Grad student loans: a three decade commitment

If you want to have student loans for thirty years, you can! If, on the other hand, you’re curious about the benefits of paying them off sooner, consider this run-down from The White Coat Investor. In this article I’ll share some ways to minimize your student debt to begin with. Jump in wherever you are in your own educational journey, by skimming for headings. If you minimize the loans you take out, it’ll be the much easier to slay them later!

There are countless resources available for each individual’s repayment scenario, from the best place to refinance, to the mechanics of public service loan forgiveness.  Your journey won’t look exactly like mine. My hope is to inspire you to adopt this financial goal, if you haven’t already. The following is a victory lap, er, recounting of how I did it, including the mistakes and wins along the way.  

1. Do what you can to minimize undergraduate debt.

Tuition at many private institutions now tops $50-60 thousand per year. Before signing up, reconsider your options. My mom and aunt attended Rutgers, the State University of New Jersey, so as a soon-to-be high school graduate, I thought I wanted to go somewhere more exciting, farther from home. I looked at Ithaca College, a private school in upstate New York, and Lehigh University in Pennsylvania.

Then I visited Cook College, next to my mom’s alma mater, Douglas, and really liked it. I could earn a science degree among Food Science and Animal Science majors! Cheese Wiz was invented here! With campus located an hour and a half from home, I’d still be able to test my independence.  Enticingly, Rutgers automatically slashed tuition according to a student’s high school class rank and SAT score. This was free money. With the help of a part-time job and a small stash of leftover child support, I left college debt free.

2. Choosing a Graduate Program

At the age of three, I told my Aunt Marie I wanted to be a surgeon.  In high school, volunteering in a local emergency room, I wanted to be a physician’s assistant or physical therapist, as I saw people who looked like me (women) working in those roles.  By sophomore year of college, I realized I was smart and motivated enough to become a medical doctor. I applied to a joint BA/MD program with UMDNJ, the University of Medicine and Dentistry, across the river from Cook College. I was selected, and thus had the privilege of taking first year med school coursework during my junior and senior years of college, helping to minimize my future student debt.

The campus bus shuttled me back and forth between college and medical school. Some courses even counted toward both degrees.  I took the first year medical biochemistry course, and passed by the skin of my teeth. Toiling to improve my performance paid off. I could matriculate as a true second year medical student upon graduating from college. In addition to pushing my academic limits and introducing me to my older, more sophisticated new peers, entering the BA/MD program saved me at least twenty thousand dollars and a year’s time.

3. Grad School Admission Savings

The MCAT, the medical college admissions test, was not required to apply to the BA/MD program, so I was spared having to prepare for or take it. This saved time and money. Instead of paying application fees and traveling around the country to many medical schools, I applied to one.  Some students with early or strong applications could consider conserving resources in this way.

Before embarking on a prospective career path, compare the ratio of the anticipated educational debt to the expected yearly income. On The White Coat Investor Podcast, Dr. Dahle explains this concept, in the context of a orthodontist whose student debt grew to surpass a million dollars. Episode 59 of the podcast, entitled “Is Dr. Mike Meru Crazy?” expounds on the utility of this analysis.  Improve the debt side of the ratio by attending the highest quality, least expensive schools available. Having an idea of this ratio will help to determine how quickly you’ll ultimately be able to repay your loans.

4. Think of student loans as a mortgage on the mind

Two brilliant students got full scholarships to Robert Wood Johnson Medical School each year, and some students were financed by family. I was not in either camp. With the benefit of the BA/MD program, however, my final debt landed at the class median that year. By taking steps to minimize my student debt along the way, I got my Medical Doctorate owing one hundred thirty-six thousand dollars.

