Is Medical School Worth the Cost?

 
The decision to attend medical school, assuming you have the grades, scores, and experiences to gain entry, is not one to be taken lightly. The costs in terms of time, youth, and opportunity cost are enormous.

Jake Tabbot of Med School Tips reached out after running some numbers to try to determine whether or not it might be worthwhile from a strictly financial perspective.

Obviously, there are many other non-monetary reasons to pursue the profession, but the question posed is an intriguing one. Is it better to get a good job right out of college? Can that lost ground ever be made up? If yes, when does that crossover point occur?

The answer depends on the inputs, but I think our guest author did a good job creating a framework to answer those questions. We have no financial relationship to disclose.

So Jake, is med school worth it, financially?

Is Medical School Worth the Cost?

 

Being pre-med in college, I consistently heard horror stories about the crippling debt medical school put its students in. And, to be completely honest, this really scared me.

Do you know how long it takes to become a doctor? At least seven years (four years of medical school and at the minimum three years of residency) after college. That’s at least seven years until you will start receiving actual doctor paychecks that will make a significant dent in paying back those loans.

I genuinely wanted to become a doctor but was hesitant to do so because of the financial burden it would place on my shoulders.

At the same time, I kept hearing how great software engineers had it financially. Promising much less debt and high salaries, people spoke as if software engineering was a superior option to medicine.

So, I actually sat down and did the math to determine which option (becoming a software engineer vs. becoming a physician) is better from a financial standpoint.

Below, I’ve outlined some assumptions (for engineers and physicians) that I needed to do this.

 

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Physician Assumptions

 

Let’s assume a student starts medical school when he is 24 years old, the average age of entering medical students. And, let’s also assume that after four years of school, he will rack up the average amount of medical school debt, $190,000.

I estimated that the interest rate for this loan will probably be around 6.6%, the current federal direct unsubsidized loan interest rate for graduate students.

To determine how much this doctor’s income will be taxed, I used a tax calculator for Missouri residents (because different states tax differently, and Missouri’s income tax was pretty average compared to other states).

I assumed residency will pay $68,000/year (the average resident pay in the US according to glassdoor.com), and that an internal medicine physician will make $260,000 a year after residency (the average internal medicine physician pay in the US according to glassdoor.com). After accounting for taxes, the resident will take home $52,000 a year, and the internal medicine physician will make $171,000 a year after taxes are paid.

Finally, I assumed that this resident/doctor will need $25,000 a year to cover other things necessary in life (housing, food, etc). This is probably a bit too frugal for most people, but for the sake of making things simple let’s just go with it. This means this doctor probably doesn’t have to make mortgage payments on a house and doesn’t have children to spend money on.

 

Time to Financial Freedom for a Physician

 

After graduating from medical school, the physician has a good amount of debt to pay off. For each stage of the physician’s career, I calculated how much he could contribute towards his debt. Here’s the equation I used:

income after taxes – cost of living = available cash

For the three years of residency following medical school, the resident will have $52,000 – $25,000 = $27,000 to throw at his loan.

After residency, the physician makes significantly more money. He’ll have $171,000 – $25,000 = $146,000 a year in cash to pay down that loan.

Knowing these two things, how long will it take the physician to pay down the initial $190,000 medical student loan? The math is actually slightly complicated, because the total amount this physician owes will depend on the principal of the loan ($190,000), the interest rate (6.6%), and the time it takes him to pay back the loan. The longer it takes this physician to pay back the loan, the more money he owes in total.

Because the math is complicated, I used a loan interest calculator and some guestimation to calculate the answer. I ended up with a little more than four years. That includes three years of payments while in residency, and one year (and maybe a few months) of payments while an actual doctor.

Just to give you an estimation, this physician will end up probably paying back $27,000 * 3 + $146,000 * 1 = $227,000 ($190,000 principal, and ~$37,000 in interest).

Therefore, if the physician were 28 years old when he started residency, he would then be 32 years old when he was finally debt free (28 + 3 + 1).

Although, this is probably the best case scenario. Can residents and doctors live off of $25,000 a year? Do they have the self-control to spend the rest of their money all on paying back that loan? There are a lot of variables here.

 

Software Engineer Assumptions

 

We’ll make similar assumptions for our software engineer. I assumed this software engineer makes $115,000 ($82,000 after taxes), the average pay for software engineers in the US.

I also assumed he would start working following college graduation (at 23 years old), and that he would similarly need $25,000 a year to live off of (for housing, food, etc). I also assumed he did not go to any type of graduate school (and therefore had no debt).

