Your medical school loan really can make you broke for life. Let me show you what I mean. Every doctor makes a good income. Even the lowest paid full time physicians make into the six figures. The average income for even the lowest paid doctors is around $150K, which puts doctors in the top 1% of all jobs in the country. IT IS AN ERROR to think that just because doctors make a good income that they are rich.
Most every financial person in the world will tell you that income and wealth really don't have much to do with each other. One of the best ways to prove this is to show that doctors, while being in the top 1% off all income earning professions in the world, they are much, MUCH, below the average in catagories like net worth, debt-to-income ratio, retirement nest egg as a function of income, and pretty much any other catagory you can think of that defines WEALTH.
Now...why is it that doctors are so bad at wealth building? It is pretty easy to see. From day 1 a doctor become very comfortable with debt. A Medical school loan gives doctors a maximum amount of federal loans they can take out, and most students who borrow money borrow that maximum. Many are living alone, eating out 2-3 times per day, spending lots of money on weekend parties, and just not worrying at all about where that money is coming from. Lets look at an example...
I picked a random private school, Emory in Atlanta. These numbers are very typical of any private medical school in the country. Emory's total first year medical school loan budget (this is the total amount you are allowed to borrow from the federal government by the way) is $75,022. Of the students who borrow money (usually about 10-20% don't borrow due to parents paying or other scholarships), 90% or so will borrow the maximum amount. Also, most schools increase their cost of attendance by 6-8% a year. This will lead to the cost of school being about $300,000-325,000. Let me show you how the cost of medical school can add up and bury you very quickly.
This means that even if you take out $0 in loans in undergrad your medical school loan will be between $350,000-400,000, with interest on the loans by the time you graduate. Now, what about residency. You can no longer defer your loans during residency, but you can do income based repayment for your loan, and with $350K in loans and making $50K a year you may have to pay $100-$200 but not more and may pay $0 based on your family size. So, assuming that you will be like most doctors and not pay much on your loans, your interest is going to accrue. For a 3 year residency and no fellowship, your loan balance will be $425K. If you do more residency...lets say you do neurosurgery and do 8 years of residency...your balance will be 600K. Now, I don't have time to explain why this is a hard amount of debt for everyone so lets use our $425K example. You did a family practice residency and now you make $150,000 with $425K of debt...now what?
Well, most doctors will buy a practice...add on 100K, buy a house...200K, buy 1 or 2 brand new mercedes...100K. Long story short $425K turns into a lot more very fast. Even if you don't go into another $400K of debt right after, your payment on a 30 year plan is $3000 dollars a month. That is on a 30 YEAR PLAN!!! You'll be getting ready to retire before you are out of debt and while you're paying that medical school loan you will be making $5000-$6000 a month after your taxes and your loan payment. Very hard to save a lot of money that way.
Anyway I hope you see my point in the problem here. Taking care of your money now, being aware of debt and minimizing it can cut allow you to be wealthy like most doctors will never be. I've seen people do it. Don't let yourself be broke forever just because you pursued your dream, be smart about it now. Follow my advice on minimizing debt as much as possible, getting out of debt as quick as possible, and then you will have all that income to become wealthy.
So here is what we want to do. I'm going to explain first how medical school financial aid works. I'll explain what all the terms mean and a brief explanation of how the process works. I'll show you the different types of loans for medical school and what they mean. And I'll show you options for eliminating medical school debt through medical school scholarships.
Finally, I'll show you how you can move forward after school through medical school loan consolidation.
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