Hospitalist Pays Off Student Loans in 2 Years - MtoM Podcast #173

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This is Milestone to Millionaire podcast number 173. Hospitalist pays off student loans in two years at PKA Insurance Group Inc. Pradeep Oddho and Matthew Peterson are are independent brokers focusing on disability and life insurance. They excel in securing coverage for physicians, including those on visas like J1H 1B, et cetera. Protecting your family in the event of a disability or death is important. There's now an A rated carrier offering up to $10 million of life insurance without labs. If you're very healthy with limited or no medical issues, approval is likely in five minutes. Reach out to PKA Insurance to discuss your disability or life Insurance needs@whitecoatinvestor.com PKA 1-800-258-1018 or emailing infokainsurance.com don't forget you've only got a few days left on our student and resident course sale. These are the student and resident versions of our flagship fire your financial advisor course. June 7th is the last day of the sale. These are already super cheap, so students in residence can afford them, but it's even cheaper until June 7th. 20% off. So all of our fire your financial advisor courses, even if you're an attending or you want the one with the CME credits, they're all 27% or 20% off through the 7th of June. Just use the discount code LAUNCH20 and get your written financial plan in place. This course can help you to do it. The course now grows with you. You can upgrade to the next course as you move into the next career phase. And you only pay the difference between the courses each time you upgrade to the next one. All right, our guest today has paid off his student loans. Let's get him on the line. Our guest today on the Milestones podcast is Prejud. Welcome to the podcast.

Thank you, Jim. Glad to be here.

Tell us what you do for a living, what part of the country you're in, and how far you are out of training.

So I'm a hospitalist, I live in the Northeast and I graduated in 2021. So it will be three years next month. Yeah.

Okay. Tell us what milestone we're celebrating with you today.

So I paid off my student loans. August 2023.

Wow. In two years, you paid off all your student loans?

Yes. Still very happy and relieved about that. Yeah.

Yeah. So how much did you owe when you came out of residency?

So I had 155,000.

Okay. That seems really low these days. That's well below average. Average is 200 to $250,000. How did you keep your debt down so far?

So I was fortunate. So the medical school that I went to gave me a scholarship, so that helped defray a lot of the costs with my studies.

Very cool. So between the scholarship and loans, that's how you paid for med school? You didn't have a bunch of money saved up from a prior career, or your parents didn't give you tens of thousands of dollars a year or anything else?

No, no, they couldn't. I'm sure they would have if they could, but they couldn't. Yeah.

Very cool. Okay, so you came out of residency in 21. You're an internist, so you went into residency in 2018. Do you remember how much you owed when you came out of school initially?

I do. I owed 126,000 when I started residency in 2018.

So a lesson here for all you young people who have never been in anything but save, your loans used to grow during residency. That doesn't happen anymore, but typically they would grow during residency and significantly. And so people would come out of residency with 50% more in loans than they had when they started residency. You know, it was a long residency. But yours went up another, what, $29,000 while you're in residency?

Yeah. Residency and medical school. Yeah, Residency and medical school.

Yeah, that's right. Since 2012, loans are not subsidized in medical school either. In fact, that's the only time students these days are having their federal loans anyway. Growing is during med school. Once they get into residency and they enroll in the SAVE plan, their loans aren't growing anymore, which is a really cool feature of the save. All right, so you decided you didn't want to drag these around your whole life. Why was that? Why did you decide to get rid of these in two years?

So, like you said, my debt burden is below the average and definitely my ratio compared to my salary. I figured I wouldn't be able to take advantage of the pslf. So when I was in residency, I thought maybe I could pursue pslf. But as soon as Covid hit during my second year of training and then when I graduated subsequently, I realized I wouldn't be able to benefit from it. So I started to make plans to pay it off as soon as I was able to. Fortunately or unfortunately, because of COVID all the interest rates were deferred, and the payments just kept getting postponed and postponed. So that gave me definitely a significant advantage to save up and pay off before the interest rate started.

So what did you do? Were you saving in a separate account or were you actually making payments?

So I was saving in a high yield savings account. So basically I would save up to 50% of my net income in a high yield savings account every month, waiting for, I guess, when I had enough money or whenever the payments restarted to pay off.

Are you married with any kids?

No, not married, no kids.

Okay, so this was all your decision of what you wanted to do with, with your money and your life. Why did you decide to put up to 50% of your income toward your student loans?

See, like, like you, I think you've probably mentioned in your podcast before as well. I think the, the burden of this debt weighing on me. This, there's a psychological burden and I felt since I couldn't take advantage of any loan forgiveness programs. And when the payments resumed in September, my interest rates were 7.9%. At the time, the Safe plan was still being talked about, but I didn't know much about it as well. So I figured it didn't make sense financial or sense to me to keep, keep this dragged out and it made it a priority to pay it off.