5. What about your own healthcare?  

Before the days of remaining on a parent’s health plan into one’s late twenties, I had a catastrophic insurance policy. This would cover fifty thousand dollars of care, should I land in the hospital from too much Jungle Juice. For health maintenance, I utilized the college’s student health center. It was free. Later, I got exams at Planned Parenthood. I continued to use their services through residency, benefiting from their sliding scale payment model. Since a graduate student in 2018 is likely to age out of their parent’s health plan, a contemporary approach to healthcare coverage during this stage may include a heavily subsidized health plan on a public exchange, or a high deductible health plan with a health savings account.    

6. Weigh the cost of being a resident in an expensive city.

I interviewed at many programs in and around New York City, but  worried about the high cost of living. It would be exciting to live there, but not as a poor resident. There would be limited time and money for experiencing the city anyway. So I ranked the best training programs on my list, which were located in lower cost of living areas, to help minimize my debt burden and maximize my chance of getting ahead financially. 

7. Don’t fall for forbearance.

A couple of years into residency, my loan servicer notified me I would soon enter repayment. I had hoped the balance would sit there until the end of training, like a sacred offering to the education gods. But given the choices I’d made so far, I had some extra money, and I started paying. I rented a drafty apartment in a historic building. Furnished with a couple new things and Craigslist finds, it was comfortable, and within my means.

A co-resident, on the other hand, lived in a polished apartment with matching furniture, in a trendy building nearby. So I was surprised when I found out his student loans were in forbearance. He felt unable to start repaying his loans during residency. Some residents don’t realize that in forbearance, interest continues to accrue and compound. It may seem the lender is granting a temporary forgiveness with forbearance- but it doesn’t come for free. It is a trap which leads borrowers to pay a greater amount interest over time. If you can start paying your loans during residency, I recommend it. 

Confused about your loan repayment strategy? Use the free calculators, or book a consultation with Student Loan Planner. 

8. Avoid consumer debt.  

Between intern year and the start of residency, I had one week to move across the country. Sadly, this meant letting go of my first car, a trusty ’96 Honda Accord. I sold it on Craigslist to an elated teen boy. Meanwhile, on the East Coast, my mom found me a lightly used Mazda for twenty thousand dollars. Could I have purchased a cheaper vehicle? Probably. Mom’s influence meant I got one nearly new, and fully loaded, to match her “you deserve it” mentality. Owning the Mazda outright became one of my earliest financial goals. I paid it off as fast as I could, and drive it to this day, 10 years later.     

Technology has brought about wonderful opportunities to save on expenses like transportation. Today, even someone with limited time or in a remote area could peruse countless used vehicles on the internet. Development of ride share services, available within minutes via the ubiquitous smart phone, make owning a personal vehicle unnecessary in some places. If I found myself in a small city like Providence again, I could get rid of my car, and rely on a combination of bicycle, Uber and Amtrak.   

9. Scale Debt Mountain. Slay the debt dragon.

Interest rates from the first half of medical school in 2005-2006 were consolidated at 2.5%. Loans from the clinical years were fixed at 4.5%. A private loan for residency interview expenses topped 7%. Sadly, today’s higher education loans can reflect an interest rate closer to that of my private loan. It’s no fun to look at these enormous balances, which barely seem to budge in the face of regular payments. I plodded forward, initially paying mostly interest, and throwing extra funds toward the principal balance when I could.

I attacked the highest interest rate, while paying the required minimum amount on each of the remaining loans. By focusing on the most expensive loan, it became satisfying to see the balance decrease with my successive overpayments. When the private loan was eliminated, I took a breath, and set my sights on the federal loan bearing the next highest interest rate.

10. Find money on a resident’s salary.

The average resident now earns $59,300 per year, according to Medscape’s 2018 Residents Salary and Debt Report. This is close to the median US household income of sixty-one thousand per year. Yet some residents struggle to repay their loans. I can tell you some of the things I did to squeeze that resident salary, and minimize the effect of capitalized interest on my student loans.