 

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The Final Calculations

 

So, which career is better? The software engineer starts saving when he is 23 years old. And, the doctor starts saving when he is 32 years old (after he has paid down his debt). Therefore, the engineer has 9 years of saving before the doctor starts doing so.

Although they start working at different time periods, the doctor and physician both save and do so at a different rate.

income after taxes – cost of living = savings rate

Doctor yearly savings (starting at age 32) = $171,000 – $25,000 = $146,000

Engineer yearly savings (starting at age 23) = $82,000 – $25,000 = $57,000

Since the doctor makes more than the engineer, though, eventually he’ll catch up. I used the following algebraic equation to find the age (a) at which the engineer and doctor have saved the same.

(a – 23) * 57,000 = (a – 32) * 146,000

solving this yields a = 37.7

Therefore, when the doctor is 38, he will be in a better position financially than the software engineer.

 

 

Conclusion

 

Originally I was scared the physician’s debt would be a huge burden. But, this doesn’t really seem to be the case. The physician in this scenario appeared to have the ability to pay off that debt in four years if he lived frugally, and quickly caught up financially to the software engineer by age 38. Physicians definitely appear to have it better financially.

However, I want to list some things here that I didn’t cover to make my calculations easier. These things might make a big difference.

 

#1: Average Salaries

I used average salaries for both the doctor and engineer. The doctor probably wouldn’t be able to pay off his loan as quickly because he will most likely make less than the average $260,000 when he first starts out. He would also pay more back in interest for that loan if this happened. The engineer also wouldn’t have saved as quickly.

 

#2: Complex Math

The math was complicated for estimating the payback for the physician’s loan. Also, the loan interest rates might be different. I made an estimation, so please do your own calculation to confirm.

 

#3: Debt Varies

The debt of a medical student varies widely by school. Some schools charge significantly more for tuition. Certain schools outside of the US, such as Caribbean medical schools, also sometimes have higher tuitions.

 

#4: Liability

Doctors have the potential to get sued (which could hurt them financially). [PoF: I can verify this to be true.]

 

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#5: Stock Options and Other Perks

Engineers oftentimes receive stock options which could grow significantly over time depending on the company. The engineer also might have invested some money on his own (which would probably grow, such as in a 401k) during the years the doctor was still in school/residency/paying off his debt. The engineer could have also received a yearly 401k match during this time period.

 

#6: Lifestyle Inflation

The doctor might not have been able to live as frugally as he did and pay off his loan in 4 years. A longer timeframe (10+ years) seems more likely to me.

 

#7: Specialist Salaries

Specialist and subspecialists tend to make significantly more money than primary care physicians (although they oftentimes have longer residencies).

 

#8: Job Stability

A physicians career is more stable, and there is also probably less chance of outsourcing a doctor’s job in the future.

 

 

All of these things could have significantly affected the calculation and conclusion above, and therefore it’s really hard to say with certainty how much more financially lucrative being a physician is over an engineer. However, it’s nice to have a base estimation to go off of, and it appears that doctors have it significantly better financially in the long run.

Obviously, you shouldn’t be going into medicine for the money. But, at the same time, please don’t let the debt scare you. If you live frugally you will most likely be able to pay your loans off relatively quickly.

 

[PoF: Another factor that would change the math is having the software engineer work physician-like hours. Depending on the assumptions, I’m guessing that break-even point would be pushed back at least 5 to 10 years.

You can see this play out in Dr. Neil Baum’s post entitled If doctors wanted to be wealthy, they would have become UPS truck drivers.

Nevertheless, I am happy with the career path I chose, and by earning the salary of an anesthesiologist in the upper midwest, I realized I was financially independent at the age of 39. Would the same have been true if I had pursued a career like software engineering? 

There’s no way to know, but I’m pleased with the way things have worked out.]

 

 

If you chose medicine, was it worth it for you? If you pursued a different career and started earning a paycheck early, do you have any regrets?

18 comments

  • Lordosis

    There are a lot of variables making this a hard comparison.
    Why no undergrad debt? Both likely will have some. This would hurt both financially but hurt the lower earner more.
    I get that you used averages but if the engineer starts at 23 then med school should as well for comparison sake.
    You did not factor in the time value of the money. The engineer starts saving early and that money if invested is worth more. A straight savings comparison is less useful.
    There is usually a ramp up to the average salary. With most physicians it is 2-4 years. I have no idea what it is with engineers but I imagine it is longer.
    I do not think a doc is going to live on 25k. And neither would an engineer making 6 figures. They could and should while they gave loans but less the 1% will.

