Medical School Debt

Financial illiteracy runs at a much higher rate in our society than I believe it should.  It is simple enough to be taught in grade school, and it is important enough to be taught by parents to kids beginning at an early age.  However, it is somehow left out of the entire education system.  An interesting hot spot of financial illiteracy is in medical school.  Medical students are experts in their own field of medicine, but most have no idea how to handle their finances. 

Although an extreme example, I have a friend in my med school class who will graduate with $250,000-$300,000 in debt.  This is not because we attend an expensive medical school but because he chooses to take out the maximum loan amount every single semester.  His philosophy is that “his 60yr old self would want the 24yr old self to spend the money.”  It is not abnormal for him to have $10,000-$20,000 of “free money” in his account at any one time.  He has bought a brand new 2012 Infiniti G 37s for around $35,000.  This made me cringe because as I have talked about before, cars are assets that are guaranteed to depreciate in value.  Also, $35,000 right now is worth over $1 million in future value when he retires at age 65.  Every weekend he goes out and has $100 bar tabs, buys beer and liquor at the gas station, and goes shopping for new clothes.  There is no doubt he is very happy when he spends all this money; I just hope he realizes what the payments on a debt like this will be.  Sadly, I think it will hit him like a brick wall when reality sets in. 

Assuming he finishes with $300,000 in debt at 7% interest when he graduates from medical school, his monthly payments on the interest alone will be $1750!!!  He will be paying $1750 a month just to cover the interest, and he will still have to pay off the $300,000 in principal.  Sadly enough, during residency he will make about $3500/month after taxes.  It is safe to say he will put off making any real payments on his debt until he is a practicing physician at around age 30.  Luckily for him there are government programs that forgive debt after a certain obligation is fulfilled.  I believe if you work in an underserved area for 10 years at a lower-than-average salary then you will have your debt forgiven, and I think if you make consecutive payments on your debt every month for 25 years the debt is forgiven.  Neither of these options are attractive.  I did not double check those debt forgiveness programs, but if I am not right then it is something very similar.  The last thing I would want to do after being chained to medical school and residency is to be chained to an underserved area for 10 years.  I want the freedom to start a family and work in the city of my choice.  I need a city that will maximize my happiness.  Also, I have big dreams for retirement, so having my debt forgiven at age 55 would leave very little time to save for retirement meaningfully. 

It is not hard to see why so many doctors are not filthy rich millionaires after considering this scenario of medical school debt.  I can’t help but wonder if med students would be more responsible if they were financially literate.  I have heard so many friends of mine buy big screen tv’s or xbox 360’s and say it’s just another drop in the bucket compared to my total debt.  That is the worst mindset possible to have if one is trying to build wealth.  Not all medical students are like this, but I would say 50% of my class is debt-laden and has no idea how to handle it.  There are plenty of resources to help them too, but they are too focused on learning the art of medicine (which is no easy task in itself).  I have tried to talk to some of them about it before, but they just say it’s too hard to understand or they don’t have time to worry about it.  I hope the future doctors of America do not become debt slaves, chained to their job, selling their time to make payments on an ever-snowballing debt. 

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