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Most of us remember medical school orientation. The feeling of
ecstatic happiness of finally making it to medical school and
embarking on a path of our dreams with our newly formed friends is
unforgettable. Somewhere intertwined within these happy memories is
a painful afternoon session hosted by the financial aid office: the
mandatory entrance interview. We were told how much debt we will
accrue by the end of our 4 years of medical school but were rest
assured that there will be help along the way, and that we will be
able to earn enough salary when we graduate to pay it back. Despite
the threatening debt of $162,000 (on average) at the time of
graduation (1), we bravely and eagerly marched on to memorizing the
steps of the urea cycle, locating the internal thoracic artery, and
learning Sterling's law. The session gradually became an
afterthought, and the huge financial aid booklet we were given
collected dust on our bookshelves as we got busy with school.
However, the issue of money and debt resurfaces each holiday season
when friends ask how expensive medical school is and in March when
the FAFSA forms are due. Today, we face a heavy financial burden
that is unrivaled by those who traveled this road before us.
Choices we make today will affect our lives even 20 and 30 years
from now. Understanding your financial situation and preparing
yourself accordingly will go a long way toward achieving a life of
financial health and stability. Here are some basic tips to help
you manage your finances.
Although you may feel financially well-off at the beginning of
the semester after receiving large lumps of money from various
sources, fight off any temptation to immediately spend that money
on an LCD television that you have been eyeing, or a pair of
designer jeans that is out of your usual budget. Unlike work, where
salary is distributed either monthly or biweekly, money for medical
school is distributed twice a year. It is therefore extremely
important to budget your money so that you will have enough money
for food, rent, and entertainment during the last few months of the
semester. In addition, make sure to put aside some funds for
unexpected expenses like car repairs, a new computer, and
higher-than-expected fancy restaurant bills.
Everyone loves free money, but not everyone makes the time to
apply for it. Medical school is busy, and free time can be hard to
find, but if you put in the effort, scholarships-in the range of
hundreds to thousands of dollars-can be within reach. Although it
may not necessarily seem like a lot in comparison with the loans
you take out, think of this: $500 of debt with 6.8% interest
compounded annually will cost $1,341 in 15 years. So, spend some
time and look for some Benjamin Franklins that are sitting around,
waiting for you to pick them up. Sources to locate scholarships
Federal subsidized loans provide only a fraction of the cost to
attend medical school, but they have fixed interest rates, and the
government pays for the interest while you are in school. Most
students will need to take out additional loans to cover their
costs. In general, borrowing from the federal government is a safer
option. Avoid private loans, where small prints can lead to unfixed
interest rates that may balloon to greater than 10%. For
unsubsidized loans, you will be paying interest even while in
school, and interest will accrue and be added to your principal.
Most students will have to take out unsubsidized loans, but you
should stay on top of at least paying the interest every year. If
you do decide to take out a private loan, make sure to read the
fine print carefully to understand terms and conditions, such as
origination fees, annual fees, interest rate, and requirements for
It is sometimes a headache to think about educational loans, but
it is important to not avoid them. Unlike mortgages or credit card
debt, student education loans will always be with you. Not even
bankruptcy can save you, as education debt can almost never be
erased in bankruptcy court, even if the loan is from for-profit
lenders. It is considered a nondischargeable debt, and you must pay
for it, just like legal fines and childcare support. Furthermore,
do not ignore that the interest rate for medical school loans is
usually at least 6.8%, which is the rate for the federal direct
loan. Other private loans probably have even higher interest rates
than 6.8%. When compared with the 3.89% interest rate for a 30-year
fixed mortgage that house buyers can acquire (2), 6.8% is a lot
more. To put things in perspective, $100,000 compounded annually
over 15 years is approximately $268,267 and $177,258 for interest
rates of 6.8% and 3.89%, respectively. Therefore, do not take your
medical school debt lightly as it is more daunting to pay back than
purchasing a home for the same price. Take initiative and start to
pay off your educational debt as soon as possible instead of
waiting for the problem to become larger and less manageable.
Education loans have compound interest, which is not a mere high
school math class calculation. When it comes to debt, compound
interest should not be taken lightly and is said by Albert Einstein
to be the "most powerful force in the universe" or "the greatest
invention in human history." To illustrate the issue, consider a
$162,000 federal direct loan with a 6.8% interest rate and a
15-year payment plan (1). With income based-repayment during the 3
years of internal medicine residency, you will pay about $400 to
$480 per month, and then $2,100 for the next 12 years with the
assumed starting salary of $170,000 after residency (1). At the end
of the 15 years, you will be paying a total of $308,000, with
$146,000 being paid toward interest (1). With the way that banks
collect your debt, that means for 8 or 9 years, you will be making
very little dent on your principal of $162,000; all the payments
made until that point will be primarily toward your interest.
Therefore, do not be content with paying solely what appears on the
statement, save money and pay extra toward your principal so that
less money gets compounded over time.
Because the estimated medical school attendance cost is usually
more than what a student actually needs, there might be a few
thousand dollars left over in your student financial account. So,
what are your options with that money? First of all, you could
invest, but most of us are not well-versed in trading nor do we
have enough money to make it worthwhile to risk a hit on our
already cash-strapped pockets. If you are knowledgeable about
investments, you are probably doing that already with some money.
Keeping it in a bank account is not a smart option right now, and
the interest rates on short-term certificates of deposit are so low
that they may be less than the inflation rate, meaning your money
is actually worth less over time. Second, you can use it to pay
back your existing loans. Remember that you do not have to finish
school to start paying back your loans-you can do that at any time.
The advantage of paying off debt while in school is that you can
make a large dent in your principal and avoid the compound interest
that accrues on it. Third, you can use it on entertainment, and
that is not a bad idea. We are all overworked and a nice vacation
help you rejuvenate, so don't hesitate to splurge on yourself a
This article is not meant to be a comprehensive guide on
managing medical school loans but to serve as a starter for those
who are interested in gaining some basic knowledge and ideas on the
issue. Other informative Web sites that I encourage you to explore
I hope that you have found this article to be helpful. Please do
not hesitate to contact me with questions, or send me your
suggestions on how medical students can manage their finances.
Northeastern Representative, Council of Student Members
Yale University School of Medicine, 2013
March 2012 Issue of IMpact
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