    I like what you are trying to do here and I think your conclusion is correct but I think the specifics would be different.
    Thanks for the post!
    Happy Independence day!

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  • bill

    FYI I live in the same town as one of Intel’s facilities. Every person I know who retired early worked for Intel or a company that was bought by Intel with well over 10 million USA $ in assets (usually Intel stock) at the time they retired (in their forties). Some have have 50 foot yachts and drive Range Rovers. They seem extraordinarily happy.

  • Dan

    If assuming the engineer starts saving/investing his $57k, and it earns the same 6.6% avg return (matching the debt rate for convenience), he will have around $576k saved by the time the doc starts saving his $146k.
    Its then you solve for the number years to breakeven. Doing so under the assumptions used is roughly 10 years, or when the doc is 42.
    Best to use $ vs % for this math word problem

  • I would say that for the vast majority of physicians it’s more than worth it from a pure money perspective if you love what you do. If you view your education as an investment, you’re paying 200-300k for a 200-300k salary for 30 years. Not a bad deal. Many people will cite the tech folks who make millions or MBAs who become CFOs who do the same. For every C-suite MBA pulling a high 6 to 7 figure salary there are many who are scraping it out in cubicle drudgery. So it’s less of a guarantee than in medicine where the overwhelming majority of us are making in the low to mid 6 figure range.

    I do think at the margins (low paying speciality, high cost of living, high loan burden) this does start to breakdown. Consider the pediatrician living in NYC making 130k, with 200-300k of loans. That’s a bit of a raw deal…

    I blogged about this years ago (when I though one day I could be a superstar blogger like you and WCI etc).

  • Pete

    The last physician I asked had been in practice six years and had reduced a $200,000.00 student loan to $190,000.00. So much for theories!

    In reality, I think it is MUCH harder to focus on debt because of pent up demand for upscale vehicles, homes, and toys not affordable while in school. Easy access to cash and loans make purchases and debt increases more likely in many cases.

    I hate to rain on anyone’s parade, but welcome to the real world.

    In either case the physician should be better off eventually due to the greater earning potential. My explanation may resolve the fact that many physicians are still working in their later years because they have to, not because they want to.

  • Guls

    Engineer has a 15 yr head start in retirement contributions. I’d like to see the calculations for this. I tell my pre-med college students to consider CRNA school: less debt, less time, still medical, and in our neck of the South pay in the private sector is 250-300k. And they get to work with those fun loving anesthesiologists!

  • I’d like to see the same analysis run for someone in finance/banking. By the time the Physician becomes an attendee, the high performer in finance should be making the same compensation.

  • If you want to become a doctor, the question is moot. Just become a doctor and you will be fine just like all the rest of us. There are occasional ones who struggle in every profession, including ours. Happy 4th.

    Dr. Cory S. Fawcett
    Prescription for Financial Success

  • Interesting simulation and you’re right, there are lots of things you can’t include in your calculation. All things being equal, having a higher income means you have more flexibility and have a better chance reaching FIRE despite having debt and starting out later in life.

  • The answer is obvious. MMM retired on 1M. He says 1.3M is super safe. That’s what software engineering gets you. PoF retires on 3.3M+ with a similar super safe WR That’s what being a physician gets you. Total work time less debt service is probably similar

    I don’t believe in paying down this kind of debt too aggressively. Your return is determined by time in the market and your time in the market if you start stashing at 30 yields a much bigger end of life projected nest egg (say age 90) compared to the same stash starting at 35, again out to say age 90. if you retire at 57 after stashing the same amount all those years and then start withdrawing at 57 your age 90 total portfolio starting at 30 would generate 3M more than the same retirement with saving starting at 35. So for saving a few bucks on interest you loose a big chunk of lifetime earning

    • I may be leaving the profession, but I don’t have any regrets with the choices I’ve made. I have no idea what my life would be like in a parallel universe where I took a different path, but I love the life that I’ve got.

      Cheers!
      -PoF

  • I agree that although the doctor will owe significantly more and have a delayed start by the time he or she starts earning an attending salary, the higher income will eventually swing the pendulum in the doctor’s favor.

    There are some things however that definitely can complicate this scenario and possibly tip the balance away from the physician: Medical school tuition is rising far higher than inflation (6% or so), and medical reimbursement is trending downwards. Specialties such as radiology have had RVUs cut dramatically and thus doing the same thing pays less.

