Student Loans Hobbling Future and Current Generations of Doctors

money_educationBack in the days when I was attending college and medical school, the days of disco and bad hair known as the 1970s, student loans were only a part of what was known as a financial aid package.  I was able to pay for those educational expenses through a combination of scholarship (remember those?), low interest loans and work-study jobs.

The remainder of the expenses not covered in this package could be covered by a reasonably paid summer job.  Those were the days, as they say.

After seeing his son’s college bill, one of my colleagues commented to me that the only way someone could pay their way through currently is if they deal drugs, run a porn website, or both.  Additionally, unless your child is a Division 1 recruitable athlete in a major sport, your kid is not getting a free ride anywhere.

If you, as a medical parent, want help with college finances, you and/or your child will need to borrow heavily to get through undergraduate years and beyond.  It is a really unfortunate fact about higher education these days, but its truth cannot be denied.

piggybank_savingThis shift in higher education finance is the reason why I have advocated to all my colleagues (who will listen) that they need to save heavily during their child’s early years to pay for the ever-increasing burden of college expenses.  This is just counting college expenses, and does not include graduate school payments, although the same rules apply.

What you cannot save during the early years, you should suck it up and pay out of pocket while they are in college.  Your children, and your future debt burdens, will eventually thank you for this move.

One of the notable stories in my family involves that day when my oldest son received news that he was admitted early decision to his first choice Ivy League (and therefore not cheap) college.  After we all danced around the kitchen and hugged with joy, I walked my wife over to the kitchen window, pointed to the cars in the driveway and said, ” Do you see those cars in the driveway?”

“Yes,” she replied, looking at me quizzically.

“Good,” I said, “because those are going to be the same cars that will be there 7 years from now when our youngest graduates from college.”  And that was the truth.

collegeWas it painful to tighten the belt for that period of time? Of course.  But after my two sons graduated, there were no further loan money to pay back, and it felt like an enormous raise in pay.

I have read with increasing concerns about the total U.S. student loan debt of over $1.1 trillion. That is more than all of the outstanding auto loans or credit card balances of the whole country.

When I was discussing student loan debt with another colleague, he dismissed my concerns by saying, “Well, the interest is tax deductible”.  Not so fast, Dr. Einstein!

First of all, the maximum student loan interest deduction is $2500.  Secondly, and probably more importantly to physician family borrowers, in order to get the maximum tax deduction, adjusted gross income must be no more than $130,000 on a joint return, and the deduction goes away in a graduated fashion up to $160,000.

interest_ratesSo, in other words, most physician households will not be able to deduct student debt unless they do something really stupid like take out a home equity loan.  As the old car maintenance commercial used to say, “You either pay me now, or you pay me later.”

Unfortunately, when you pay later, you are paying with interest.  Plus, this interest is most likely not tax-deductible, a fact that will eventually affect your future financial obligations like paying off your mortgage(s) and paying for your retirement.

Remember in particular this stark fact of life: No matter how much you sacrifice for your kids in their younger years through college, they will not and cannot fund your retirement.  If you don’t believe me, just wait a few years.

If you do believe me, then that’s a good start.  It’s always best to save money now so you’ll be able to pay later.  You will thank me for it later.

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