The Economic Tipping Point of Going to Medical School

Medical school is a non-stop grueling gauntlet of hardships.  On any given day you may have anxiety over an upcoming test, sadness from missing family and friends, or stress from feeling overwhelmed.  Many students tend to forget or repress other important issues in life to deal with the everyday hardships of med school.  One of these issues that gets neglected more often than not is money.  Maybe not the money itself per say but the consequences of spending money.  The dogma of the medical student state of mind is such that you can acquire as much student loan debt as you need or want because you will assuredly be able to pay it back when you become a “high earning” doctor.  Couple this loose spending environment with the fact that medical school is already outrageously expensive to attend and you end up with a large portion of the future doctors of America becoming debt slaves selling their time for money for the remainder of their life.  This simple fact alone explains the very reason why the percentage of doctors who want to retire but can’t due to monetary reasons is so high.  Don’t believe me?  Let’s take a look at some of the costs of attending medical school. 

Medical school tuition never gets cheaper.  The tuition per year varies widely across the nation as some states subsidize the tuition more than others and some universities are private.  It can be as expensive as $54,000/yr at Tufts University or as little as $13,000 at East Carolina University at the time of this writing.  The median tuition is somewhere right around $30,000.  Right off the bat you are looking at around $120,000 in medical school debt from tuition alone. 

Next up is living expenses.  Anyone who has attended medical school knows that medical students largely do not live within their means.  You would think that debt-ridden students with no jobs would be very conscious about what they do and do not spend money on; however, the abstract and intangible promise of future earnings seems to convince many that spending money is the least of their concerns.  The average medical student at my school may spend anywhere from $2,000-$4,000 a month for living expenses.  This includes rent, utility bills, groceries, shopping, Netflix subscriptions, the occasional weekend trip, et cetera…you name it.  I live in a cheaper part of the country too, so I can only imagine what it is like in the northeastern United States.  Let us say though that a student spends on average $3,000/month every month for 4 years of med school.  That comes out to be a whopping $144,000.  And where did that money come from?  For many students it is in the form of student loans.  So far, our grand total is up to $264,000 in medical school debt.

If you thought books were expensive in college, then you may just have a stroke once you see the costs of books in medical school.  I went back and looked up what it would have cost to purchase all of the required and recommended books thus far in med school, and the total came out to be around $3,000 a year.  But let’s get real.  No one buys the recommended texts, so it comes out to be around $2,000 a year.  That is a total of $8,000 on textbooks.  Sweet.  During year 2 when you take the USMLE Step 1 test it costs about $550 to register for the test, and it costs another $500 to purchase the Qbanks to study for it.  Then, again, during 4th year you have the pleasure of taking USMLE Step 2 for a mere $1800 or so, and you can bet that the Qbanks for that is another $500 as well.  Education materials so far add up to $11,350.

Unexpectedly, when I first got to medical school, I was presented with a large list of medical supplies to purchase.  This list included a blood pressure cuff, stethoscope, otoscope, ophthalmoscope, tuning fork, reflex hammer, pager, etc…  To my surprise this stuff is actually fairly expensive.  It costs a little over a thousand dollars, about $1100 to be more exact.  For most medical students this is the first chance for them to see how administration will treat them for the next 4 years.  Students are expected to spend money on any and everything that administration tells them to.  This notion contributes to the idea that racking up debt is no problem at all.  Students will be nickeled and dimed for just about everything including overpriced parking permits, hospital issued scrubs, locker fee, intramural sports fee, and more.  What really angers me is that if you look up the tuition and fees schedule that can be found on the University website, you will see that there is a $600 student service fee.  This fee covers a multitude of things but is unfairly exploited at times.  For example, in our Intramural sports leagues resident physicians and employees of the school are not allowed to participate unless they pay $50 because they “do not pay a student service fee which covers IM League costs.”  However, each IM team still has to pay a $50 team entry fee to cover referee fees, etc.  Is this not covered by the student service fee?  Technically it should be.  This is just administration’s way of extorting every last penny that they can out of students.  It can get quite frustrating. 

After considering all of the aforementioned costs, the total sum to attend the average medical school will cost you right around $275,000.  You can debate the costs I have listed if you want, but the bottom line is that you will be paying between $200,000 and $300,000+ to attend medical school in the United States.  Of course, many people receive scholarships to attenuate the costs of medical school while others are lucky enough to have their parents pay for everything.  The median graduating debt comes out to be around $150,000; however, that includes all of those students who have zero debt.  Of the students graduating with debt, the median graduating debt is right around $200,000 at public universities, and that doesn’t even include any debt that you may have accumulated during your undergraduate studies in college. 

