Student Loans and the Eventual Price You Will Pay
The following is a brief discussion of where I am at with my own student loans. I think it's important for those considering medicine to see the real numbers of those who are going through it all. [This is one of the joys of running anonymous blog! I don't have to flinch at posting my own financials.]
Where I Stand
Thankfully, I escaped undergrad with less student debt than many. Through applying for multiple scholarships inside and outside of school, living off-campus, and serving on student government, I was able to decrease the cost of my private education, which helped a ton, as you will see later on. My parents paid for $35K of my sister's college years before me, so out of an attempt to be fair, they also paid for $35K of my education. I am very thankful for their generosity, and it is not lost on me that $35K is a LOT of money over 4 years- money that they could have used to do something for someone else or themselves. So, I came out of undergrad with $21K in student debt. No other types of debt.
Once med school started, my schooling + my living expenses have equaled on average, $18K per semester. With 3 semesters for the past 3 years, that's (3 times 3 =) 9 times $18K, which is $162K. So adding in the undergrad $21K to the med school $162K- the total is $184K. My financial aid office has calculated that my federal limit for borrowing unsubsidized Stafford loans is $224K. According to the Government Student Aid website, the aggregate limit for graduate school borrowing is $138,500, which I clearly surpassed. I am not sure if medical students have special limits or what exactly the reason is that I can borrow above that.
There a few subtleties here that you don't get a feel for when looking at these numbers, the biggest being the INTEREST RATE! Compound interest is a massive consideration when taking out any loan, even student loans. My undergrad student loans have worse interest rates versus my med school loans, 6.8% vs 5.3%, respectively.
Another huge-big-massive component of your student loan report, specifically, is that the FedLoan Servicing website doesn't say how much your actual total is, just how much principal you have borrowed, unless you do some extra clicking. Many people hear that I have borrowed $184K and the limit is $224K... and that's as much as they care about. They turn their brains off after that. This probably has something to do with the idea that as long as we are within the limits of maximum debt, we think we are OK. This is crazy, crazy backwards thinking.
Go ahead and thank Uncle Sam now for the money, and soon he'll be thanking you. That $184K wasn't a free loan. Nope, you have to go click "Loan Details" on FedLoan Servicing to see that although my prinicipal is $184K, a lot of interest has accrued while I have been in school, and WHAT I REALLY OWE the government is $207K (184K+interest). The price to become a physician, which will be about $250K before I can start making payments, is like paying for a pretty nice house for 5, 10, or 20 years and never stepping foot in it. Quite literally, this year, the cost of my education has surpassed the value of our little house.
I know what you're thinking- "you are overreacting". But, I don't think I am. Should we really be comfortable saying we are $200K in debt? Well, you start saying you're in debt $200K and there's nothing you can do about it for 3-4 years, and eventually they just start to sound like words, meaningless vowels and consonants. My goal is to shock the system back to life. It's not normal to be $200K in debt, we shouldn't act like it is, and we shouldn't be comfortable in med school. Yet, so many med students travel the freaking world in medical school. On whose dime?
Vacation vs. Staycation
So you go on your $2,500 Europe trip with some friends, because hey, you're young, and its Europe. This is a "once in a lifetime opportunity", right? You relaxed, and you're ready to get back and hit the books. 3 more years go by and you graduate med school. You love general surgery, so you end up in a 5-year community residency program. So that's 8 years right there your vacation has been growing... in cost. I'll give you a good interest rate, since you're in med school- the one I have- 5.3%. Your $2,500 vacation the summer after your first year in med school to Europe now costs you $3,816. Actually, maybe that doesn't sound that bad. But, that would be the cost if you paid it all off directly upon graduating from residency when you are starting to practice. Most importantly, you didn't just borrow $2,500 to begin with. You borrowed $30K for undergrad and $150K for med school, so $180K with a 6% interest rate, for simplicity sake. 8 years later, its now $290,545. So for every dollar you borrow today, you will pay $1.61 in your future.
But, I can afford it. I'm a [future] doctor remember?
This argument has already been laid out more beautifully by one of my favorite doctor money bloggers- Passive Income MD. I will refer you to a piece he wrote and finish my discourse by saying this- 8 years from now, most of you will be doctors. Will you want to pay for everything 1.5x after working your butt off for 8 years? It is extremely hard to go from earning $50K before taxes to earning $225K before taxes while making sound financial decisions, keep that in mind! And please read this awesome article by Passive Income MD- "Why Doctors Live Paycheck to Paycheck".