“That is ridiculous!” “I’m so sorry.” “That simply doesn’t make any sense!” “That’s more than medical school!” “You have to do the military! There is no other way.” “Why is it that expensive?!” I have heard these statements so many times it is absurd. People say these to me every time I mention the $400,000 elephant. Yes, that is a lot of debt.
The tuition alone for my school is $72,000 a year (I’m out of state.) That’s how much I am withdrawing and for those that are curious if I can claim in-state for the last 3 years… I can not. Here in the state of Utah, the medical and dental students cannot claim residency after the first year of school (Yeah, it’s pretty dumb). However, I am very lucky to have a wife that works hard and brings in enough to pay for living expenses. So I don’t have to withdraw more than the $72,000. Now, there is an extra $25K provided for living expenses. Withdrawing the full amount brings the grand total to $97K in student loans annually.
It is what it is. We will have a lot of debt once we graduate (unless you have the HPSP from the military.) Don’t make us feel bad for being in this much debt.
$400K Isn’t That Much…
Whoa, hold on, what do you mean 400,000 dollars isn’t that much?? That is more than I have ever possessed in my life! Well, this is probably true for most, but hear me out. I was listening to the Shared Practices podcast the other day and the guest speaker made a comment that made me feel more comfortable with this large amount of debt.
The guest speaker was Dr. Howard Farran. He is a practicing dentist in Arizona and the founder of Dentaltown. Anyway, he said something along the lines of “Dental school isn’t expensive…You know what is expensive? Getting a divorce. My first divorce cost me 1 million dollars… and my SECOND divorce cost me $700k! I would have loved to have a settlement of $400K for either of those divorces.”
After he said that I felt a little bit better about the loans I am taking out to pay for school. I also realized that the reason why this number is so large is that I have never dealt with numbers this large before!
While in undergrad I worked two jobs and the checks that I received were roughly $400 every other week. It was extremely difficult to make more than $10k in one year. So of course 400,000 sounds intimidating and bad. That number is 40 times more than I have ever dealt with before. So with that said, our perception causes that number to look extremely large.
Yes, it feels intimidating but if you want to be a doctor you have to take out the loans. There really isn’t any other way.
Good Debt vs Bad Debt
What is so difficult to believe is that not all debt is bad debt. Yeah, turns out there is such a thing as good debt. Well… unless you are Dave Ramsey then ALL debt is EVIL. But this is something I completely disagree with, Debt can be good.
Let’s talk about the good first. If you take out a loan for education purposes, then you are going into debt to enhance your skill set and make yourself more marketable. By doing this you will receive greater returns than you are currently making, which is GOOD. Another good reason for going into debt is to buy a practice or start up your own. The goal with this is to own something that will produce more than you are currently making. Debt in business is leverage for earning more money. Weird concept but it is true when done right.
If you had 400,000 dollars in debt and it isn’t from a mortgage, student loans or business loans that is BAD. Man, that would be straight up horrible. You should never take out a loan (or finance) for consumer purposes. If you don’t have the money to buy it, YOU CAN’T BUY IT. Just because they have a finance plan for the 4k Ultra HD 75″ TV, does not mean you can afford it. Or just because they can somehow find a way to lower a monthly payment for that fancy BMW M3 of your dreams, does not mean you should buy it!
Taking out a loan for lifestyle is bad debt. It is sad, but we are surrounded by a society that views this manner of living as normal. It should not be viewed as normal and should be viewed as stupidity.
Remember debt can be good if it is going to make you more money in the future.
Control The Elephant
Now just because you end up with a large sum of debt doesn’t allow you to justify to go into more debt. It will be easy to justify taking out more loans than that which is needed. How many times have you heard “Ah you are already in so much debt… what is a little more going to do?”
It’s going to do A LOT ok… It is going to develop a poor and bad habit, which will damage your financial future immensely. If you ever want to achieve financial independence (believe me you want this) you cannot form this poor habit.
We can become numb to the feeling of having debt. That insensitivity is extremely dangerous and can become a lifestyle. You do not want debt as a lifestyle. It will become a burden and hinder all other goals you may have.
So remember, it is very important that you take out as little as possible. You should learn how to live on a budget if you’re not doing so already.
I budget to the dime. Once a month we look at our expenses and figure out where we can cut or what we have to add to our budget. At the end of the month, we quite literally have $0 left over. We spend on our needs, save for the future (for gifts or personal expenses,) invest what we can, and do not take out any loans. Also, we have an Emergency Fund that could easily cover our manner of living for about 6 months.
Living on a budget, living within your means and being frugal, will allow you to control the elephant and not have it control you.
What To Do With The Elephant After Graduation
This is all personal and will be different for everyone depending on their situation. Just know that there are more options than just paying back the federal loans you withdrew.
You can Pay As You Earn (RePAYE), you could go for Public Service Loan Forgiveness (PSLF), or refinance your loans with a private lender.
I think you should be somewhat aggressive with paying off the student loans but don’t overkill your payments. After spending on your needs, don’t put all of your money that you have left over toward your student loans.
Instead, save some of it. Build up an emergency fund, max out some of those retirement accounts, save for a future down payment on a house or business. If you are strictly paying off student loans there will be many opportunities that will pass you by.
[Side thought: if you have a credit card balance of any magnitude you should pay that off ASAP. Then put money toward other things like a future down payment, IRA, 401K, HSA.]
No matter how you tackle this large sum of debt, it will disappear and it won’t be a burden in the future. This debt is necessary in order to obtain our goals. Do not be deceived that you have made a poor/dumb choice for going into the profession you desire just because you had to take out 400K dollars to do so. This debt is good debt, not bad debt.
How big is your elephant? Is it 200k, 300k, 400k, or is it more? How do you feel about your student loan debt? Do you plan on refinancing your student loans, why or why not? If you have paid off your student loans, what have you done? Were you aggressive in your payments or did you pay the minimum? Did you do PSLF, HPSP, RePAYE, or IBR? Tell me in the comments below!