<p>Let's say they are the average person who starts med school at age 22. At 26 they graduate and choose a specialty that pays 200k per year, and is a 4 year residency. At 30 they completed their residency and started earning real money.</p>
<p>200k per year taxed is about 175k that they take home. Let's say they have two kids already and their spouse is helping out, and they live on minimal expenses of 40k per year in an apartment just paying rent (no buying house, no mortgages!). (I mean, come on, there are plenty of people who have families and live off of 40k per year, even in cities). Let's say they spend an extra 5k on something else, such as kids or vacation or something. That leaves them off with 130k per year that they can repay in their debt. </p>
<p>They can repay loan in 2 years. Since 130*2=260, and I'm sure they'll have some percent interest, it will be about 2 years that it will take to repay loan.</p>
<p>Then why does everyone say it will take 15-20 years to repay medical school loans? What am I missing?</p>
<p>you are missing the costs of running a practice and malpractice insurance, as well as the fact that that 200k salary isn’t until at least 3-7+ years after graduating medical school with the interest increasing the cost of the loans.</p>
<p>Okay so let’s say the cost of running a practice and malpractice insurance equals another 5k per year. And let’s say you are starting out with a 170k job, so after taxes you take home 148k. 45 on living expenses, and 5k on insurance and malpractice. So that leaves us with 98k per year in pocket money. 98k*2.5 years = 245k. So in less than 3 years it can be paid off. I don’t see why it takes doctors 15-20 years. Why can’t they pay it off in 2-3 years, maybe 4 years tops?</p>
Wow, find me that locality. Marginal tax rate for $200K Federal is 28% plus Social security tax of 7.65% and double that if self-employed. Throw in a state tax of up to 8% in some localities and maybe a local 1% tax. In our area we have an ‘occupation’ tax based on your job and that can be another $500. Run the numbers and you’ll get a reality check…you could be at 50% of that 200K already…</p>
<p>I didn’t include worker’s comp, unemployment taxes,misc. business taxes (often based on gross practice revenues) as well as the cost of running a practice…called overhead…</p>
<p>You’re forgetting interest–which starts accruing at 6.8% immediately upon disbursement.
So adding 8+ years of compound interest, plus loan origination fees (~3% per each loan) adds at least another $100K to the loan amount by the time a physician starts earning enough money to go into full repayment mode.</p>
<p>Also consider, not all physicians make $200K right off the bat. It’s specialty dependent. Some fields–like primary care–make substantially less than $200K. Also COL is dependent on where the physician lives. COL in smaller, less populous areas is less, but so are physician salaries/reimbursements. Some specialties require a physician to live within 10 minutes of the employing hospital–where housing is generally more expensive.</p>
<p>You also left out any consideration for things like: cost of commuting & parking, malpractice, life and disability insurance, business loans (for starting or purchasing a private medical practice), business operating expenses, professional dues and memberships, continuing education & training, etc. </p>
<p>There are additional hidden costs to the physician’s lifestyle. Since a physician’s time is limited, they often do not have time to cook for themselves, do comparision shopping for the best price on groceries, etc. There are also dress codes–so add in “professional dress” and cleaning costs, etc. All the little stuff adds up.</p>
<p>You also did not consider that by the time you’re 30, you may be married and/or supporting dependents.</p>
<p>BTW, malpractice is substantially more than $5K/year. In high risk specialties like OB, depending on location and local tort law, it can easily top $200K/year.</p>
<p>If I could run a practice and pay malpractice insurance for 5K a year, I might come out of retirement. I am a pediatrician and my malpractice insurance alone was about 10K a year. The minimal cost or running a practice is at least 120,000 a year, and a pediatrician with a single physician practice these days would need to have gross revenues of over 300,000 to to yield a take-home salary of 120,000. The OP’s figures simply have no basis in reality.</p>
<p>No I don’t jest, and don’t call me Shirley.</p>
<p>The overhead of running a practice can be up to 60-65%, sometimes higher. Your calculation if take home pay on 200 K is laughable! The point you are trying to make is so far off, given your inaccurate figures.</p>
<p>Kids also cost substantially more than that to raise. HHS estimates it costs the average US family $400K to raise a child from birth to age 18. That’s about $22k/year.</p>
