What is the best way to finance medical school?

[Prince_Avocado]

Hello everybody!

I was speaking to my father, who is a businessman and proprietor, recently about how I will finance medical school. He said that he is willing to pay for my schooling, however, he brought up that paying for medical school in some situations may not be the best option financially.

For example, apparently after completing residency in a specialty such as internal medicine, there are a few hospitals in rural areas that will pay off your loans and give you an excellent salary because of the demand of physicians in the area. Me and my father do not know the details of how this actually works and was hoping if somebody could shed light on this whole process.

Also, if there are other methods to pay for medical school, please do tell! We want to know all our options before we commit to one of them!

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[findoc]

There is a clear opportunity cost. If you pay cash for tuition, then you forgo any investment returns, assuming you're invested in stocks, bonds, etc. On the other hand, if you leave the cash invested and instead borrow for tuition, then you will pay 6 to 8 percent on what you have borrowed. In that case, as long as your average investment return exceeds that 6 to 8 percent, then it makes it worthwhile. However, in today's market environment where bond rates are low and stocks are extremely expensive, I wouldn't bet on it. In fact, I would bet the stock market will average less than 8 percent over the next decade, especially if someone anti-business like Bernie Sanders wins the presidency.

6 to 8 percent is steep. In my view, that rate is too high for medical student loans given the low risk of default. It makes me sad to think of all the medical students that will be accruing interest on their debt throughout their residency. If you have $200,000 in loans at the time you graduate medical school, then your debt will likely exceed $250,000 when you finish residency. Even on a high doctor's salary, that is a burden.

Remember that anytime an employer offers to pay the loans, there is something expected in return. There is no free lunch. You will commit to an area for a number of years and probably take a lower salary. Just a thought.

 

[BoneWizard]

However, in today's market environment where bond rates are low

It's funny because if the 10 year treasury note falls, so do student loan interest rates.

To the OP: I doubt any loan repayment you're offered will outweigh the amount of interest you'd accrue over the course of medical school + residency unless you go into PC and practice in a designated area. Not only are you going to be forking over 5-8% in interest per year, there's also a 1-4% loan fee.

 

[findoc]

Lately the 10Y has fallen to less than 2%, and yet medical school loans are still above 6%. What a rip off!

 

[findoc]

In fact, the medical school loan rate is higher than the rate at which junk-rated companies are borrowing! It's absurd!

Bond Benchmarks

Market Data Center on The Wall Street Journal.

www.wsj.com

 

[jurassicpark]

Blood and semen?

As someone mentioned, there is the military. But they will own you for a good portion of your life. Be sure you fully understand what this means, not just as an ends to a means.

A lot of places will offer signing bonuses. Some more less-serviced (doesn't necessarily even mean "rural"), will offer huge signing bonuses depending on location and specialty, some of which can pay off most people's loans.

The National Health Services and the like will also offer loan repayments, and many of the larger corporations will offer loan repayment programs as well, you have to shop around. But you do need to read the fine print.

In terms of actually paying, if your father is willing, sweet jesus I want your dad too! But most of us are or have taken out massive loans, some federal some private. And some of us are still chugging away paying them back,

 

[BoneWizard]

View attachment 293769

Lately the 10Y has fallen to less than 2%, and yet medical school loans are still above 6%. What a rip off!

Yeah, it's calculated by the 10 year note + a percentage. 3.6% for Direct Unsub Grad and 4.6% for Grad Plus for "administrative fees". I seriously hope it stays around 2% until I graduate.

They increased the cap too. So if it shoots back to 2006 levels grad plus is gonna be 10.5% interest...

 

[findoc]

This is interesting. Student loan default rates by school.

https://nslds.ed.gov/nslds/nslds_SA/defaultmanagement/cohortdata_3yr.cfm

You can get specific med school data by searching for "medicine".

Overall default rates (undergraduate and graduate, state and private schools) seem to be in the 4-6% range, which is quite high. In those cases, a high interest rate is justified. However, default rates at medical schools generally seem to be well in the range of being considered investment grade. Interest rates for medical students should be much lower. The Mayo Clinic has a default rate of 0.

