I was recently reminded about how much debt weighs on students when I did a talk for our local medical school. I pre-polled the audience about what topics they wanted to hear about. The vast majority of questions and concerns were around debt. Actually, “crippling debt” was used by three different respondents. However, one pretty much summed them up.
“Dude. I am in a LOT of debt. Please tell me that it will be okay.”Anonymous Medical Student
Alternate Post Title: Dude – It will be okay. Seriously.
That opinion is based on my own experience and interactions with many residents and early career docs over the years. I will also try to put some numbers to it. Everyone has their own unique circumstances and make different choices. However, it will give you some anchors.
Medical training comes with a high upfront basic cost. However, you do have choices of how you handle the costs beyond those basics, both now and in the future. I will give some suggestions of how you can make it easier to be okay. Not just okay now, but to make yourself a financial super-power for the rest of your career.
Please, share this post with any of the medical students, residents, or early attendings that you know. Most of them stress about this, whether they openly discuss it or not. Don’t let them be crushed.
Debt is scary & hard to talk about.
My debt scared the crap out of me. It turned out better than okay.
I owed about $60K in Y2K (about $100K in today’s dollars). That is not too bad compared to the average nowadays. Still, it was more debt than anyone in my family had ever qualified for and interest rates were in the 8% range. Sure, interest rates are lower now. However, unusually low borrowing costs over the past two decades have also helped prices to balloon. Medical school is no different. Tuition and basic costs of living have also risen.
The median 2022 Canadian medical graduate owes $90K from medical school alone, plus debt from pre-med. The average Canadian bachelor degree graduate has $30K in debt to make ~$120K cumulatively. Minimum. There was little change for the classes graduating in 2020, 2021, and 2022 with about 1 in 5 owing more than $200K.
So, I was better off than average. I was fortunate to have my parents help with my first degree. My wife did not have that good fortune. However, she came to the table from a frugal upbringing with compatible values and expectations. After medical school, we got married, lived frugally (but happily), had our first kid, and paid off our student debts by the time I finished training in 2006. We had advantages, but it also turned out much better than okay for us.
Debt is scary, but let’s talk about it.
It is normal for debt to make you uncomfortable. Especially when it falls outside of you and your family’s usual experience. However, you are not alone. Your medical family does have experience with it. Talking about it can make it less scary. Especially with those further down the medical career path. Putting some real numbers to it also helps.
Debt is less scary when understood.
We are wired to think about debt in emotional and illogical ways. So, the first part of defanging the debt beast is to understand that it is spent future income. It is also a tool. Debt can be dangerous, but it can also help you to build something better.
Canadian medical school is a good use of debt.
In the case of medical school debt, that is spent income now to make a much larger income later. An investment for which Future-You will thank you. Even while they are working to pay it back.
They will need to work less than they otherwise would have had to for the same income, and in a great career. Also remember that there is no Future-Doctor-You if you don’t spend on your basic needs and education. So, don’t beat yourself up over that and fall into a scarcity mindset that causes you to miss opportunities for advancement.
Just don’t abuse the tool or let other people use it.
Your current job is to make sure that you don’t spend like you already have your future income. It is vital that your family and friends understand that too. One of the ways that I have seen med students and early career doctors get blown off of the right side of the debt chart is when they become the “Doctor in the Family”. It feels great to give back to your family. However, you will be able to help more in the long run, if you build a strong financial base first. Credit is not wealth and don’t let the financial illiteracy of others become your own.
It can also be difficult to see your friends who have finished their schooling and started work. They will be spending like they have less debt and a better income than you. That is because they do. However, you are playing the long game and you are closer to the finish line than you think. Residents have an income and while comparison to those with more than us is the human default, a broader perspective may be helpful.
Put your debt it into perspective.
Part of why I wrote this post is because it can be really hard to see the big picture. That is particularly true when you are in survival mode and surrounded by others in survival mode. The rigors of medical training and early practice put most of us there and with our work-hours those are the people we talk to the MOST… MOst… most… Hear the echo?
Your debt is big, resident income is moderate, your future income is huge.
When you become a resident, you are near the top of the income heap already. It is hard to realize this because we naturally compare ourselves to those around us. At work, where we spend most of our time, our comparators are allied healthcare professionals. Nurses and residents make significantly more than the average Canadian wage. Staff doctors make way more than that.
Yes, you work more hours than the average person. By a lot. However, your extra work will pay off with a reliable jump off the top of the income chart in the near future. Still, in the present, a resident’s income is in the 75th-95th percentile relative to their age-adjusted peers. That does not even include call stipends. The most recent granular data that I could find is from 2016, but it is still illustrative in relative terms.
“Live like a resident” isn’t so bad. It is really “live like an average Canadian”.
This is usually the part where someone goes, “Yeah, but I work harder and am more skilled, so I deserve more than average. My costs are more because of my hours. My debt is higher.” All true. I am not going to argue with that. Just be aware that having more income does not necessarily mean that you will be more satisfied. You are not at the saturation inflection-point of income and happiness yet. However, you are closer than most people. Even other university graduates. Plus, you have major upward mobility.
Use your present finances to your advantage for the future.
This is a great time to work on avoiding the Hedonic treadmill and start walking the path towards a better life. The good news is that as a physician, you can readily exceed the happiness-income satiation point. However, if you don’t develop effective spending and giving skills, then earning more won’t make you happier. You may even take the bait and become trapped.
If you are on the high end of the medical student debt scale, this likely means that you did not come from wealth. That has the advantage that you know how to do fun things that don’t cost a lot of money. You realize that is normal. On the other hand, those who have not grown up in an affluent family also don’t have first hand experience with wealth. We naturally look up the wealth ladder and figure that the view is better up there.
