Becoming a doctor is not an easy task. It requires dedication, perseverance, and sacrifices to reach the end goal: to become a qualified physician and earn the corresponding salary.
Managing your finances during medical school is not something that typically crosses your mind as you are studying for your next exam. However, understanding your finances during medical school can make a huge difference when you finally graduate and transition to a being a doctor.
Paying off Medical School Debt – It’s Not Impossible! While it may feel like an insurmountable task, many new doctors are able to pay off the debt they incurred while earning their medical degrees within a few years of completing their residency.
Understanding the Financial Reality of Medical School
Although the tuition for medical school can be expensive, the costs of attending medical school for a student can add up quickly. Tuition for medical school is typically the largest cost, but many students also pay for other things such as a place to live, for textbooks, for the costs of taking a number of licensing exams, for transportation, and for many other things. In order to be able to afford to attend medical school, students need to have enough money to cover their costs of attending school for as long as it takes to complete their degree.
The financial pressure that the aspiring doctor incurs before he or she finishes school can be significant. He or she will not be considered a full doctor until he or she finishes several years of residency and reaches full earning potential. Therefore, the doctor in training will earn more money as he or she completes the years of his or her residency but his or her loans will increase in balance over time.
Step #1 – Acknowledge the financial picture of your debt.
- How much was borrowed
- What types of loans were used
- The interest rates attached to each loan
- Monthly repayment obligations after graduation
- Available repayment assistance programs
Having all the above details will allow a new doctor to make a reasonable plan for repayment of his/her education debt instead of getting surprised by a monthly bill for his/her education debt.
Create a Financial Plan Before Residency Begins
These are students who have been so busy studying for the medical school exams that they have not had time to consider how they are going to repay their medical school loans after they graduate.
This is far better than waiting until after graduation when you feel overwhelmed with loan statements and other financial decisions that seem to be bombarding you on a daily basis.
Creating a budget, tracking your expenses and avoiding additional debt can help to make the transition into residency a lot easier.
Creating a plan for unexpected costs during residency is also a good idea. Building an emergency fund even before residency can help to avoid having to pay for unexpected costs with credit cards or by taking out additional loans. This fund can include money for unexpected expenses such as professional fees, for example, or for medical emergencies, as well as for expenses such as for moving to a different location for a program or for other things.
Learning the difference between wants and needs will also help to keep spending in check. As medical students, they are sure to be busy, but it is also important to recognize when they are spending money on non-essential items. Many items may seem necessary while in medical school, but can actually end up costing thousands of dollars by the time they have finished.
Explore Different Repayment Options
Managing your medical school debt after you graduate is a complicated process. Most physicians try to pay off as much of their debt as possible. Some take advantage of ‘income-driven repayment plans’ that can cap the amount of money that has to be repaid each month based on their annual income. In some cases, people can even have some or all of their debt forgiven if they meet specific requirements.
Some individuals choose to immediately begin paying off the loan, while others opt for repayment plans, that allow for more flexibility as the individual’s income begins to grow during their residency.
Most loans that are taken out for Medical School can be repaid after Graduation from Medical School. There are usually several repayment plans to choose from, and each plan has its own characteristics, which are best evaluated with the help of a loan counselor, and they vary depending on the type of loan, as well as the borrower’s income and other factors. The type of repayment plan that is best for a given individual depends on that individual’s circumstances. Some people may want to repay their loans as fast as possible, whereas others may be in a situation where they have to repay their loans over a longer period of time, as they are in residency, for example, and are earning a lower income.
The Association of American Medical Colleges (AAMC) has put together resources regarding the costs of education as well as a look into different repayment strategies, and other financial planning for medical students.
An approach to managing debt that is suitable for a doctor in a high-paying specialty will be very different from someone working in primary care or in public service for example.
Avoid Lifestyle Inflation After Becoming a Doctor
A major financial challenge to newly minted physicians is coming to terms with their greatly increased income and how to put it to good use after a long, hard, and often grinding period of many years studying on a very limited budget.
After you complete your residency and start to earn a higher income, it can be tempting to immediately upgrade your housing, buy a fancy new car, and start to increase your spending.
However, increasing your way of life too quickly can also have the effect of slowing down your debt repayment.
By paying off certain debts and maintaining a reasonable amount of spending on lifestyle, the physician can reach financial goals by using the increased amount of funds for purposes such as paying off debts, investing in retirement, etc.
- Paying down high-interest debt
- Building retirement savings
- Creating an emergency fund
- Investing for long-term growth
The first few years after completing residency are crucial in setting up a financially stable career. By establishing good habits early, physicians can build wealth and enjoy their careers.
Think Beyond Debt Repayment
Paying off student loans is an important milestone; but, financial health involves more than just becoming debt free.
A physician’s long-term financial goals and ways to protect their income are also things to consider as they deal with their student loans and find ways to pay off debt.
Just as time is valuable in patient care, it is also valuable in planning for one’s financial future. Because doctors tend to enter the workforce later than many other professionals, it is especially important that they begin planning for their financial future as early as possible.
In addition to paying off debt, physicians also need to start building for their long-term goals, including retirement. This may include purchasing life insurance, disability insurance, etc. to protect their income and start investing to make the most of their time and income.
Building a Sustainable Financial Future
After a long and arduous road from medical student to practicing physician, the debt they have accumulated does not have to define their financial future.
A combination of awareness, planning and making good decisions on the way can create a strong financial foundation for a future doctor.
Managing debt is not about finding one perfect solution to debt management. Rather, it is a process of figuring out what is best for each given set of circumstances and adapting as that set of circumstances changes.
By creating a sound financial plan and setting goals, medical school students can look to their financial futures in a positive way once they graduate and enter practice.