Exceptions seem to include some Caribbean med schools and minority-specific schools, which have higher default rates. DO schools don't seem to have a higher default rate.

 

[Cornfed101]

You are essentially gambling by not taking the money. If you have no loans you could just negotiate a cash bonus (or more time off or any number of different alternatives) instead of loan repayment when you become an attending. A guaranteed 6-8% return is nearly impossible to come by, and you don’t have the emotional toll of having debt hanging over you. I would take the money in a heartbeat and not think twice

 

[Blueprint Med School]

Bird in the hand is worth two in the bush.

Take the money, graduate debt-free, and eventually, you will find a situation that will help you fit most any financial goal long term once you are an established attending.

David D, MD - USMLE and MCAT Tutor
Med School Tutors

 

[Ho0v-man]

Take the money. If you end up liking a field that doesn’t have options for loan repayment in underserved areas, it’s a waste. Furthermore, even if you do something like that it obviously geographically limits you and jobs like to consider this a reason to pay you a lower salary.

You’ll live much more comfortably in residency without any student loan payments and when you’re an attending you can pay your dad back in a couple years.

There’s an analysis on white coat investor about joining the military. It really only financially worth it if you’re going into FM/Peds and even then it’s barely worth from a financial standpoint.

 

[NITRAS]

I’d have very frank discussion with your father. Be very clear. What is your father offering. Is he expecting you to repay?

Most of this is really a moot point until you have an offer of admission and you know the cost of attendance. (PS, look into this before you apply).

The honest truth is that if a company is willing to pay your student loans, they are willing to pay you cash if you have no student loans (not true if they are a huge system. . . But if they have a brain). I’m sensing your father not wanting to pay/not able to pay your tuition. The idea that a doctor with loans somehow has an advantage over someone without is pretty stupid.

I would just be sure to have very clear lines of communication, as these money issues with family can really cause relational problems for the rest of your life.

 

[Angus Avagadro]

View attachment 293769

Lately the 10Y has fallen to less than 2%, and yet medical school loans are still above 6%. What a rip off!

When I found out from the med school financial aid officer at my son's school that the govt student loan rate was 6 to 8%, I wanted to reach across the table and grab him by the tie! I think the vig in Las Vegas is less than that. My wife and I paid for his med school and I think he would advise you to take the money. OP can pay Dad back without interest. You still save a hundred thousand in interest, maybe more depending on the amount. If you do that, sign a promissory note with your Dad and take out a life ins policy for the projected loan amount. If you have an accident or get sick, your Dad won't be stuck with the debt. Morbid to think about, but it does happen.

 

[findoc]

When I found out from the med school financial aid officer at my son's school that the govt student loan rate was 6 to 8%, I wanted to reach across the table and grab him by the tie! I think the vig in Las Vegas is less than that. My wife and I paid for his med school and I think he would advise you to take the money. OP can pay Dad back without interest. You still save a hundred thousand in interest, maybe more depending on the amount. If you do that, sign a promissory note with your Dad and take out a life ins policy for the projected loan amount. If you have an accident or get sick, your Dad won't be stuck with the debt. Morbid to think about, but it does happen.

I agree with this.

 

[AnatomyGrey12]

If your parent is willing to fund medical school then do it. It will save you a lot of money in the long run.

 

[Prince_Avocado]

Military pays for your school but you have to serve for the amount of time you were in school and trained in residency. Also from what I understand your residency options are limited based on what the branch you signed up for needs. You do get a monthly stipend of like 2K as well

My mom works in a rural clinic and it offers repayment for IM. At her clinic they pay off all your loans and in return you have to work at the clinic for at least the number of years of tuition that they paid off (4 years basically in most cases). With this, she said you would still get a salary near the median or a bit below the median for an IM. It is an option I am considering as well since my private school tuition is bonkers.

There is also the option of working with the VA that I have heard of that seems intriguing...