We got a small meal card allowance for the hospital cafeteria each month. Once it was used up, I ate whole wheat peanut butter and jelly sandwiches for lunch. It was cheap, easy way to fuel me. After stacking multiple sandwiches in the freezer, I grabbed one on my way out each morning, and it thawed in my bag by lunchtime. Occasionally I splurged on lunch at Au Bon Pain, but my default lunch was PB&J for two years.  

How did I minimize my expenses in training? I did not have a gym membership; I exercised outside. Living in downtown Providence, I was located about 4 miles from the hospital. Therefore, I walked or biked many places instead of driving. I was close enough to the train station to walk with luggage for a weekend get away. I did not subscribe to satellite radio, or have a TV. Therefore, I had no radio, cable, Tivo bills. A friend of mine, also a resident, struggled with Tivo addiction. It saved her time, she said, not having to watch commercials. I did not start a family. I bought no property. Abstaining from these activities helped me accumulate cash so that I could hit my loans again and again.

Getting out of my apartment

I read a lot in residency, and was often more productive when I left my apartment. I realized I could use the library at the Rhode Island School of Design because of my affiliation with Brown University. This cavernous space, formerly a grand bank building, was located just a few blocks from where I lived. There, I could study with a city view through beautiful domed windows, in a gorgeous space funded by other people’s tuition money.  

Latte factor

I never developed an espresso habit, at four bucks a drink. When I went to a coffee shop for a change of scenery, I’d buy a drip coffee or tea as the price of admission, and loiter for hours. I imagined myself a sort of trainee-vagabond. Fortunately, my good friend and study buddy was a like-minded, frugal girl who didn’t peer pressure me to spend more, or to buy the sad, overpriced convenience food.   

Meals and entertainment

Another perk of residency, Brown paid for a meal out, if we signed up to accompany applicants to dinner during their interviews.  We could attend as many of these events as we wanted during interview season. We could order a drink, plenty of calamari, and a piece of fish or steak, without having to pay for any of it. Sometimes, the night devolved into a boozy comedy, resulting in a funny or embarrassing story to recount over the coming weeks. This was free entertainment.

When I traveled to New York to visit friends, I slept on their couches. I spent extra for the business class train ticket, as it was far quieter and more comfortable than a standard car.  This meant I could meaningfully study or catch some sleep on the ride. Since both were needed throughout my training, I spent the money with intention.  

11. Prepare for fellowship

After residency, my boyfriend and I drove to Los Angeles to embark on a fellowship year at UCLA. We needed housing in short order, and we pounded the pavement on a high pressure search. In a gentrified area of West Los Angeles, central to the three hospitals I would need to get to, we found a rent controlled flat in a concrete 1960s apartment block, for thirteen hundred fifty dollars a month. It was a steal.

We shared my car, meaning I biked to work each day, and Bob slogged through traffic, trying to build his business as a self- employed musician and music teacher. We often cooked at home. When we ate out, it was often at an inexpensive street vendor, or a noodle bar within biking distance. Since I worked forty to eighty hours per week, there was little opportunity to spend money, and we ended up saving money throughout the year.

12. Consolidate the loans & stay cheap.

By the time we relocated to the Southern California desert to begin my first “real job,” my pay was set to increase five-fold. I refinanced with a popular Bay Area servicer. With fifty-five thousand dollars left to go, I reduced my term from twenty-five years to five. My payments increased to north of eight hundred dollars monthly. I seized the variable rate of just under two percent. Knowing the rate could increase put my feet to the fire. I could have chosen a fixed rate around three percent, but I was hungry for the kill, and greedy for the lower rate. After a couple of years, even the five-year term began to drag on. I received regular notices of tiny incremental rate hikes. I hit my principal balance again, with five thousand dollars here, seven thousand dollars there.

Instant gratification

You can make paying your loans gratifying, by changing the way you think about it. Paula Pant, founder of Afford Anything, a financial freedom blog and podcast explains how, in her post, “17 Lessons to Improve Your Money & Your Life.”  Under heading #3, “Never Delay Gratification,” she describes how to reframe beneficial activities so they become inherently satisfying.  When making a payment on my loans, I thought of the instant “return” on my money, realized by reducing my principal balance, and thereby the amount of interest I would have to pay moving forward.  