One of the strongest tools that you have for building a satisfying and happy life is your mindset. Develop an understanding of your core values, and live them out within your current means. You will likely find that inexpensive, pleasurable in the present, and it will set you up for the future.
Don’t Grow Debt During Residency
It will be okay in the end, but you can make the path there harder. One of the key forks in the road is how you handle your medical student debt during residency. You are not purely a student anymore. The data in the previous section showed that resident physician incomes are better than the average Canadian. However, when you factor in interest payments on a mountain of medical school debt, that drops the income that you have to spend.
The bank is not doing you a favor by letting you skip interest payments.
There are banks that will give you the option to forego making payments on your line of credit during residency. However, interest starts accruing from the day you take the money. It compounds daily and can quickly get out of control over the elapsed time of residency. In contrast, there may be interest relief available for government student loans. So, make every effort to pay at least the interest on your line of credit during residency.
Below is an example of the difference that interest-only payments makes during a 5-year residency. Doing that would knock your lifestyle cash flow down to the Canadian median during PGY1. About $2500/month after-taxes. That improves with call stipends, as you move up the pay-grid each year, and if you have moonlighting opportunities. This example uses $215K of debt which is in the worst 20% of starting debt loads.
By living like an average Canadian (usually an upgrade from medical student lifestyle), you can prevent a $215K loan from becoming a $276K loan. That translates into having to work about 3 months less as an attending to pay the extra loan growth back. If you continue to live like a medical student, you might even be able to chip away at your debt. The relief of seeing that progress may be more restorative than a luxury vacation for some people.
Don’t blindly jump into more debt.
By this, I mean buying a house or condo. A mortgage is still debt and the notion of “don’t pay the landlord’s mortgage, pay your own instead” is financially naïve advice. You are just swapping your landlord for the bank and becoming directly responsible for all of the costs and hassles of home ownership. If considering buying real estate, there are two big questions to ask yourself.
Is it a better investment to rent or buy real estate?
Real estate can be a decent long-term investment. However, that is highly dependent on the specific costs, market, and time frame. In addition to recency bias, most people pushing real estate (including parents) underappreciate how their gains were magnified by leverage which can also magnify losses. Most focus on the gross value and upside potential.
Furthermore, an investment return is net of all carrying costs (maintenance, property taxes, insurance, interest), transaction costs (land transfer tax & mortgage insurance to buy; realtor fees to sell), and opportunity costs (money you could have made by investing your down payment or not adding it to your debt heap). That is a lot more than just the interest cost.
If you are going to invest in real estate, then you must analyze and treat it like an investment. At a minimum, do the rent vs buy math for comparable properties. The calculator accounts for most of the costs except opportunity cost.
Is it a good lifestyle choice for your stage of life?
If you tried the above calculator, you hopefully noticed that there was a time to break even. It is usually longer than medical school and residency. So, when you buy a property, you either risk making it a speculative gamble by betting on short-term appreciation, or you are limiting your residency and job options.
The freedom to choose your path may be more important at this stage. The main lifestyle benefit of owning is to not risk eviction. That risk is likely lower for a desirable tenant, like a professional student. The other side of owning is that you must directly take care of any renovations or maintenance tasks. Even post-call. Moving due to renoviction is stressful. So is moving and preparing a property for sale. I have experienced both.
External Resources To Control Debt
I used a $215K loan in the previous example. It is on the higher end of Canadian medical student debt, but easily possible with an undergraduate degree, medical school tuition, plus basic food and housing without parental help. You cannot change whether you were born into a family with the will and resources to help pay for your education.
However, you can control the choices that you make and develop your internal mindset. There are also other external resources that you can use to improve your lot at each stage of your early career.
As a medical student: use the resources designed to help you.
- Apply for and use Federal and Provincial Government student loans. They tend to have delayed interest plus grants and opportunities for forgiveness. Dr. Stephanie Zhou does a great summary.
- Student bursaries. Every university has them and they have become more prolific over the last couple of decades. Your senior colleagues remember the pain and it is a great way for them to experience the joy of giving.
- Get a basic financial education. Now. This is why I am building The Loonie Doctor core financial curriculum. Understand the impact of financial health, money & wealth, how to earn & spend well, and debt management. Then, make a budget armed with that knowledge. It puts you in the driver’s seat.
As a resident: control or shrink your debt.
- Pay at least the interest on your line of credit. Take advantage of resident interest relief programmes on your student loans. If you chose to do a residency in a high cost of living area, then this may mean not elevating your lifestyle much above medical student level. For those in a regular city, you can probably live like an average Canadian.
- Moonlight, if it aligns with your career and doesn’t jeopardize it. There are more opportunities to moonlight in resident-type jobs now with restricted licenses and all of the human resource gaps. For those later in training with an independent license, then locums not only build skills but also job opportunities. Just don’t jeopardize your training and future high-income career by overdoing it.
- If you have extra money, use it to pay down your line of credit. If you are living frugally and have extra cash, then paying your line of credit is tax-free and risk-free. Excess cash in a high-interest savings account pays a lower rate and it is taxed. If your debt is really low, then there are good reasons to start investing in your TFSA.
Next step: Crush your “crushing debt” as a new attending.
Following the tips above, will better position you for the next phase. Crushing your medical student debt as an early attending. That will be the next post and it will come with more actionable advice. I will delve into ballpark attending incomes and debt repayment to further illustrate that it will be okay. Plus, there will be an embedded to calculator for you to plug your own numbers into. Until then, take a breath. You got this. It will be okay. Seriously.