I've heard of the military as an option, but I've talked to a couple people and they said it's only really worth considering if your total cost for medical school is ridiculous, like $400,000 and up. If I do take out a loan, it would be about $170,000 for all four years, which isn't too terrible. So I think it wouldn't be worth it for me to do it through the military. Thanks for the suggestion though!

 

[Prince_Avocado]

There is a clear opportunity cost. If you pay cash for tuition, then you forgo any investment returns, assuming you're invested in stocks, bonds, etc. On the other hand, if you leave the cash invested and instead borrow for tuition, then you will pay 6 to 8 percent on what you have borrowed. In that case, as long as your average investment return exceeds that 6 to 8 percent, then it makes it worthwhile. However, in today's market environment where bond rates are low and stocks are extremely expensive, I wouldn't bet on it. In fact, I would bet the stock market will average less than 8 percent over the next decade, especially if someone anti-business like Bernie Sanders wins the presidency.

6 to 8 percent is steep. In my view, that rate is too high for medical student loans given the low risk of default. It makes me sad to think of all the medical students that will be accruing interest on their debt throughout their residency. If you have $200,000 in loans at the time you graduate medical school, then your debt will likely exceed $250,000 when you finish residency. Even on a high doctor's salary, that is a burden.

Remember that anytime an employer offers to pay the loans, there is something expected in return. There is no free lunch. You will commit to an area for a number of years and probably take a lower salary. Just a thought.

That makes sense! In that case, it would be more sensible to pay for medical school in cash.

 

[Prince_Avocado]

It's funny because if the 10 year treasury note falls, so do student loan interest rates.

To the OP: I doubt any loan repayment you're offered will outweigh the amount of interest you'd accrue over the course of medical school + residency unless you go into PC and practice in a designated area. Not only are you going to be forking over 5-8% in interest per year, there's also a 1-4% loan fee.

My goal is actually to go into internal medicine and I wouldn't mind working and living in a rural area for a couple years if the loan repayment is worth it.

I didn't know there was a loan fee...

Me and my father never had debt or loans before so this is all new to us. It's actually quite terrifying how expensive medical school is in this country. In a lot of other countries it is nowhere near this expensive...

 

[Prince_Avocado]

Blood and semen?

As someone mentioned, there is the military. But they will own you for a good portion of your life. Be sure you fully understand what this means, not just as an ends to a means.

A lot of places will offer signing bonuses. Some more less-serviced (doesn't necessarily even mean "rural"), will offer huge signing bonuses depending on location and specialty, some of which can pay off most people's loans.

The National Health Services and the like will also offer loan repayments, and many of the larger corporations will offer loan repayment programs as well, you have to shop around. But you do need to read the fine print.

In terms of actually paying, if your father is willing, sweet jesus I want your dad too! But most of us are or have taken out massive loans, some federal some private. And some of us are still chugging away paying them back,

I think my father is going to end up paying for it. We both agreed that the interest I will end up paying after completing medical school and/or residency is straight up not reasonable at all.

 

[Prince_Avocado]

You are essentially gambling by not taking the money. If you have no loans you could just negotiate a cash bonus (or more time off or any number of different alternatives) instead of loan repayment when you become an attending. A guaranteed 6-8% return is nearly impossible to come by, and you don’t have the emotional toll of having debt hanging over you. I would take the money in a heartbeat and not think twice

Yeah I think paying for medical school in cash would be the most reasonable.

 

[Prince_Avocado]

Bird in the hand is worth two in the bush.

Take the money, graduate debt-free, and eventually, you will find a situation that will help you fit most any financial goal long term once you are an established attending.

David D, MD - USMLE and MCAT Tutor
Med School Tutors

Thanks for the advice! Taking the money seems like the best option as of now.

 

[Prince_Avocado]

Take the money. If you end up liking a field that doesn’t have options for loan repayment in underserved areas, it’s a waste. Furthermore, even if you do something like that it obviously geographically limits you and jobs like to consider this a reason to pay you a lower salary.

