The decision to go to medical school is rarely derailed by concerns about cost. Such concerns usually are ignored because of the ready availability of student loans, which can cover up to the entire cost. Any fear of borrowing that does arise gets pushed aside by the promise of future wealth. At least that was how I approached my own decision to go to medical school. My present self sold off my future self, with pages of promissory notes written in a complex financial language that was as comprehensible to me as Egyptian hieroglyphics.
Trying to start repaying the loans while still in medical school is rarely an option, since working in addition to the heavy academic schedule is difficult, if not impossible. So, like most borrowers, I put the loans out of my mind, other than the occasions when I was required to submit letters to verify my student status. Meanwhile, the total balance of my loans and the number of loan accounts increased each semester to a point where I had trouble keeping track of them. Since only a small fraction of my federal loans was subsidized, most of them were accumulating 6%-8% interest per year. By the time I graduated medical school, I found myself a quarter of a million dollars in debt.
This experience is not unique. According to the Association of American Medical Colleges, the mean student loan debt is $172,751 for those who attend a public school and $193,482 for private medical school graduates. The median cost of a 4-year medical education in 2016 was around $232,838.1
After graduating, my relatively low income as a resident didn’t help. In fact, It is not uncommon for residents to request forbearance during training to put off repayment, which is what I did. However, this move is ill advised, as it is not without consequences.
By placing loans into forbearance they start to accrue interest, which is then added to the principle of the loan — a process known as capitalization. When the interest gets added to the principle, the loan grows, as does the amount of interest that is accruing. After 6 years of training, despite making payments for 4 of those years, my loan had grown by another $50,000. Hence, my first lesson in economics — get control of the interest and try to avoid letting it capitalize. Even if you’re unable to pay down the principle of your loan during those financially challenging years as a resident, there are advantages to at least covering the interest.
Once I completed training, I entered private practice and found myself drowning in debt. In my second year as a resident, a financial adviser had explained to me the value of entering an income-based repayment (IBR) plan early. The monthly payments for an IBR plan are calculated based on discretionary income — which is defined as the amount of money you have left after taxes and necessary spending. However, the government defines what you get to keep as “nondiscretionary” income as 150% of the poverty line. Using 2015 figures, for a family of 2, the monthly repayment would be based on any income over $23,895. The percent of that income that goes towards your student loans depends on when you took out your loans and which IBR plan you are on.