Still paying your student loans? Eat free food!

Doctors eat for free where I work. It is easy to take advantage of this perk, given my long hours, and ample working weekends.  Some days, I eat three square meals in the cafeteria. This has saved me thousands of dollars per year, freeing up money to pay off student loans.   

Stay motivated to eliminate debt.

Catching up with an old roommate over the phone, I was flabbergasted to learn she had paid off her student loans, totaling over one hundred thousand dollars, just two years out of training!  I thought I was working hard on vanquishing my loans, while she had already reached the finish line. A competitive spark flashed within me, and I found myself re-energized to obliterate my balance.

Some months later, I was a new parent, and my loan balance had finally fallen to four figures. I decided to make the final payment. Feeling like confetti should have fallen from the sky, I paid the remaining balance.  The next screen noted a confirmation code, and that I’d receive a confirmation letter by mail. That was it. Three and a half years out of training, the mortgage on my brain was paid.

There were a thousand small financial decisions along the way.  I certainly benefited from the advantages of a middle class upbringing in a suburb with good public schools.  I stayed in-state for a low-cost, high quality secondary and graduate education. Given the advantages I had, what could I have done differently to better optimize my debt strategy?  

Mistakes I made in debt pay-off

I could have reduced the number of residency and internship interviews, thereby reducing the amount of private loan funds needed for the associated travel. Many were within driving distance, but some required a flight. Thirteen radiology residency interviews later, I could have gotten away with fewer. I was driven by the desire to experience living in different parts of the country while I was unattached. Should I have chosen to move around less during training, I could have saved money. I might still be driving that 1996 Accord!

During training, I bought several new pieces of furniture to help me feel rooted. I was putting a band-aid on my loneliness, trying to placate myself through the competitive years of residency. When the four years ended, my parents took some of the furniture to New Jersey, and I liquidated the rest on Craigslist. In the end, I valued exploring new locations over keeping my possessions. And I paid for it.

I lived alone in residency, and was not organized or motivated enough to optimize my housing costs. Monthly rental for a studio in a crummy neighborhood was eight hundred dollars. I later moved to a larger apartment in a safer location, paying twelve hundred fifty dollars per month. If instead, I’d bought a condo or small house, I could have paid my mortgage with the help of roommates. This idea has been dubbed “house-hacking.” Chad Carson is a master in real estate, who started by house-hacking with his wife. He describes his methods in Episode 16 of the ChooseFI Podcast, entitled, “House Hacking with Coach Carson.” Short of house-hacking, I could have gotten roommates to reduce expenses and minimize my student loans.

Lifesyle inflation

On relocating, we rented a condo in Palm Springs for two years.  I drooled over the beautiful homes around us. We found a house that checked all our boxes. It even had solar panels, to offset the cost of air-conditioning six months of the year.  Now, a couple years into homeownership, and with a recent plumbing disaster under our belt, I can say that owning is leagues more expensive than renting.  Between episodes of maintenance and repair, we truly enjoy it. We have friends over often, and even hosted a house concert. It is an enjoyable, though certainly not a frugal way to go.

My husband and I traveled to Europe twice before my loans were paid off. After fellowship, we took a three-week trip through Eastern Europe. We were housed and transported about by family in the Czech Republic for part of the trip, while we spent the rest on a sailboat in Croatia, island hopping with friends. We saved here, and splurged there. In the end, minimizing student debt was key to my success in paying it off.

I am sometimes haunted by my student debt.  

Recently, I had the startling realization that I hadn’t paid my student loan bill in a while… I momentarily panicked. Then I remembered that that bill was gone forever.

How will you feel when your student debt is history?

Now, take action: Make a plan for those Student loans!