Young Physician Indebtedness

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Young Physician Indebtedness

• What you can do about it

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Debt is a fact of life

• 87 of med students graduate with debt
• Average debt (2008)
• 143,140 for public schools
• 173,304 for private schools
• 154,607 overall
• Med students can borrow federal subsidized,
  unsubsidized, and Grad PLUS loans
• Can also borrow private loans

Source AAMC
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How Debt Affects You

• Your credit score
• Installment loan with fixed payment
• Can help build credit history
• Monthly payments
• A student with average debt would have a monthly
  payment of 1,780 on standard plan, 1,073 on
  extended plan
• If you dont pay the interest during a 3-year
  residency, monthly payments are more like
  1,307-2,167
• Will affect your ability to get credit (DTI)
• Will delay/reduce your ability to save and invest
• One more thing to keep track of

4
The Cost of Interest

• At graduation 154,607 in debt
• 3-year residency 33,733 in interest
• Now you owe 188,340
• 5-year residency 60,218 in interest
• Now you owe 214,825
• 7-year residency 90,427 in interest
• Now you owe 245,034

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Residency

• You do not have to repay your federal loans
  during residency. You can put them into
  forbearance.
• Interest will continue to accrue
• Must refile for forbearance every 12 months
• If you do not pay the interest, your debt will
  grow
• If you are graduating this year, you MAY be able
  to get one year of economic hardship deferment.
  Check your lenders website.

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Residency

• Mean PGY-1 stipend 45,659
• less taxes (State/Federal, FICA) 11,279
• Annual take home pay 34,380
• Monthly take home pay 2,865
• From your monthly take-home pay, also deduct
  things like health insurance, parking,
  retirement savings, and other items that might
  come out of your paycheck.
• After you save a little and pay for
  rent/mortgage, utilities, car costs, food,
  clothes, etc will you have enough left over to
  pay 876 in interest each month?

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So what? Im going to be rich.

• Not so fast.
• Lets say you make 200,000 post-residency
• 10,370/month after taxes (federal, state, FICA)
• 2,167 student loan payment
• 500,000 mortgage 3,600/month (including
  taxes insurance) 500 for utilities
• 35,000 car 675/month, plus taxes insurance!
• Left about 3200/month
• Now think about health insurance, practice
  costs, malpractice insurance, conferences,
  spouse, kids, other housing costs, clothes, gas,
  food, vacations, gifts, etc
• Retirement (15), emergency savings (3-6 months),
  investments all things you have to start
  thinking about right away if you actually want to
  be rich.

Sources http//www.paycheckcity.com/NetPayCalc/n
etpaycalculator.asp, nytimes.com, bankrate.com
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Okay, yes, debt is a problem.So what can I do?

• You CAN Minimize debt while in school
• Make a budget and stick to it
• Write It Down (or Type It Up).
• Track expenses monthly, at least until being
  frugal is a habit
• Enlist help in sticking to your budget friends,
  family, significant others
• Be upfront youre going to give cheap gifts
• Meal co-ops, finding deals, cheap entertainment

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What you can do Minimize debt

• Do NOT borrow the maximum
• Compare your budget to the Cost of Attendance
• Use YOUR budget to determine exactly how much you
  need to borrow
• Dont borrow more Once you have it, youll spend
  it
• If you have any extra, reduce your loans
• Borrow the good stuff (subsidized) before the
  less-good stuff (unsubsidized, Grad PLUS, or
  private loans)

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What you can do Minimize debt

• Get help.
• If your parents can help, accept it.
• If youre not sure if they can help, ask.
• 200/month can save you 20,000.
• Steal (toilet paper) from your family.
• Ask your financial aid counselor for help with
  budgeting and finding scholarships.
• Talk with a financially savvy family member, or a
  financial planner.

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What you can do Minimize debt

• Find outside scholarships instead of taking out
  loans.
• Talk to your financial aid office
• Use Google!
• Marian J. Wettrick Charitable Foundation for
  female graduates of a Pennsylvania college
  attending a Pennsylvania medical school
• Norfolk Foundation norfolkfoundation.org
• Soros pdsoros.org
• Organizations you or your parents belong to

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What you can do Minimize debt

• Find creative ways to supplement your income and
  lower your expenses.
• Work part-time
• Pick up change
• Go to happy hour at Chilis
• Go to your schools free entertainment
• Get student discounts! Ask everywhere.
• Join Sams Club with your roommate
• Cancel cable, use your schools free internet
• Take advantage of family and friends
• Clip coupons

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What you can do Dont take on debt

• Two government programs will pay for your entire
  medical education
• Military
• www.goarmy.com/amedd
• www.airforce.com/opportunities/healthcare/educatio
  n
• www.navy.com/healthcareopportunities
• National Health Service Corps
• nhsc.bhpr.hrsa.gov/applications/index.asp

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What you can do Avoid more debt

• Once you have a salary
• Allow for short-term/emergency savings off the
  top. Pay yourself first and budget whats left
  to avoid more debt!
• Pay down consumer debt and other financial
  obligations that have the highest interest first.
  