    There are also some who question if physicians can even be replaced with artificial intelligence: radiology, anesthesiology, pathology, and even dermatology have been cited as the first line of specialties likely to be affected. And given administrators are looking to cut costs, there may be less demand for physicians as more and more care is assigned to mid level providers, etc in a cost saving move.

    For me the #s far tilted the balance in my favor as I am in a very high income specialty, I graduated with $160k loans (although it took me 22 years to pay them off).

  • MDDPT

    A couple of things:

    1. I think the “average medical student debt” is artificially low. I think a sizeable number of medical students have a physician (or two physicians) as parents, who cover a chunk of their undergrad +/- medical school. I do not have statistical evidence to back this up, just anecdotal evidence coming from one of the largest medical schools in the country and talking to a lot of my colleagues who do have loans. My suspicion is that among those medical students who require loans for medical school the debt is well above $200k.

    2. $68,000 a year seems high for the “average resident salary”. Again, this is anecdotal, but coming from a program in the midwest (typically higher paying than east/west coast) that is what a PGY-7 makes. That is into fellowship for most specialties. Factor in that a lot of residents have delayed gratification and now have (nonworking) spouses + kids. The assumption that residents will live frugally on 25k a year + not have a dependent spouse/kids is being kind (or naive?). That means much less to put towards loans during residency. Many residents I know are paying less towards their loans/year than the interest they are accruing. So loan totals are going UP in residency, not down.

    • Regarding #1, the AAMC survey does not include students with 0 debt in the numerator or denominator. It’s the average among indebted students. It does, of course, include students who had plenty of help, but still took out some loans.

      The White Coat Investor just published a bunch of data on this.

      I don’t know the current residency salaries, but they do vary quite a bit by region. I started at about $37,000 in the upper midwest, but that was 17 years ago.

      Cheers!
      -PoF

  • James

    It’s not worth it. Most doctors sacrifice their youth and vitality for their careers. That’s fine if science and the pursuit of knowledge and skill is all you aim for in life, but most would say that’s not a life. We make these useless financial comparisons because we are all shaped by the capitalist society and we think currency defines success and happiness. Humans are designed for love, movement, compassion, reproduction, etc. Most doctors start their family in their 40s, burnt out, high risks of infertility, significant health issues of their own, no energy to raise their own kids or take care of their loved ones. Why is the leading cause of death in cardiologists still heart disease, isn’t that sad irony?! Not to mention, everyone around them make similar sacrifices, if not harder, and have failed relationships with spouses and family. A lot of doctors also lack real life skills that most would acquire through their youth. To answer whether being a doctor is worth it, you should research from a different perspective other than finances, but from a perspective of happiness, health, longevity and humans as a species on the backdrop of our current environment, society and the future as we aim to shape it.

  • This is a good high level analysis. I think the best thing it does is refute this idea that it’s not, “worth” going to med school.

    I think job stability is the biggest factor. For instance, when I met my wife, she was just beginning private practice, and for the first several years of our marriage, I still made more than her. Then came the financial crisis, which severely impacted my earnings, but not hers.

  • EnjoyIt

    Great initial analysis.

    I want to remark on a few things that I think would make this far more realistic missing from here:
    1) Although it may make sense to be living as frugal as possible while living on loans such as in med school, it is human nature to ramp up spending some as income is coming in. That means living on $25k/yr while a resident is very unlikely just as it is unlikely for a software engineer making $100k+

    2) There is no way in hell a physician out of residency will continue living on $25k/yr. This physician has pent up spending waiting to happen and therefor lifestyle creep is practically guaranteed.

    3) The engineer and resident will likely get a benefits package that includes 401k matching. Matching will be higher for the engineer because the salary is higher.

    4) There will be growth of investments over the years.

    5) If we consider an engineer putting in even 75% of the hours a resident and physician put in will increase their compensation substantially.

    Adding all of the above together I suspect it will take well into the mid to late 40s for the break even point. If we consider this person spending 50% of income and saving the rest, the engineer will reach financial independence much sooner than the doc, but at a lower standard of living.

  • Interesting and thought-provoking analysis. I like it because it roughly contrasts the career choices my twin brother and I have made.

    The one place where an assumption meaningfully skews the result is that you assume the average salary for a physician, which makes sense, but taking the average software engineer’s salary is unfair. I think that if you are a physician-calibre student, you have a good chance of landing at Google, Facebook, etc as a software engineer. In that scenario, you are likely out-earning your physician counterparts. So in that sense, the docs will never catch up.

    But as you allude to, choosing a career based solely on the money is a recipe for an unfulfilling career. Money is an important consideration, but not necessarily the most important. And that’s a good thing.

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