But hey, it gets better right?  Once you graduate medical school you will finally have that MD after your name, and you will be making money in residency.  Not so fast.  The average resident salary is right around $50,000.  After taxes you are looking at around $44,000, and that is a generous estimate.  This leaves the average resident with about $3,700 a month to spend.  Remember most medical students spend around $3,000 a month on average, so this is actually a nice increase in your monthly budget.  Or umm, it would be, if it weren’t for the fact that you now have to start making payments on your $200,000 in debt which is most likely at around a 7% interest rate.  If you have a debt of $200,000 with an interest rate of 7%, then your monthly payments to cover the interest alone is right around $1170.  If you choose not to defer your interest payments, then you will be left with just over $2500 a month now.  And that is just to cover the interest on your debt!  You won’t even make a single dent towards paying off the principal. 

Most medical students will turn a blind eye to this math.  The ones who do acknowledge it will merely say “So what, big deal.  I am still going to be making a ton of money when I get out of residency.”  I remember when I was applying to medical school people would always tell me that you should never go into the field of medicine for the money.  What they meant was that there was no question you would get paid well, but you will not enjoy your work if you do it solely for the money.  Well, I am here to tell you that not only will you not enjoy your work, but you actually won’t be able to make as much money either if you had just accepted a job as a Biologist at a pharmaceutical company.  In other words, if you are doing it for the money alone, you are an idiot.  Allow me to explain. 

You are a college senior who has gained acceptance to medical school.  However, you also received a job offer from a pharmaceutical company for $65,000 a year (I am not making this up; this is a real-life scenario that happened to my friend).  Let’s explore the two pathways.  You choose to take the job offer for $65,000 a year right out of college.  After taxes you are left with about $55,000 a year to spend.  For the first 4 years of your job you decide to live on $3,000 a month much like your counterpart medical student has chosen to do.  This leaves you with an excess of $19,000 a year or about $1,600 a month.  Let’s say that you decide to add that $1,600 a month to your investment account every month for 4 years and it grows at a modest rate of 10% (The historical average annual return from the stock market is approximately 12%).  By the end of the first 4 years, you will have accumulated around $94,000.  At the start of the 5th year you get a raise to $80,000 a year, so you now have about $65,000 a year to spend after taxes.  To make things simple let’s just say that you use that extra money to increase your standard of living, but you continue to invest the $1,600 a month for the next 5 years assuming a rate of 10%.  After these 5 years have passed you would find yourself with a little more than $275,000 packed away.  At this point you would be 30 or 31 years old with a net worth of at least $275,000, and you would be doing a job that involves a fraction of the stress a doctor does.  If you stopped saving money entirely and just let your investment account grow at the same return of 10%, then by age 65 you would have over $8 Million for retirement.  Keep in mind that is without ever saving a dime after age 31.  After that you could put that $1,600 a month towards new home payments or new car payments.  You would also be able to afford a great life for a new family that you might be starting. 

On the other hand, you could decide to go to medical school.  If you are the average medical student, then by the end of 4 years you will have accumulated $200,000 in debt.  Keep in mind that your pharmaceutical counterpart has $94,000 stowed away at this point.  You decide to do a 5-year general surgery residency.  While you are in residency you actually see a decrease in your standard of living because you are making payments on the interest of your $200,000 student loan debt.  When you finish residency at age 30 or 31, you will have $200,000 in debt and no savings.  Then finally you become a practicing surgeon!  You will probably earn nearly $250,000 your first 3 or 4 years.  Because most doctors are so happy to finally be making the big bucks, they celebrate by purchasing a new car, new house, exotic family vacations, etc…  Instead of contributing to their retirement fund, they must work on making those debt repayments.  This time around the payments will include interest plus principal.  By the time you get some experience under your belt and begin earning upwards of $300,000 it will finally be time to start saving for retirement.  Thank goodness you will be making a ton of money because you will need it.  While your pharm company counterpart has 20 years of financial compounding behind him, you have none.  You will have to make relatively huge contributions to your retirement account in order to catch up.  Because this example involves a high earning surgeon, you will eventually catch up to your counterpart somewhere in your 40’s if and only if you are smart with your money otherwise you won’t catch up until your 50’s.  I am sparing you the calculations but trust me on this one.  

