Real life financial implications of medical student debt

As a non-traditional student who entered medical school in my early thirties, I was aware that sacrificing prime earning years would impact my finances. Now in the third year of medical school and considering various career options, I paused to evaluate the financial implications of my student debt and my life goals.

The common refrain from attending physicians and the school administration was “follow your heart, it will all work out in the end.” Perhaps, but in my guarded skepticism, I prefer Reagan’s approach: “trust but verify.” Failing to find a reasonable financial planning analysis for balancing educational debt, career earnings, and the necessities of life, I created my own and then reviewed it with medical school financial advisors and private financial planners. My criteria were simple: a middle class income, payment of taxes, a 2,000 square foot home in a decent school district, and an appropriately funded retirement account.

While any analysis is predicated upon a set of assumptions, a reasonable analysis for a traditional student financing their education with free-market means (100% financed private medical school tuition and no loan forgiveness) suggests that a minimum yearly salary of $292,000 is required to have a take home pay of $75,000. Costs for attending the University of Rochester School of Medicine and Dentistry, as well as their stipends for a 3-year residency are used in the calculations below.

Real life financial implications of medical student debt

In short, there is no private market demand for hospitalists, primary care physicians, or any other field with an earning potential less than $292k. While physicians may still enter these fields and be financially sound, this requires educational subsidies that are not available to every student and may be predicated upon promised, but not contractually obligated future debt reduction programs (should one bet their solvency upon the Public Service Loan Repayment program existing unchanged in the 2020s?).

In my case, using the above goals, but reentering the workforce at 41 years old and then retiring at 70 years old, I will need to earn a minimum of $340k per year. From one perspective, there is no shortage of primary care physicians, the market it getting precisely the amount that it is willing to pay for.

Russell Japikse is a medical student. 

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  • Tiffany

    Russell, I really like the analysis and think it is great that you are looking at this “investment” from a financial perspective but I do need to point something out; most people (including those like myself who while not an MD, has done significant amounts of graduate work that took me out of the workforce until my 30′s) would kill to make $75,000 after taxes, housing and retirement funding.  $75,000 a year of essentially disposable income (I understand that a portion of this would be for normal daily living expenses) is a pretty high benchmark.  I guess I am wondering why you chose $75,000 (AFTER all major expenses) as your endpoint?  Thanks

    • Rusty Japikse

      $75K was partially arbitrary, partially a valid comparison to my prior career, where I had a PhD in engineering. I could have chosen to stay the course and had a comfortable lifestyle, alternatively, it would not be unreasonable to assume that many medical students would likewise have pursued advanced technical skills in other fields with similar pay scenarios. If the numbers are rerun with a take home of $40k per year, one would still need a gross income of $229k per year; which is essentially unobtainable in many primary care fields. 

      • SchoolBoardLady

        Rusty, I am curious about why you left engineering?

        • Hockeyref1

          I am the husband practice manager of my wife who is a family doctor. We fortunately have a lower amount of debt from her attending a less expensive medical school, but everyone has to try and find a slot “Somewhere” and many choices for medical school or residency are not completely within ones complete control for sure.

          I believe one of the things that upsets me the most is that unless a doctor is willing to provide substandard care with very short office visits and a low level of connection and advocacy, relationship with their patients, the ability to earn a decent living in this side of the business, and most office visit based practices and specialties is just about Nil… The powers that be including the doctors own “Friends” in other specialties via the AMA RUC commitee and the gov’ts CMS conspire to keep the payment for “Cognitive” medicine devalued both economically as well as academically, professionally. Sure they all know they better pay “Lip Service” to the benefits and greatness of Primary Care; but where the rubber meets the road and it is time to free them or pay them suddenly all parties involved are MIA. At under a hundred dollars a visit average Medicare established patient office visit that has notes, Rx’s, Follow Up calls and one or two referals and prior auth Barriers to Care and loss of productivity, is it any wonder why the average primary is either a dying “Hamster on a Wheel” serving their corporate masters barely keeping up, or like more and more each day they literally are, facing financial ruin and going “Belly Up”?????

          I do remember my wife’s graduation very well and she really did take that oath that day many years ago. But I do not remember her or her fellow doctors taking a Man of the Cloth like Oath of Poverty that day as well. Many times my wife and I have done the math and have reached the conclussion, instead of delaying gradification so much further down the road after 4 to 5 years of Med School and 3 more years of residency, had we both simply gotten Masters in an extra year of two of study and became decent school teachers, we would have started earning Many Years Earlier than we did scrapping by thru the doctor route, we would clearly be taking home, clearing and keeping more that we do right now in solo private pracitce, we would have a Decent if not Great by today’s standards Health and Benefits package instead of our entire family easily qualifying for Child Health Plus (our kids) and the Program for those with pre-exisiting conditions and no other path to health insurance (again easily qualilfy, sad and true), and we could and would have almost all days school is closed off with our two children, Summers Off or less stressful to influence our kids better, spend more quality time with them, take them interesting places and do mind expanding things with them too… Not to mention having a well shared and paid for retirement system to be part of and hopefully count on.

