Transitions during medical training are a great opportunity to put ourselves on the right path financially. The transition to attending-hood from residency or fellowship is a tremendous opportunity to either mess things up or really set things up to come out ahead in the long run.
Josh and I screwed this transition up initially by inflating our lifestyle too much and then had to correct course by downsizing and paying off debt. So, I’d very much like to save someone else the heartache of downsizing.
So let’s go back to Suzie from our transitions series who has $200k of student loan debt as she transitions from resident to attending. Here would be my best advice for her.
8 Financial Moves for a New Attending
1. Come up with a student loan plan.
At this point, Suzie should know if she’s going into a private, for-profit organization or a not-for-profit 501(c)(3) company. That will help her decide whether she will be eligible for Public Service Loan Forgiveness or not. Let’s assume she won’t qualify for any other grants or forgiveness programs (although there are more out there like National Health Service corps or State Loan repayment programs- they’re worth looking into).
a. If she signs with a Not-For-Profit company
Suzie took our advice and got into an income driven repayment program for her loans which are all direct loans, at the start of her residency (she can find out the status of her loans here).
She now has 3 years of residency and 3 years of fellowship under her belt. Throughout those years of training, she made on-time payments under her IDR plan and filled out the employer certification forms as mandated by the program. Now, she’ll be in a perfect position to finish out the 120 payments needed for PSLF at her new employer.
Keep in mind that she’ll need to work full time until she gets her loans forgiven.
If aiming for PSLF, her goal should be to minimize her student loan payment by decreasing her adjusted gross income. She can do that by:
Maxing Pre-Tax contributions to her 403b (not Roth), maxing 457 (if available and if distribution options are favorable), and maxing an FSA and/or HSA, if available.
Making sure she’s in the right repayment plan BEFORE her salary jumps up. REPAYE payments have no cap so switching to a different IDR can help if there is a super high earner in the family.
Deciding whether filing jointly or married filing separately might be more advantageous.
b. If she signs with a For-Profit company
Hopefully, Suzie’s debt to income ratio is less than 2:1. If it isn’t, she should really consider going the not for profit route or pursuing another forgiveness route. But since her student loan debt is $200k and most attending jobs start around $200k, her debt to income ratio will at least be 1:1 so she will be in a great position to pay off the loans rapidly.
Now, her goal should be to minimize her interest rate and maximize her payments so she can get rid of her debt faster. She can do that by:
Refinancing with a private lender. Due to the current COVID relief package, student loans are at 0% interest. However, that is due to change in September according to current knowledge (as of 6/22/2021). The average grad loans are currently at 5.28%. Private lenders generally offer rates that are a lot lower so refinancing is generally preferable (remember this comes at the cost of losing federal protections in case another worldwide emergency happens).
Signing up for autopay. Most lenders offer an interest rate discount for autopay and it makes the repayment easy, so why not?
Working in employer sponsored loan repayment into her contract (up to $5250/ year can be tax free until 2025).
2. Don’t inflate the lifestyle to full salary.
It should come as no surprise that no matter which path she takes, I would definitely caution her not to inflate her lifestyle, yet. The docs that come out ahead later live way below their means initially.
Here are the key ways to live below our means:
Keep housing costs to <20% of take-home pay.
Drive the same cars or pay for a used car in cash.
Set up a budget and meet for monthly money dates if married.
Keep grocery costs low.
Maintain a 30-50% savings rate
Give yourself a 10% lifestyle inflation raise.
3. Put those savings to work!
Now Suzie has her lifestyle set up to have plenty of cash left over every month to save or invest.
First, she should set up an emergency fund that is liquid and accessible.
If in PSLF: She should save up a 3-6 month emergency fund, contribute to retirement accounts, then invest the rest in a “PSLF side fund” brokerage account. That way if PSLF falls through, she can just take that fund and pay off her loans with it if she likes.
If she’s in rapid payoff now: She should save up an emergency fund (at least the amount of her largest deductible), contribute to retirement accounts, then throw the rest of the money at student loans until they are gone.
4. Get Insured
Get life and own occ disability insurance, preferably before graduating. The younger she is, the less medical history she has, so likely she’ll get lower rates.
5. Make an Estate Plan
If Suzie has anyone counting on her, she should definitely have a will, as well.
6. Set Clear Money Goals
It’s so important to be clear about goals. If we don’t know where we’re going, we’ll never get there. She should make a 5, 10, and 15 year plan for her finances and her life. She should set a goal date for financial freedom. By financial freedom, I mean no longer having to work and being able to live off of investment income alone. For most people, this is what they hope for at age 65 at retirement. A financially savvy physician can get there much faster and then attain true freedom to practice medicine (or not) however they want it. Finally, draft an investor policy statement (check out the investing series for ideas)
7. Automate Success
Automate, automate, automate everything! Suzie should set up autodrafts for as many things as possible. We all have busy lives and demanding careers, the less thought money requires every month, the better. Also, when good money habits are set on autopilot, we are less likely to be pulled astray by fear or greed.
8. Relax and Maintain
If she does the above, Suzie should be able to get rid of her loans in 2-4 years in rapid payoff or in 3-6 more years after finishing training in PSLF. Once the loans are gone and her good habits are set up, she can relax a bit more and enjoy being a thriving, mid-career physician fast on her way to financial freedom!
Stay frugal y’all!
Disha
Standard Disclaimer: For entertainment purposes only. Not meant as individualized financial or medical advice.