Very cool, Very cool. So did you feel like you had to make any sacrifices to be accumulating that money to pay off your student loans?

I wouldn't call it a sacrifice per se. It's a goal. It's one of the goals that I prioritize to achieve towards. So since I graduated residency, one of my biggest passions or interests were traveling because I didn't travel at all during my time in college or medical school or even residency because of lack of funds. So even during this time when I was saving up to pay off these loans, I was traveling all around, wherever that I wanted to go and enjoy my life as much as I could. So I never really felt that I was sacrificing anything during the, during that time.

What was your favorite trip during that two year period?

Oh, it's a hard one to pick, but I would say I was fortunate to go to Israel and this was three months before everything started over there in October. So it's a beautiful country, very passionate about history, and I think I was very, very fortunate to make that trip at the time that I did.

You sure were. You got in right under the, right under the flag there.

I did, yeah.

All right, well, what advice do you have for somebody else that wants to get rid of their student loans quickly? They want to pay them off in a year or Two or three. What advice do you have for that person?

Not advice per se, I would recommend. I think it's what you priority you have. So someone like me in my situation, I felt paying off my loans made sense and I was at the right time of my life being single to prioritize that and to be able to do that. So if, if anyone is in a similar situation like me and have the means and they're in their point of life where they're able to do that, I would definitely say paying off your debt. And as such, my case with the 7.9% student loans that I had, it made sense for me to prioritize that and pay it off. So that's what I would recommend. But at the same time I would say still enjoy your life. I think every physician or every other professional who listens to us know we made a lot of sacrifices in our 20s, basically devoting ourselves and still do, devoting ourselves to our career. So it's very important to enjoy your life and do whatever that makes you happy as well. So that's also important. Yeah.

Did it turn out to be easier or harder than you thought it was going to be?

I would say I didn't realize it, but when I look back now I look back, I. It was definitely probably maybe a little bit more challenging than I thought it would be because everything was automated. So I had this high yield savings account where I made sure half of my net income went into it. So I didn't even realize at the time this was going on. And then when suddenly I started getting reminders, hey, your student loan is about to be due in September. I looked and I saw that I had the money and then I paid it off. So it wasn't much of a cognitive burden or I would say, I think it just was automated and I put it out of my head and it just fortunately worked out at the right time.

Automation is very powerful. So that's pretty cool that you. That your amount lined up. It doesn't sound like you were necessarily planning to be done in exactly two years, but it just worked out really well for about the time that you were going to start having to pay in 7.9% interest.

Exactly. I think it just happened at the right time and I was lucky to be able to do that.

Yeah. How does it feel to have them gone?

It's amazing. So I was able to also buy a home during that same time as well. So now I think now when I travel, I feel like I could splurge a little bit. More. When I was, I think, saving up to pay off my loans, I was definitely very conscious of where I was staying and how much I was spending because I knew that I had this big debt to pay off. But now I guess I don't feel bad treating myself to, I don't know, nicer dinner or staying at a nicer place or maybe buying something that I wouldn't have bought when I was saving up to pay off my loans.

Yeah, I can really relate to that. I remember having that feeling after paying off a mortgage. I'm like, okay, now not paying for everything with borrowed money because money's fungible. If you're borrowing for your house, you're really borrowing for everything you buy. That money's not going toward paying off that house and same way with your student loans. So very cool. Very cool. Well, what's next for you? What's your next financial goal you're working on? So.

So I've been looking into and, you know, real estate and, you know, syndications, obviously listening through your podcast and reading up on the blogs of the various guests that you have on your show. So I would say that's something that I'm looking towards next to see where I can invest so well, as you.

As you become more and more wealthy, those sorts of things can make more and more sense. So very cool. Well, congratulations to you. Appreciate you. You have done a great job. Paying off loans in two years on a hospitalist salary is no small feat. You should be proud of yourself. Congratulations.

Thank you. Thank you so much, Jim. Thank you.