          One day we will wake up and smell the money saving and health improving coffee of truly well funded, respected and properly treated by all parties involved gov’t carriers, patients, and other selfish “Stake Holders” as the slang goes inside the Medical Reform conversations. Almost each and every modern industrialized nation besides ours who is tackling or doing a halfway decent job of tackling the cost and quality of return on investment in healthcare spending, understands and tries to make best use of Primary Care to accomplish such goals. But instead here we are all under the control and smoke and mirrors of those who contribute the least amount of real service and quality, and in many ways only make things worse on both measures, mainly the For Profit and Not for Health and Best Long Term Outcome, Insurance Industry… But unless we demand such fundemental and to them scary and radical changes, the “Medical Industrialized Complex” will continue to rule our lives and lower our quality of those lives and shorten our life expectancies as well…. But hey so what the docs go unpaid and broke and so do the hospitals and many clinics tha provide the actual frontline care, We and Big Pharma Made Huge Profits for our shareholders even if it was at the expense of almost every citizens’ health in the nation

        • Rusty Japikse

          To work hands on with more tangible problems that directly affect people. I also have a goal of working part time in a developing country. That type of direct work is easier as a physician than an engineer (have done a few engineering projects overseas).

  • Anonymous

    This post makes a lot of
    assumptions. I won’t address the desired $75k post debt, mortgage, and taxes, because that is a personal goal that’s not completely unreasonable. But the other assumptions: the average student is currently graduating with ~$150,000
    in debt. That’s not fair because it counts the 15% or so who graduate with 0 debt, but even the average student with debt is graduating ~$180,000 in the hole. Looking at those numbers on the top line, most of us go to schools that are cheaper than Rochester.
    The vast majority of our loans (all of our loans for the majority of
    us) are Stafford loans locked in at an interest rate of 6.8%, not 7.15%. The 6.8% is actually a rather high rate, but the feds locked it in that way circa 2003. Most people who graduated from med school before then have a substantially lower rate, but we can assume these numbers are for someone graduating today. If you have a mix of staffords (6.8%) and private/grad plus loans at a much higher rate, it would certainly behoove you to pay the more expensive ones off faster, especially when you’re receiving ~7% on your investments. Doesn’t make much sense to invest money at a lower rate of return than your more expensive loans.
    Only California, Hawaii, New York, and Vermont have state income taxes
    greater than or equal to 8%. Several states (like Nevada) have no state
    income taxes. Several others have much lower ones. Also, those
    estimated taxes seem to be just if you take the standard deduction, so
    you’d probably save a bit by deducting the mortgage interest if nothing
    else. Continuing, most interest rates for mortgages today are
    lower than 6%, depending on your personal credit history and your
    income. I guarantee you with a doctors salary and job security you’d
    find a bank to give you a better deal than that. The retirement
    numbers looked right to me at first glance, but then I looked at the overall assumptions and they completely fall apart. Those numbers are of course dependent on your personal family situation, but think about it again: Most people’s cost of living
    goes down in retirement, and he has the present value of his desired
    retirement income set at $90k 2012 dollars a year at a time when his mortgage will be fully
    paid off and his *current* desired discretionary funds is $75k 2012 dollars. Not to
    mention on top of his personal savings he will be receiving social security,
    which is not completely insubstantial, even when you’re living like an
    attending. Especially presuming that even if his spouse does not work today, she will also qualify for social security at the same time he does, which adds up.

    Also, given that he’s paying full taxes on the income now,
    he must be using something like a Roth account (which is not entirely realistic at the
    numbers he’s plugging in), which would mean he wouldn’t be paying taxes
    off that 90k come withdrawal time, which would put his expected retirement cost of living something like double what he thinks his cost of living would be today.
    Alternatively, he’s using something like a 401k, which would mean that
    his tax burden today would be a fair bit lower and that he should take that into account. Not all employers offer 401ks, but I’d highly advise any newly minted attending to talk to a financial planner and at least get some kind of tax benefits for retirement planning.
    Basically, the
    claims here only hold if you are a student who went to an expensive
    medical school, funded it completely with loans, got a crappy deal on
    your loans, live in a state with one of the highest tax rates in the
    country, have an incompetent accountant,  are being ripped off by your
    bank, want a *very* comfortable retirement that you are planning with someone that doesn’t take advantage of any tax opportunities, and still desire a very high
    quality of living. That might apply to a few doctors, but that number is very, very small.

