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Medical School Debt Is Not Good Debt

What is "Good Debt"?

The concept of “Good Debt” was a little confusing to me as an immigrant. Coming from a country where debt was just not something anyone took on unless they were in dire straits, I was surprised to learn that most Americans had some debt, whether it be house, school loans, or cars. But, over time, I’ve found the that some debt can indeed be good debt.

I came to this realization when we were going through our debt snowball.  A debt snowball is where you start with the smallest debt first (loan A) and pay that off.  Then you take the payment you were making to Loan A and add that to the payments you were making to the next largest debt.  You continue this process until you are debt free, going from smallest debt to largest debt.

We paid off our 2 cars with this method.  Then, the next largest debt was the mortgage on our rental property (around $130k at the time at 3%). My student loans were around $208k at the time, also around 3%.  After that was our primary residence mortgage at $335k. But, we decided to deviate from the snowball and go after the student loans first, before the rental property debt.  Here is why.  

  1.  Rental property is an investment- it brings in cash flow every month and appreciates in value over time.   Being able to buy the property with debt provided us with the opportunity to attain a source of secondary income much earlier than if we had waited to pay for it in cash

  2. Rental property is transferable.  If I lose my job, I can sell my rental property and get rid of that debt (and the income source). 

So, good debt is borrowing that provides us with a “lever” to elevate ourselves while paying for itself easily in the long run.  An investment is something that is expected to either grow in value over time or bring in income in the future.  The theory is that good debt can be kept around safely and disposable income can be spent or invested elsewhere.  

The Generational Difference

The previous generation considered education debt good debt. 

But those were the days when people had student loans adding up to a few thousand dollars with interest rates of 2%.  Now, the average medical student comes out with almost $200,000 in student debt in their 30’s, usually at the rate of 6-8%.  When you are paying over $30,000 a year in medical school debt interest alone, it’s hard to see how that could be good.

Sure, you say. What if I just refinanced and got my rates down to 3-4%? Would it be good debt then?

No, medical school debt is NOT good debt.

Medical School Debt is NOT Good Debt

Why?  Because the value of a medical school education does not increase over time, it decreases.  Like a car that loses value as soon as you drive it off the lot, a medical school education loses value as soon as we get done with training.  Medical knowledge changes and grows every day. That is why we have to do Continuing Medical Education (CME) training after we get done, to stay up to date.  More recently, a medical school education has been exponentially devaluing with the rise of the term “provider”- equating doctors with professionals  who have a fraction of medical school education and debt.  

The only “investment” value of student loans are that they promise the hope of a higher salary in the future.  A medical education does still bring in good income.  But, especially in primary care fields, it doesn’t bring in so much that paying $2-3k a month for student loans is comfortable and painless.  Also, that salary is directly dependent on me working.  I don’t know about you, but I want investments that work for me, not ones that shackle me to a job.

Also, our income is no longer guaranteed.  Medical systems have changed so much that most doctors are not owners of their practices anymore.  Smaller clinics have been acquired by larger conglomerations in order to survive.   Most businesses don’t break even for a couple of years. Who could take the risk of opening their own clinic with a 2-3k student loan bill coming in every month, on top of their living expenses?   

Many young doctors have no choice but to become employees to large cooperations.  If they don’t become employees, they become locums travelling doctors, hopping from town to town to make ends meet and stay out of the grip of administrators.  But those student loan don’t go away if we lose our jobs.  They are ours until we die. If someone lost their job, sure they could put the loans in forbearance, but they would continue to collect interest and would have to pay even more back eventually.  Student loans are a personal loan on our freedom and our time.

Free Yourself of Student Loans

Paying off debt takes the shackles off and gives you more negotiating power as a young physician.  It gives you the ability to build your ideal life.  I recently used my newfound freedom to cut back my shifts a bit and spend more time with my kids. 

So, what are you waiting for?  Pay the student loans off and earn back your freedom.  But I want to invest, instead, you say. You’re a high income professional.  You don’t need to choose between paying off debt and investing. Most of us make plenty enough to max out our retirement accounts AND pay off debt in a hurry, as long as we are living below our means.  

Don’t believe me?  Check out the stories of these doctors that have done just that:

  1. Doctors Free of Student Loans: Dr. Alan Sing 

  2. Doctors Free of Student Loans: Dr. James Turner

  3. Doctors Free of Student Loans: Dr. M. Tran

  4. Doctors Free of Student Loans: Dr. Bonnie Koo

Let’s get after it.

Stay frugal,

Dr. D

Edited to add: 11/14/2019:  Let me clarify- I’m not saying a medical school education is not worth it or that medical school debt should never be taken out.  It is an EXPENSE- a means to an end.   No doubt, it is a worthy expense.  The privilege of gaining the knowledge to save lives should never be forgotten or dismissed.  But, medical school debt limits our options going forward so it should not be left to languish like real estate debt.  I think medical school debt should be in the same category as car loans- buy it in cash if you can.  If you have to take out debt, pay it off as soon as possible or make a plan to get someone else to pay it off for you (PSLF or other loan forgiveness options).  Get out of the feeling of being “stuck.”

Earn back your freedom! 

What do you think?  Please share in comments below.

Standard Disclaimer:  Not meant to be individualized financial or medical advice.            

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