• Keep living cheaply and dont take on any other
  debt (like a car payment or credit cards)

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What you can do Save anyway

• Save first (even in residency), budget whats
  left.
• Take advantage of time save young.
• Save 100/month from age 30-60 149,000
• You only put away 36,000 total.
• Save 100/month from age 40-60 59,000
• Even though you only put away 12,000 less!
• Find a way to trick yourself into saving
• Deposit savings automatically
• Save your change The electronic way round all
  of your transactions up in your checkbook
  register, put leftover into savings
• Save what you get from coupons

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What you can do Take advantage of residency

• Use deferment if you can (economic hardship,
  fellowship)
• Start paying, if you can, to earn incentives
• OR, use the forbearance so you have no required
  payment, then pay as much as possible
• Try to stick to your student budget, while youre
  used to living like a student
• Get a roommate. Youre never home anyway.
• Max out your 401(k) or 403(b) to the extent
  possible for long term savings at least get any
  employer match

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What you can do Take advantage of residency

• Use IRA options that you wont have later.

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What you can do Take advantage of residency

• The student loan interest you pay is tax
  deductible, but might not be later.
• Other higher education tax benefits (particularly
  in Med 4) IRS Publication 970

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What you can do Take advantage of residency

• Income-Based Repayment
• You pay 15 of the amount that your income
  exceeds the poverty line
• For many students, this payment will not even
  cover accrued interest
• Accrued interest on subsidized loans that is not
  covered by the IBR payment will be covered by
  Dept. of Ed. (for up to 3 years)
• Unpaid interest does not capitalize
• If you pay under IBR for 25 years, any remaining
  balance is forgiven

Source AAMC
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Income-Based Repayment

• Example
• Average resident salary 45,659
• 2009 Poverty line for single person 10,830
• 150 of poverty line 16,245
• Payment equal to 15 of income that exceeds 150
  of poverty line, so
• 45,659 minus 16,245 29,414
• 29,414 x 15 4,412
• 368/month

Source AAMC
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Income-Based Repayment

• Your IBR payment may not even cover the accruing
  interest.
• If you owe 34,000 subsidized and 68,000
  unsubsidized, you are accruing 578 of interest
  each month
• Interest accrued on subsidized loans that is not
  paid by the IBR payment will be covered by the
  Department of Education
• In the above example, 1/3 of your loans are
  subsidized, so 1/3 of your payment (123) will go
  to the sub loan
• The sub loan is accruing 193 of interest each
  month, so the Department will cover 70

Source AAMC
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What you can do Get someone else to pay your
loans

• Service commitment programs following graduation
  or residency
• Pay down loans in exchange for service
• Some offer tax incentives
• Programs currently available through
• Various states
• Public Health Service
• NHSC
• The Armed Forces
• NIH
• AAMCs website lists many programs
• www.aamc.org/stloan

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What you can do Direct Loan Forgiveness

• If you have Direct Loans, or consolidate with
  Direct Loans, and work in public service for 10
  years while paying your loans using IBR, you may
  have the remaining balance on your loans
  forgiven.
• Examples of public service non-profit medical
  schools and teaching hospitals, government jobs,
  active duty military, public health, public
  safety, emergency management
• This is only a good option if you already planned
  to work in a low-paying public service job.

Source AAMC
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What you can do Adjust your attitude

• Beware of keeping up with the Joneses
• Beware of being overly optimistic
• Think of yourself as poor, not rich
• Being frugal is the new being green
• Be realistic about needs vs. wants
• Establish a waiting period

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What you can do Get organized

• Be organized and have a plan
• Keep a file with all of your loan info
• Know your rights and responsibilities
• Know your loan repayment options
• Lost? Ask your financial aid office, and check
• www.nslds.ed.gov
• Keep good records of contact with your lender
• Never lose touch update your address

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What you can do Keep living cheap after
residency

• If you bring home 10,000/month, and can continue
  to live on 3000/month
• You could pay off the average debt in 2 years
• You could pay off 250,000 in 3.5 years
• If you bring home 10,000/month, and can live on
  5,000/month
• You could pay off the average debt in 3 years
• You could pay off 250,000 in 5 years

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What you can doGood real-world budgeting

• 3-6 months of living expenses emergency fund
• Short-term savings the Life happens fund
• This should include your non-monthly budget items
• Retirement try to save 15 of your income
• Long-term savings/investments
• Debt ratios - Housing no more than 28, total
  debt no more than 36
• Eliminate debt asap
• Two methods highest-rate first, or snowball

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What Not To Do

• Do not borrow more than absolutely necessary
• Do not start living on next years salary
• Do not take out life insurance to cover your
  federal student loans
• Do not repay student loans at the expense of
  savings you must do both!
• Do not enter repayment if youre not sure you can
  make the payments
• Do not assume your financial planner knows
  anything about student loans
• Do not ignore the problem

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More Help

• Your schools financial aid office
• Financial planners
• Your residency hospital
• Online resources
• Medical Economics (online magazine)
• AAMC MD2 and FIRST
• CNN Money, MSN Money, etc

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More help

• Me!
• Margaret Baxton
• Assistant Director of Financial Aid
• University of Virginia School of Medicine
• med7Q_at_virginia.edu
• [phone]