    • Rusty Japikse

      True, with all future predictions the devil is in the details. Regarding average verus worst case scenario student debts, the point of this analysis is worst case, not average (no external subsidies). 
      Regarding the other assumptions: State taxes: I don’t want to live in Nevada, Alaska, or possibly NH (states with income taxes ≤ 0%). This assumption might be unreasonable for some, but entirely reasonable for others. Also, more states than CA, HI, NY, and VT have rates ≥ 8%; Oregon is one in particular. 

      Roth IRAs and 401ks have strict limits on tax free contributions, most of my retirement savings will be taxed in the year they are earned. Tax deductions for 401k (assumed to be offered by the future physician’s employer) and Roth IRAs are included in the Federal tax calculations. Even is the $90k is a bit optimistic, reductions to $70 do not result in wild shifts in income requirements.

      Mortgage rate: mortgages right now are much lower than 6% (mine is), but 6% may be entirely reasonable in 2018 when I will be finishing my residency (2013 graduation + 5 year residency), hopefully the economy will have rebounded somewhat by then.

      Student loan interest rates: while one may feel like I got a “crappy deal” on my loans, these rates are set by other parties and students have no control over them (as an aside, given all the risk that lenders take with student loans, a consolidated interest of 7.15% is not that bad). True, Stafford loans are 6.8%, but Graduate PLUS loans are 7.9%. The weighted mean interest rate that exists for these loans is the 7.15% used in the above calculations.

      Social Security: I believe that it is unlikely to have a meaningful contribution at my anticipated retirement in 2047. As it presently stands, in 2042 the SSA projects decreasing the maximum yearly payout from $28,152 to $21,114 (2012 dollars) to maintain solvency. That being said, it may not be prudent to rely upon social security income when making plans well beyond the point where the (notational) trust fund is exhausted. I do want a comfortable retirement.

      Taking the goal of being roughly right, rather than exactly wrong, the intent of this analysis was to examine the free market tenability of medical education, not an examination of mean debt loads or public medical school options. 

      • Anonymous

        I’ll give you the worst case scenario regarding loans and the possibility of mortgage rates going up since those are reasonable assumptions, but you’re completely off on federal taxes. I apologize for missing Oregon as the fifth state with taxes >=8%, though I will say that’s a marginal rate and it definitely isn’t 8% of your gross. Federal-wise, assuming a spouse that doesn’t work, you’re married filing jointly, you max out the Roth, you deduct your state taxes, and you deduct your mortgage interest (variable), you’d be looking at about 60k a year in fed taxes max. Combine that with a shift from 90k to 70k 2012 dollars at retirement and you’ve cut a good 20% off your estimated “needed” income and opened yourself up to a good number of additional specialties.

        Using a more average case, you’re easily down to living just as comfortably in the $180k-200k a year range where the majority most primary care providers find themselves. (A fair bit of geographic variation in there, it’s true. Probably be tough to live in NYC where the salaries are lower and the cost of living is higher, but if you assume the absolute worst case scenario for debt and financial security and then complain that you can’t live extremely comfortably on one income in the most expensive places in the country, that’s your own issue).

        • Rusty Japikse

          I reran the numbers as I would prefer to calculate rather than take on faith someone else’s guesstimate.

          Using $60k in Federal taxes, $70k in retirement income, $40k in take-home “living money” and living in a state with 5% income tax, one would still need an income of $221k, which is around the 80th percentile for internal medicine. Regarding Oregon’s tax rate, it is variable, but the mean tax rate for $221k (less deductions) is actually 9.57%.

          • Margaret Compton

            I would also like to point out that only medical school loans are being discussed here. Many students also have debt from undergraduate as well, so I wouldn’t call the calculations you have here worst case scenario. However, there are several loan repayment options (, including the Public Service Loan Forgiveness Program, which allows forgiveness on the remaining federal loan balance if you make payments for 120 consecutive months while working for an approved organization. This includes any 501(c)(3) organization, or any organization that delivers emergency care or public health. Many academic centers (including University of Rochester, I believe) and some community hospitals fall under the 501 (c)(3) designation, so the outlook on loan repayment isn’t that bleak. At least this is what I tell myself to get to sleep at night.
            Very interesting post, Thanks!

          • Rusty Japikse

            The public service loan forgiveness program may be a saving grace for many indebted medical students, however detailed requirements from the Department of Education are still pending (was enacted in 2007!). It may work out, but it may not…

  • Rachel Bowman

    I applaud you for your foresight, but really, this is a bit ridiculous…

    I’m only 2 years out of residency, married with 2 kids.  I’m a family doc.  I make less than half of the 292k figure and we’re on very solid ground financially.  However, we live within our means.  No one “needs” a 350k house and 75k left after retirement, mortgage and taxes.  I would argue that is not what most people consider “middle class income.”

    Also, there’s no way someone making 292k pays that much in taxes, unless you just have a bad accountant, or are not using all your tax-saving opportunities.  You don’t pay tax on any of the student loan interest or your mortgage interest. In his example, those would be HUGE deductions, and would significantly decrease the tax burden.

