkups, obesity/diabetes consultations, and even the occasional stubborn or crazy person. Moreover, I love the subject of medicine, immensely. I love the politics and the economy. All of it.

I wish I would have gotten into a cheaper school, saved more money, etc, but I refuse to pursue a better paying field of medicine at the cost of doing something I wake up every day passionate about. I will make enough money to support my family doing what I want.

I hope everyone who comments enjoys their jobs. If not, there is little comparison in our situations. If you enjoy what you do and are able to suceed financially, congradulations Mr. and Mrs. Jones, I might not be able to keep up, but we both have smiles on our faces.

Old Limey,

I agree that the debt load will make it hard to get a loan. Particularly with the fact that banks not want at least 20% down and that is a good chunk of money in California based on the home prices (as you have pointed out).

The future of healthcare really scares me. In 2010, healthcare represented about 17.3 percent of GDP. If you run out the trends, it will account for about 40 percent of GDP by 2050 if nothing changes. Clearly, we would hit a breaking point before that time. It means that either we will have to ration healthcare or current providers (doctors/hospitals/etc.) will have to provide more services for the same amount of money. Imagine the doctor who sees 25 patients a day having to adjust seeing 40 patients a day. Alternatively, imagine waiting 6 months for treatment for a major cardiovascular issue or for follow up to a melanoma diagnosis.

@JimL
You're exactly right.
The "Welfare State" is really nice. In many European countries education is free right through to the end of your university education, and for healthcare you never see a bill. Can you believe that in my old country, England, doctors still make house calls on the very elderly that are living at home, most of whom don't have cars and don't drive.

It's no wonder the Eurozone is in deep, deep trouble. We are a long, long way from that point but that's the direction a lot of the protestors want the country to head. The bottom line is that we don't pay nearly enough taxes to be able to afford the European style of welfare benefits. They typically have an 18%-19% VAT tax on everything. Just imagine what a tax like that would do to America. We have even temporarily reduced the payroll tax for SS and Medicare from 6.2% to 4.2% in order to put more money into people's pockets in the hope that they will spend it, and are jeopardizing the future of these programs even more. Fortunately I won't be around when the S--- hits the fan.

Physicians make plenty of money. Do not chase material desires for five years after training. Do not buy a house right away. You will make it up. Trust me. I work about 60-80 hours a week and have caught up. My needs are met and there is a satisfying practice. You have to like what you do for a living. If it is not a satisfying field you will be unhappy no matter what your income. This song about reimbursement cuts has been sung since 1990. Docs still are among the high earners and have a secure income.

@Ma - Thanks for posting! Although the idea of so much school and debt scares me and wouldn't be the right choice for my life, I think it's wonderful that you have found something you are so passionate about. I wish you the best of luck!
I work in health care as well, but I work much more with nurses so I'll just make one suggestion regarding your wife being a stay-at-home mom. If that's what you both want, then great, but I would encourage her to not quit working 100%. Going part-time, maybe only 1-2 shifts per week, would put her in a much better position should she ever want or need to go back to work and wouldn't take too much time away from the kiddos. There are many areas of nursing that she could get into that would not be a grueling as ICU. If she even thinks she might want to go back to work when the kids are older, keeping her hands-on skills up to date is very important.

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