How to Pay for Medical School

Let's talk about money in med school. I get people asking me now, they come, them or their family, they've got $100,000, $50,000, $150,000, whatever, to use to pay for med school. They're like, should I use it or should I borrow? And it used to be I would tell them, well, use your money first, right? So you can delay how long it is until you take out, you know, interest bearing loans, interest charging loans rather, and so that you can delay that moment and borrow less total, and just be smart financially. Well, the federal government has made a few changes over the years that have made the student loan programs, the federal student loan programs so generous. I don't think that's actually good advice anymore. And it pains me to say this because I hate it that this is true, but I think it is true. I think the right thing to do if you have cash and you're going into medical school is to hold onto the cash and borrow the cost of your education. Now, don't borrow more than you can use for the education. This isn't necessarily an excuse to spend more money, but I think you're probably better off leaving your money invested in borrowing. And even though student loans right now are pretty high, they're 8 or 9% starting this 2024, 2025 year, I think you're better off holding on to the money. I'll tell you why. First, this didn't used to be this way, but this is the way it is now. You basically don't have to take out private loans for medical school. You can just borrow federal loans after a while, they're plus loans, they're not the regular loans. So you pay a little more interest, you pay 1% more in interest. But basically they can all be federal. You don't have to take out private loans anymore. And so all your federal loans, of course, are going to qualify for the income driven repayment programs or for the forgiveness programs which have been made so generous. I don't want to make a political statement about this, but there's obviously some politics behind this. But they are so generous. Now, it's kind of silly to pay for your own school or at least remove the option, have somebody else pay for your school. Right? SAVE is very generous. Now, while your loans do grow during medical school, they don't grow in residency, right? Because you get into the SAVE IDR program and whatever you have to pay, you have to pay $100, $200, $400 a month, whatever it is, and all other interest is waived so they don't grow. It will be no bigger when you finish residency than when you start. And you get to use your fourth year income to set how much those payments are, which is going to be like zero if you're like most people. And so your payments are going to be zero. And so that year of zero payments counts toward public service loan forgiveness. Then you get a couple more payments that are based on that year's worth of payments based on your intern income for six months of your internship, which isn't that much. So your payments will still be small. Then you got a few years of payments based on your resident income, including a couple of years, one or two years while you're an attendee, and then the remainder you make attending level payments. But still those are pretty low with save. And then you can qualify for public service loan forgiveness. And I don't know what the percentage of physician jobs is that qualify for public service loan forgiveness, but given that 78% of docs now are employees, and a lot of those are employees of government entities, you know, state universities or nonprofits, that they're going to qualify for forgiveness. And so if you can qualify for forgiveness, that's going to work out better than paying off your student loans every time. So the beautiful thing about not using your cash and taking out the loans is you have optionality, right? You've got options. You can turn around and change your mind at any time and take that $150,000 or whatever you had. Hopefully it's significantly more now since you've left it invested through med school and maybe residency, maybe it's twice that much now and you can pay off your student loans, right? The only downside is you've lost whatever interest accrued while you're in med school. None accrues in residency. And so there's, you know, the downside is pretty minimal. The upside can be huge. And so I think it's just the right thing to do. Despite the fees on taking out student loans, despite the interest that accrues during school, I think it's the right thing to do. And I hate that that's true. I think the programs are probably a little too generous in that respect, in that there's no disincentive to do that, you know, to just borrow, borrow, borrow. In fact, a lot of people, I don't think this is the right thing to do, but a lot of people are borrowing more money than they really need for med school because they think it's going to be forgiven. Now, you could get burned on that, right? Not everybody matches. Not everybody can get a job that qualifies for public service loan forgiveness, so don't get too carried away with this. But given the generosity and the current state of the program, you can't help but think, if someone else is going to pay for school, why should you be paying for it? Okay, enough on that. When things change, our opinion may change on how that can be managed, but it's pretty generous right now and might as well take advantage of it. Hate the game, not the playoff.

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.