<p>It takes a LOT of differed gratification and a certain disliking for debt to pay it off early. Paying off in 2 years - not a chance. Even a car loan of much more modest sum takes a lot longer than that.</p>
<p>Many family practice and pediatric docs take jobs in the under 100K range to start, working as employees for managed care systems. I’ve seen family practice jobs listed for 55K salary. Nurses make more than many primary care docs.</p>
<p>Even surgical sub-specialists are not making much over 200K the first 5 years. These are folks who have just gone totally broke with 4 years of undergrad, 4 years of med school and 5-6 years of residency. Subtract 50% or more in taxes, social security and Medicare; subtract loan payments, subtract retirement investment and there is precious little left, maybe enough to get the car you’ve been running into the ground replaced with a better used model.</p>
<p>Young doctors look at their college classmates who went into technology, banking, management and business, who have already been out of grad school for 6 years, with nice houses and growing portfolios, before doctors bring home their first paycheck.</p>
<p>Most certainly do not go into medicine for the money.</p>
<p>Done with MS, residency, speciality, etc by 30 years old
200K of which 175K is take home
5K for running a practice and insurance/malpractice insurance
spouse and 2 kids
40K for living expenses
5K for kids and vacations</p>
<p>Sorry to burst your bubble streampaw, but your numbers are totally unrealistic. Don’t go into medicine if you’re doing it for the money.</p>
<p>My H is 55 and we just made his last student loan payment a couple of months ago. He graduated from med school at age 28. Add residency and fellowship to that graduation age and he was 33 before he was done with training. We consolidated his loans when we could and luckily got a reasonable interest rate. When we first started paying back his loans we were paying $1250/month and we weren’t living a life of luxury with money to burn. Add having children and buying a house…it all adds up. We eventually decided to relocate to a less expensive part of the country.</p>
<p>Being that we are close in age, I’m assuming that they were the old HEAL loans. The floating rate was 3.5% plus the average of the 90 day Treasury Bill. In the early to mid 80’s it was 15% or more and the interest accrued while you were in school. Kids in school today don’t realize how good they have it…wait did I just say that?? Oy…
When we went for our first mortgage, the banker was apologetic and said she wanted our monthly loan payment, not our annual one. We told her that was our monthly one, she was stunned ( two professional schools.) We got the mortgage and 14 years later had a party when all the student loans were paid…</p>
<p>Note that the federal government has recently stopped subsidizing loans. At 6.8% per year, that means that first-year medical student loans will be hit with just under a 30% interest rate when they walk off the stage for graduation.</p>
<p>jandjdad - We had a similar funny story when we were refinancing our house a couple of years ago. The lawyer was going over our monthly payments and mentioned that he didn’t see the property for one particular monthly payment. He thought it was another mortgage. My H and I both laughed and told him he was looking at it/him.</p>
<p>bluedevilmike - My son is a rising senior starting med school apps now. The number you shared above is really frightening. He is definitley hoping for one of our state med schools…me, too.</p>
<p>OK, not sure where the calc. in OP came from.
Say, one graduate from Med. School at 26 and start residency. Say, it si 4 years (coulbe much longer). In this 4 years, person would be getting roughply 50k / year. Then, it all depends on location. Some locations might be expansive, you do not have much choices, you will go to the best residency that is offerred to you. Then:
-50k might be barely enough to live on
-50k might not be enough and you need to borrow more
-50k might be enough to pay back about $200 / month </p>
<p>200 x 48 = $9600 which is nowhere close to $200k.<br>
However, keep in mind that while some people might have less in loans, good number has much more, closer to $300K. $9600 even much further from $300k. </p>
<p>I know that even with the income of $150k / year and no additional loans, very low living expances (say, mortgage is all paid, no car loans, living in one of the cheapest locations in the USA…etc.), it is impossible to pay $300 in even 4 years, let alone 2 years, simply cannot be done. That means that if a family (parents) is actually paying for a kid’s Med. School, they better have much more income than $150K or have funds that they can deep into.<br>
2 years pay off is in a dream land as far as I can see.</p>
<p>And lets not forget that for us female doctors, having children is a double hit (as far as expense) since children are expensive and necessitate taking significant time off of work (during the peripartum period at the very least).</p>