Okay. Hope you enjoyed that interview. I always think it's great to hear people knocking these things out in a year or two or three years, whether they owe a lot or whether they don't owe that much. It's just nice to have that monkey off your back and be able to go into your career. It just doesn't feel like you've finished med school or dental school until you paid off your loans. And doing that early is something very few people regret. In fact, I can't remember ever meeting anybody that regretted having their student loans paid off within five years. All right, today, let's talk for a minute about buying a house. As a resident, I figure I'm only able to talk out about 5 or 10% of residents who want to buy a home out of buying that home. But the truth is, it's probably not a great idea. There's a lot of reasons why. The good news is sometimes it works out okay. Lately, the last few years has worked out pretty Good for people as homes have really appreciated dramatically in just a few years. And even when it doesn't work out, which is probably the majority of the time for a three year residency, probably two thirds of the time, you end up coming out behind financially for buying a house during a three year residency. But even when it doesn't work out, most people are rescued by their attending income, right? Because yeah, now they're stuck with this house. They're underwater on it, or they didn't make much money on it, or they're having trouble selling it, or now they're a long distance landlord, but their income also quadrupled or quintupled or more. And so even if there's a drag on them, they can handle it. It's not the end of the world. But it still doesn't make it a smart move, right? What people don't get about buying a home is that it's not just about comparing your mortgage to your rent payment. Right? Your rent payment is the maximum you'll ever pay for housing. Your mortgage payment is the minimum you'll pay for housing. There's lots of other expenses associated with owning a home. There's insurance, there's taxes, there's maintenance, there's. Now you need a lawnmower and a snowblower, HOA fees. There's all these other expenses associated with buying a home. But perhaps the most significant ones are the transaction costs. As a general rule, you'll put down about 5%. Not as a down payment, I shouldn't say put down. You'll pay about 5% of the value of the home when you buy it and about 10% of the value of the home when you sell it. Now that's all in. That's realtor fees. That's the cost to fix it up at the end. And they make you replace the water heater as you sell. And it's all that stuff, right? Maybe it's vacant for a month or two. 15% round trip is a pretty good estimate. Obviously an average. Sometimes it's a little more, sometimes a little less. But 15% of the value of the home is what it costs you to go round trip. So if you're buying a $300,000 home, 15% of that is $45,000. If that home does not appreciate or you pay down the debt, $45,000 over the course of the three years you're in it, you will come out behind financially. You don't get much of a tax benefit as a resident for owning a home. It's all about appreciation, overcoming the transaction costs. So the longer you're in the home, the more time you have to spread the transaction costs over. If you're in there four years, five years, six years, it's more likely that you'll come out ahead. If you're in there for 10 years, you're almost always come out ahead owning a home instead of renting it. But it's all about overcoming those transaction costs. So if you happen to own a home in a very lucky time period like 2003 to 2006 or 2020 to 2023. Right. Those sorts of periods of time, everybody comes out ahead. Right? Because the rate of appreciation was so high. But if you own a home from 2006 to 2010 or maybe from 2024 to 2027, it doesn't work out so good. Maybe you can't even sell it at the end. You're stuck being a long distance landlord. So there's plenty of those horror stories. If you talk to older docs, they'll tell you, you know, be a little more patient. It's not the end of the world if you don't own a home during residency. If you need a house with a backyard and a fence for your dog, you can rent that. You don't have to buy it. Now maybe there's some area in the country where you literally can't find anything to rent, but it's not nearly as common as people think it is. Every resident is looking for an excuse while they're an exception. Well, my spouse is also working or I got a little bit more of a down payment or I want to be a real estate investor. And so this is going to be my first real estate property. But the truth is, most of the time these are just excuses. They're just justifications. Look, if you want to buy a house, go buy a house. I don't care. It's not my money. But I wish you'd run the numbers. Something like the New York Times buy versus Rent calculator can help you to run the numbers. Run the numbers and see what's likely to happen. Don't assume that buying always works out better. Don't believe the mortgage industry and the realtor industry that likes to tell you that this is the American dream, to own your own house. Trust me, it's not throwing money away to pay rent. You're trading money for housing. It's no more throwing money away on rent than it is throwing the money away on property taxes or realtor fees or home insurance or mortgage interest. Right? They're throwing that money away just as much. So don't believe these little one liners that make it sound like it's always better to own. Most of the time as a resident, you're probably better off renting. It's more certain cost of your housing. It's a lot less hassle. Something breaks, you're not fixing it, you just call the landlord and they take care of it. And if there's anything you don't have a lot of during residency, it's time and money. And so renting allows you to have better control over both of those things. Trust me, you're not going to be renting forever. You're going to be able to own a home. If you feel like that's the American dream, you'll be able to have it. But don't rush things. Don't put the cart before the horse, and you'll likely be happier that you did so okay at PKA Insurance Group, Inc. Pradeep Adho and Matthew Pedersen are independent brokers focusing on disability and life insurance. They excel in securing coverage for physicians, including those on visas like J1H 1B, etc. Protecting your family in the event of a disability or death is important. There is now an A rated carrier offering up to $10 million of life insurance without labs. If you're very healthy with limited or no medical issues, approval is likely in five minutes. Reach out to PKA Insurance to discuss your disability or life insurance needs@whitecoatinvestor.com PKA. You can also call 1-800-258-1018 or email infopkainsurance.com thanks so much for listening to the Milestones podcast. We'll have another great episode for you next week. Until then, keep your head up, shoulders back. You've got this and we're here to help.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.