Most doctors enjoy high salaries, but many medical school students — years from having an income — face major financial strain and stack up debt while earning their degrees.
Including medical school and residency, it can take 10 years to become a doctor, and rigorous training means most med students don’t have time for part-time jobs. Meanwhile, full-time tuition at some medical schools that top the U.S. News rankings can be upward of $70,000 per year.
According to the Education Data Initiative, 70% of medical students rely on loans to finance their education. This financial burden means it takes careful planning to avoid financial difficulties during med school.
Advice Before Medical School
Minimize Credit Card and Undergraduate Loan Debt
You should aim to enter medical school with no or minimal credit card debt and an awareness of your undergraduate loan
status, experts say. It’s important to create a strict budget and consolidate existing loans.
Getting your debt under control is unlikely to “materially change what you are going to have to borrow” for med school, says Ryan Peel, co-founder of The Business of Financial Wellness, but you should minimize your previous loans “because those are loans you will be paying while you are in medical school — and obviously in medical school you are not going to have any income.”
[READ: 5 Ways to Decrease Medical School Costs]
“I encourage all premeds and medical students to think about borrowed money in two buckets: that which is necessary, such as student loans to pay tuition, and that which can be minimized, such as credit card debt,” says Dr. Aanika Warner, who earned her M.D. from Johns Hopkins University School of Medicine in Maryland and has been a practicing internist for one year.
“Credit card debt, if not paid off monthly, can accumulate interest quickly and become an impossible mountain of debt to overcome for some people,” she says. “This debt can lead to increased financial stress and lowered credit scores, which can affect future borrowing.”
Work on Your Credit Score
Work to establish a good credit score before med school in case you need loans or credit during your studies.
“If you have a solid credit score and you need to borrow money, you’re going to get the lowest interest rates and you qualify for more terms,” Peel says. “When unexpected expenses come up, if (you) have the ability, put it on a zero-percent credit card.”
Reconsider a Gap Year
While some students take a year off to work, travel or volunteer before medical school, Sylvan Schwartz III, co-founder of The Business of Financial Wellness, says it’s important to think about how a gap year will affect your career and finances.
Shalin Jyotishi, founder of the Future of Work and Innovation Economic Initiative in Washington, D.C., advises specifically using a gap year to work in a related field of study, earn money and gain experience that will help you after medical school.
However, “if you are using a gap year to travel or to do something for personal enrichment, that’s not likely to help your financial circumstances in medical school and beyond,” he says. “If medical school students aspire to open their own private practice, join a clinical practice or go into hospital administration, (they) need those skills as a medical provider.”
Peel advises against taking a gap year just to earn money, noting that you’d need to earn a significant income in that year to offset much med school debt.
“If that’s the case, you are better off just getting started so you can get practicing (medicine) a year earlier making $150,000, $250,000 or $350,000 a year– whatever it is for your specialty,” he says. “That will do you more justice financially than taking an off year and making $30,000 to $40,000 and paying taxes on it.”
[Read: How to Attend Medical School for Free.]
Advice During Medical School
Minimize New Loans
Taking out student loans during med school is often unavoidable, especially for tuition and living expenses, Warner says.
“Medical school is a full-time job, and students will not have the time or space in their schedules to work at a part- or full-time job,” she says. “In my mind, loans are used to help students until they start earning a salary.”
Look first to institutional loans from schools, which often have the lowest interest rates, Warner says, “then max out the federal subsidized loans before dipping into the federal unsubsidized loans. Ideally, students won’t need to take out private loans, which may have high interest rates and unfavorable repayment terms.”
Peel says student loans can be a double-edged sword. “What I have seen personally are situations where students get a few years into it, and they didn’t borrow enough money on their student loan side or maybe they spent too much on an unexpected expense. I’ve seen it put some people in a very tough situation, almost to the brink of having to declare bankruptcy because they didn’t think that through.”
It’s “a little bit of a balancing act,” Peel says. “Ideally, if you can be responsible, it behooves you to take out a little bit extra than what you budgeted and think you need.”
That extra money can be used for unexpected expenses and to responsibly build a good credit score, he says. He advises using a credit card only for essential expenses that you know you can pay off quickly. “Later, when you graduate from med school, if you have debt and you need to refinance you can — and get lower rates. It’s the same thing if you need to borrow more money.”
[READ: How to Pay for Medical School]
Borrowing a little extra in student loans also makes sense because it’s “probably the cheapest debt (students) can get their hands on, even if they are at 6% or 7%,” Peel explains. “Personal loans are going to be well in excess of that and credit card debt well in excess of that.”
Schwartz says med students need to understand their spending habits and make a habit of saving at least 20% of their income as soon as they graduate and start residency.
“That’s where budgeting can help develop healthy financial habits,” he says. “That’s where most people — regardless of your income — make mistakes when it comes to financial and retirement planning. It’s not because they didn’t get a high enough rate of return, it’s because they didn’t save enough.”
Build Your Financial Literacy
Warner says it was important for her to have a financial advisor throughout medical school and residency “to help me manage my finances the best way, as I was living off student loans and starting to think about repayment.” She says she also signed up for the Public Service Loan Forgiveness program.
“I think one of the most critical things that students can do as early as possible, even in high school, is to have financial literacy,” says Jyotishi, who recommends med students seek information from the National Endowment for Financial Education.
“Medical school students taking a class in personal finance in undergrad or doing some soft study online is almost as important as a prerequisite as organic chemistry in your biochemistry lab.”
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Ways To Avoid Money Problems in Medical School originally appeared on usnews.com