You’ll live much more comfortably in residency without any student loan payments and when you’re an attending you can pay your dad back in a couple years.

There’s an analysis on white coat investor about joining the military. It really only financially worth it if you’re going into FM/Peds and even then it’s barely worth from a financial standpoint.

I'm probably going to take the money. I'll look into the analysis just in case though!

 

[Prince_Avocado]

I’d have very frank discussion with your father. Be very clear. What is your father offering. Is he expecting you to repay?

Most of this is really a moot point until you have an offer of admission and you know the cost of attendance. (PS, look into this before you apply).

The honest truth is that if a company is willing to pay your student loans, they are willing to pay you cash if you have no student loans (not true if they are a huge system. . . But if they have a brain). I’m sensing your father not wanting to pay/not able to pay your tuition. The idea that a doctor with loans somehow has an advantage over someone without is pretty stupid.

I would just be sure to have very clear lines of communication, as these money issues with family can really cause relational problems for the rest of your life.

I already have two acceptances for medical school and I am most likely going to choose the institution that has a lower tuition, which would be about $40,000 per year. My dad actually has more than enough money to pay for my tuition and living fees, but he was wondering if there was a financially better option to get through medical school rather than paying for it in cash. He isn't educated (dropped out of college after two weeks) so he doesn't know anything about loans and how it works in this country.

He isn't expecting anything back from me at all! We are upper class, so money was never an issue in my family. He's just wants to be as supportive as possible. My family's culture is pretty distinct from the typical american culture, so we never had relationship or money issues. If anything, he just expects me to take care of him and my mother when they are older, which I planned on doing anyway.

Thanks for the concern though! I really appreciate it!

 

[Prince_Avocado]

When I found out from the med school financial aid officer at my son's school that the govt student loan rate was 6 to 8%, I wanted to reach across the table and grab him by the tie! I think the vig in Las Vegas is less than that. My wife and I paid for his med school and I think he would advise you to take the money. OP can pay Dad back without interest. You still save a hundred thousand in interest, maybe more depending on the amount. If you do that, sign a promissory note with your Dad and take out a life ins policy for the projected loan amount. If you have an accident or get sick, your Dad won't be stuck with the debt. Morbid to think about, but it does happen.

My father does not expect anything back at all! We are actually upper class, so money isn't an issue at all. He just wanted to know if there was a financially better alternative to pay for medical school, but it doesn't seem so. I'm probably going to take the money as it seems to be the best option!

 

[Prince_Avocado]

If your parent is willing to fund medical school then do it. It will save you a lot of money in the long run.

That seems to be the best option so I'm probably going to take the money.

 

[deleted831695]

My parents paid off the first two years with a deal/promise/expectation that I pay them back, start paying their house mortgage with my residency salary, and support them in retirement (they don’t have a lot but they were absolutely adamant about the first two years until I couldn’t argue any longer). So do that OP if you want that added pressure onto you (Jk just read your dad doesn’t care...that’s lit lol)

But gotta finance myself last two years. So like OP, anybody wanna give some info on the best loans to take out?

 

[BoneWizard]

start paying their house mortgage with my residency salary

With... your $50k a year residency salary?

I plan on just maxing out direct unsub loans because of the lower loan fee/interest rate and emptying out my IRA/savings for the rest. Also currently juggling ~$6k on a 0% APR card. Going to open a 0% APR balance transfer card this time next year and toss that around until 3rd year.

 

[MedDoc305]

My parents paid off the first two years with a deal/promise/expectation that I pay them back, start paying their house mortgage with my residency salary, and support them in retirement (they don’t have a lot but they were absolutely adamant about the first two years until I couldn’t argue any longer). So do that OP if you want that added pressure onto you (Jk just read your dad doesn’t care...that’s lit lol)

But gotta finance myself last two years. So like OP, anybody wanna give some info on the best loans to take out?

Start with the Federal Direct Unsubsidized Loan. Once you've maxed those if you need more then hit the grad plus loan.