    I agree   with Lyvdro.
    the claims here only hold if you are a student who went to an expensive
    medical school, funded it completely with loans, got a crappy deal on
    your loans, live in a state with one of the highest tax rates in the
    country, have an incompetent accountant,  are being ripped off by your
    bank, want a *very* comfortable retirement that you are planning with
    someone that doesn’t take advantage of any tax opportunities, and still
    desire a very high quality of living. That might apply to a few doctors,
    but that number is very, very small.”

    Go with your heart and do something you enjoy! You’re lucky to have the intelligence and opportunity to become a physician.  Make the most of it for yourself, not for the potential income.

    • Anonymous

      Please look at Publication 970 from the IRS. You cannot deduct student loan interest if your modified adjusted gross income is greater than $80,000 for a single or $160,000 married filing a joint return.

      • Rusty Japikse

        Additionally, the IRS only allows deductions for up to $2500 per year for people below the MAGI threshold.

  • Edward Stevenson

    Strong Work.  I think you make fair assumptions, everyone is different in their spending habits and financial goals but there is no calculation  (taxes, retirement, mortgage rate) that if changed would undermined the overall point. One major expense that you ignore is start up costs. Whether it be buying into practice, or starting a private practice a many primary care docs are looking at another couple hundreds of thousands in costs. At 340K many specialists would have a hard time making that benchmark. 

    I lot of lawyers are suing their school because they overinflated the earnings potential and used those earnings to help justify the tuition.  I feel like medical school have put themselves in the same boat. I was constantly told that you will not be soaking rich but you will always live well as a doctor. But I talk to docs 10 years ahead of me and they complain that they are scraping by and they graduated with half the tuition debt I have.

  • SchoolBoardLady

    Russell, you analysis is excellent and one that should be a routine part of the medical school admissions process.  I might add an IRA that will greatly lower your tax rate, raise the retirement age to 70 and lower life expectancy to 85 in your example however. Best to work with a life insurance company/agency for those life expectancy figures. In my former public school district principals and superintendents are retiring with 75% of their salary which ranges from $100,000 to $150,000.   

    • Rusty Japikse

      Thanks for your comments. While it’s not spelled out clearly above, a deduction for a maximal traditional IRA contribution was made in the federal tax income calculation. For my personal calculations, I am planning on working to 70 years old. Regarding end of life estimates, a Metlife calculator gave me an approximately 25% chance of living to 95. My grandfather made it to 100, so I don’t feel that a 95 year long life expectancy is too unreasonable (for me).

  • Robert Bowman

    Those in medical school now or near entry will still have the specialty bailout choice. This window is closing soon. More cost of living and tuition and interest are just one reason. Your points are valid regarding the substantial penalty of having to make so much more income with taxes taking an ever increasing bite. Also the supply and demand issues are most important to note.

    Massive expansions of workforce are not a good way to keep demand high and salaries high. Three dimensions of expansion flood the market with specialty and subspecialty workforce.
    1. MD, DO, NP, and PA expansion
    2. All four with higher proportions found in non-primary care with fewer entering primary care training.
    3. Increasing proportions of primary care trained graduates (over 70% and increasing) serving as non-primary care workforce.

    This translates to massive rapid increase in specialty workforce. Since it takes 30 years to fill out the design to the eventual result in annual graduates, there is actually no way to predict just how much excess there will be. Even though it will be higher in a decade, there will be much more on the way.

    Cardiology studies by The Lewin Group indicate the future. NP and PA are already a preferred choice by existing subspecialists. Hiring an NP or PA increases revenue generation by $300,000 while not cutting in to the revenue of the physician cardiologist. Note that a new cardiology physician hire does cut into the revenue generation by existing cardiologists. Two midlevels generate about the same revenue as a physician but for substantially less cost of salaries, benefits, and independence. This is very good for the largest practices. (The Lewin Group)

    The design also allows employers and existing practices to exclude competition, funnel in the highest paid procedures, corner the market, and increase the number of years of training to generate even more revenue at lower cost.

    There are also cost controls on the way. These and other limitations will not work out well for those not established. This is inevitable as there is no way the US economy can tolerate massive non-primary care expansion – a major driver of the runaway health care cost train.

    When you piece together the design, those who benefit indicate the designers. Physicians are less and less implicated as the designers. Health insurance will maintain a key role as a designer, but this will be more and more about actually controlling the care. They are using their profits now to buy more practice delivery share. Since the own much of the best information, they can be sure to invest in practices that generate 30% more compared to costs – the only practices that have been expanding for 30 years.

  • russ

    Engaging. Need to run some more #s .. but would immediately note, this is similar to MDs who decide to work PT.

    And the nation who help financially support this dance. Yes, we have rights, too.

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