What you find is that medical school is the ultimate experiment in delayed gratification.  You will be a high earner, but not until your mid 30’s.  You will have financial flexibility, but not until your 30’s or 40’s.  You will have a high net worth, but not until your 50’s.  Not to mention all the while you are studying or working your life away, stressed out, no time for hobbies, never see family, always tired, and medicine consumes your whole life.  On the other hand, if you worked at a pharmaceutical company, you would not be a high earner until your 40’s or 50’s; however, you would have financial flexibility beginning in your 20’s.  You also would have a higher net worth than your doctor counterpoint all the way up until you are about 50 years old at which point you may actually continue to surpass your counterpart due to promotions and bonuses.  Certainly, there exist scenarios in which the doctor is able to dwarf the earnings and savings of the pharmaceutical employee; however, if the pharm employee is financially savvy, it will be nearly impossible for the doctor to earn more unless he/she is earning upwards of $350,000 eventually.  If you are a med student going into family medicine, internal medicine with no sub-specialization, or something like pediatrics then you will forever be below your counterpart in terms of net worth. 

Financial illiteracy runs at a much higher rate than I believe it should in our society.  It is simple enough to be taught in grade school, and it is important enough to be taught by parents to their children beginning at an early age.  Unfortunately, it is somehow left out of the entire education system.  In my experience an interesting hot spot of financial illiteracy is found amongst medical students.  The irony is that medical students are some of the smartest people in the country.  They are the top of their classes in college, but most cannot even calculate the future value of money.  The above argument that the everyday biology major working at a place like Merck can earn more over a lifetime at every age group than the corresponding doctor can is not complicated, but many people would refute the statement.  Over the past ten years or so going to medical school was not worth it or just barely worth it over choosing another career path in terms of earnings.  With tuition outpacing inflation nearly every year though and Medicare and Medicaid payouts decreasing, I believe we have reached the tipping point in which going to medical school no longer makes economic sense for most people.  The tipping point has been reached, so why do medical schools still receive so many applications?  Why is there so much demand to go into medicine?  Well like I said, medical students are largely financially illiterate.  This group will not notice that the tipping point has been reached until a major study comes out showing them the numbers.  Even then the social image of rich doctors with a mansion and 4 cars will linger for some time and attract many college students. 

The typical rebuttal to this argument is that this financial tipping point does not matter for medical students because they don’t go into medicine for the money.  There is some merit to that argument, but I am obviously on the opposite side of it.  If you talk to a class of first year medical students, no one will admit they are in it for the money.  They will proclaim they are in medicine to help people and they cannot get enough of that heartwarming feeling they get from helping people.  That kind of idealism quickly fades.  If you ask a class of fourth year students, more people will admit they are looking forward to the money, but few will admit that is their main source of motivation.  Let’s face it though, if a new law capped physician pay at $30,000, $50,000, or even $75,000, who would go to medical school?  Not many.  I would venture that only 5% of my class would still attend medical school.  Those would be the people graced by their parent’s wealth, so they would not have to worry about sky high tuition and living costs.  The truth is that if you put off working for 4 years and then get paid minimum wage during residency, people are going to demand a high salary.  It defies economics to not do so.  I tell people I am in medicine because of job security, decent pay, and I have an interest in science.  My peers think less of me when I tell them this.  However, they know deep down they are motivated by the money too.  If this wasn’t the case, then high paying specialties wouldn’t be super competitive.  Most students apply to high paying specialties such as surgery, anesthesia, radiology, et cetera while the low paying specialties you can walk into because there are always open spots.  Actions speak louder than words.  With the cost of medical school so high and the opportunity cost of spending so many years of your life learning, how could money not be one of the main factors?  I just wish students would admit it rather than living in a state of denial in order to conform to the beliefs of their peers. 

If the rush of medical students to high paying specialties doesn’t reveal a hidden motive to you, then nothing will.  But let’s say for a moment that the small part that exists in every med student, albeit buried very deep down, comes to the surface to argue that becoming a physician is still a great way to make money.  You somehow convince yourself that you will make more money than a lowly biologist.  I would say that you are dead wrong.  Unlike most businesses in this world, in medicine you cannot pass on the costs to your “customers.”  If the price of running your practice goes up or the price of medical supplies goes up, then that cost eats into your profit.  This is because doctors are in large part paid by third party entities such as insurance agencies and government programs such as Medicaid and Medicare.  These third parties have nearly complete control in setting payouts for various billable services.  I would say that I am afraid to tell you that your earnings as a doctor still rest with the future of the health care system which is always seeing Medicare and Medicaid spending cuts.  Many of you will argue that physician pay has not fallen since the early 90’s.  You would be right that physician pay has not fallen in nominal terms; however, in real terms physicians have seen their purchasing power eaten up by inflation for the better part of the last two decades. 

