There is a famous economic analysis by William Baumol on the incongruous rise of costs in certain service industries. The original study analyzed the cost of performing a Beethoven string quartet in the 19th century compared to today—it arguable takes the same amount of productivity to practice and perform the piece after two centuries but the cost of performing it has risen by several fold even after accounting for inflation.
There is a similar correlation in education. We’ve seen five-fold increases in many state school tuition costs over the last 20 years, and roughly a two-fold increase in private college tuition in the same time. College itself is big business, with schools in an arms race of accouterments like meal plans, climbing walls, and fancy housing that all contribute to the bottom line of education cost. Have these increases translated to greater productivity in its graduates? Many would argue not.
There are a number of factors contributing to this discrepancy, but many blame the cost problem on the ease of obtaining student loans. Just look at those art history majors who graduate from college with $160,000 in debt and a nice Ivy League diploma with Latin inscription—it might take a bit of time to repay the cost of that degree.
Medical school or mortgage?
Well, it took one of my friends with that art history major twelve years to repay that loan: one year of post baccalaureate studies, four years of medical school, five years of Otolaryngology residency, one year of facial plastics fellowship, and one year of medical practice. In that time, she accrued an extra $200,000 of medical school loan debt!
Medical education, along with dentistry, veterinary, and even some allied health professions tend to lead the pack in having most expensive cost for degree. It’s no longer unusual for medical students now to finish with over $400,000 of educational debt. That amount easily exceeds what most people borrow for their first home mortgage! Some medical residents end up adding insult to injury by taking out a home mortgage during residency. That loan amount will only go up in time, and physician salaries aren’t exactly keeping up.
One of the headaches with such a long incubation period of becoming a fully licensed doctor is that the financial burden compounds. Educational debt doesn’t get forgiven with bankruptcy either. The earnings that doctors eventually achieve are offset by years of accumulating debt. It’s not fun becoming a doctor if you think about the number of years of financial indentured servitude that one commits their entire youth too.
Fighting the cost disease
The healthcare system is struggling to find ways to reduce debt burden. I have had one colleague who tried going through the PSLF program only to make a mistake in calculating what hospitals counted for public service! Another doctor initially going for PSLF ended up having to move his family elsewhere and forfeit the time only paying interest. More recently a bill is being considered in Congress to overhaul the program to simplify requirements. Let’s hope that this will be for the better.
There is an independent movement to get physicians to spend less while saving more, all in the name of sticking it to the man. In principle this is a good move. Medical students and residents who are in the debt accumulation mode have the most control to limit how much they borrow, although it is not easy to expend what little extra energy medical students have left to management of loans. The less that a student could limit borrowing the better control she has to preventing uncontrollable debt from accruing.
In practice, all doctors will face cost disease of life itself in some form in addition to educational debt:
- moving the family while taking a new job
- credentialing costs
- acclimating to a new workplace
- lifestyle creep as outlet from stress
Sometimes the only thing you want to do after an eleven-hour workday is veg out while eating take-out. Imagine having these days two to three nights a week—it suddenly becomes pretty easy using retail therapy to make your life easier. If you are still burdened by your loans, then it becomes more difficult to repay your debt the further out you are from training.
Eliminate your debt quickly
Lifestyle creep will likely happen no matter what. The key is to knock out the big ticket debt (or control it) as soon as you finish your training before the real lifestyle creep settles in. Even after contributing to retirement accounts, most doctors within their first five years out of residency ought to be able to carve out $40-50k of after-tax money to pay down their loans. If you were living on $60k a year during residency, you ought to be able to have some room to go on a $240k salary. Put that towards your debt, and you will have made a sizable dent in your debt in five years. Until the cost disease of education is curbed, it is up to you and you alone to get yourself out of debt.