However, those reasons pale in comparison to the next reason.  The irony of leveraging all of your finances to take on debt in order to complete medical school is that you cannot leverage yourself once you are done.  What do I mean by this?  Your skill cannot be leveraged.  Only you can practice medicine, no one else.  You cannot make a copy of yourself to go open another practice or go work in another hospital.  Contrast this to a successful toy maker.  He comes up with a good idea for a perfect toy.  It is selling very well.  To leverage his idea, he builds ten more factories to build toys, and he makes 10x as much money.  At this point the factory owner can relax and watch the profits roll in.  The owner can retire and play golf every day for the rest of his life, and he will still see the paychecks come rolling into his bank account every month.  Meanwhile, you are working away selling your time because that is the only way for you to use your skill to make money.  The second that you stop working is the second that you stop making money.  As a doctor you are forced to sell your time for money.  You are paid by the number of patients you see, number of hours you work, or number of procedures you perform.  If you use your time doing something else, then you will simply not get paid.  These very reasons are also why even the most successful of doctors never have a net worth higher than around $5-$10 Million.  The upper limit of wealth for physicians is set much lower than almost every other industry. 

Without fail the mythical ultimate counterpoint to everything I have said up to this point inevitably comes up.  Everyone will say, “Even if a physician isn’t saving money, he/she is spending their money.  This gives them a higher standard of living and numerous luxuries in life.”  That may be true.  But it is hardly a counterpoint.  In fact, I would say you have fallen into the trap that the majority of doctors fall prey to.  If you are spending your money in order to live a fancy life and give the appearance of being rich, then you are probably not stuffing away enough money for retirement like you should be (if retirement is a goal).  This means that you have to maintain your earnings in order to sustain your standard of living.  Thus, many physicians must keep working instead of retiring in order to maintain their standard of living.  Doctors can live a good life, but it does not come at no cost.  It comes in the form of stealing years away from your retirement.  It isn’t hard to notice.  The next time you hear a physician complain about how he has to work past age 65, you will know why.  Tell him or her to retire now and decrease their standard of living.  Yea right…this is America.  Very few people are willing to backtrack on their American dream of living like a king.  Financially speaking, being a doctor is no walk in the park.  From the moment you enter medical school to the day you retire, money will always be on your mind. 

So, should you go to medical school?  In the end you have to ask yourself what you want out of life.  Should you choose to go to medical school, you should know that the financial hardships will bear down on you for at least 8-10 years of your life.  During these times, your financial solace will be found in the knowledge that you will one day earn a six-figure salary.  That paycheck is at the end of a very long tunnel from which you will not see the light until you reach residency.  Also engrain in your mind that if you graduate with debt you will be tasked with the burden of paying it off after residency.  Immediately after residency is a twilight period of sorts in which you will be pulled in every direction.  It is a very fragile time in a doctor’s life with regard to money.  Should you be the exception and manage your money well then you should be well on your way to being debt free and living the stereotypical rich doctor life.  Should you fall into the majority of financially illiterate doctors, then you will quiver under the pressure to juggle buying a house, providing for a family, paying off debt, and stemming your desires for all the expensive toys that you feel entitled to after spending your entire adult life thus far living like a pauper.  You will find yourself at age 50 working away day to day wondering how you ever got so behind on your “retirement plan” as if you ever had one to begin with since so many other matters were vying for your attention.  And should you be very unlucky, should you find yourself struggling with money your whole life for one reason or another, then you will become beholden to your debt selling your time to pay it off.  The situation will only be deepened by the fact that you will work well into your 70’s while all of your friends around you are in The Bahamas living out their golden years.  If you go to medical school, promise me that you will take it upon yourself to become a financial expert.  It will pay more dividends in life than I can put into words here. 

My rhetoric may be harsh.  But so is the truth.  I only write so sternly because no one else will take this side of the argument; no one else will tell you that there are two sides of the coin.  Higher education has been a winning bet in the past; however, going forward, college and graduate school is becoming less and less of a homerun for many reasons, the cost being but one.  Go to medical school if you feel it is your calling.  But do not go to medical school thinking that in the end all of the money issues will work themselves out.  Take it upon yourself to learn and plan for the future. 

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