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IU School of Medicine IUSM Office of Medical Student Affairs

Med Student Money Blog

Financial Health & Fitness Tips for Medical Students

A Physician’s Fork in the Road: Student Loan Repayment, Forgiveness, and Refinancing

Filed under: Uncategorized — Jose Espada on July 18, 2016 @ 4:24 pm

Recently published in the New England Journal of Medicine Resident 360 under “Managing Medical School Debt”.

I work at Indiana University School of Medicine – the largest medical school in the U.S. – where more than 315 medical students graduate each year and more than 80% owe at least $200,000 in a combination of student loan principal and accrued interest. In my 28 years as Director of Student Financial Assistance, medical school tuition has increased 650%, leading to a dramatic increase in medical student loan indebtedness. Our medical school is by no means one with the highest student debt. Rather, we represent an average example of medical student loan indebtedness. Of course, a few medical school outliers have substantial resources that help medical students minimize — but not completely eliminate — student loan debt. And yes, 15%–20% of medical students graduate each year without any debt, as a result of family resources, service-connected scholarships (e.g., Military, National Health Service Corp), or a combination of savings and scholarships.

In an era when medical student debt is steadily rising and health care payment reform makes expected monetary returns in any specialty more nebulous, one big question is: Should medical students consider medical school debt a burden or an investment? I espouse that it should be the latter—an investment. Some calculations estimate that the return on investment (educational debt) of a medical education can be greater than 35% annually. No other profession offers the respect, satisfaction, and return on investment. Unfortunately, the profession comes at the expense of time. With at least 4 years of medical school, an additional 3–7 years of residency training, and 2–3 years of fellowship training, it’s a long road.

Financial outcomes for medical students, residents, and practicing physicians vary widely and depend on many variables, including the wide spectrum of wealth-generating power across all medical specialties. Therefore, it’s important to understand how the variables affect your financial future and outcome.

For example, in one scenario, the physician is regarded as a wealth-building machine. This is a physician who graduates from a state-supported school without undergraduate student-loan debt, lives frugally while in medical school, consolidates medical student loans at a low interest rate, works in a high-paying specialty, chooses to live in a location with a reasonable cost of living, maxes out all of his or her investment options, lives below his or her means until all debt is paid off, and is able to save heavily to amass a strong investment portfolio.

In contrast, physicians can easily go broke and question why they chose medicine in the first place. In this scenario, the physician enters medical school with substantial undergraduate student-loan debt, goes to a pricey private medical school in an expensive city, takes out large educational loans, lives above his or her means (hey, what’s a few more dollars of debt?), decides to practice in one of the lower paying specialties, doesn’t learn about financial skills or vehicles to optimize his or her position, has high-interest loans, moves to one of the coasts with a high cost of living (because that’s where the fun is!), immediately starts spending “like a doctor” (because they’ve waited so long to finally drive that Audi), ignores financial education (because they are too busy), and then pays too much for bad financial advice that only benefits the financial advisor.

As you can see, MANY decisions are involved in these scenarios. Medical students must understand how all these variables contribute to their overall financial picture. Specialty choice is one of the more heavily weighted choices that needs to be carefully measured against the other variables, some of which are fixed (e.g., undergraduate and medical school educational debt). So the saying, “just do what you love,” ends up feeling a bit shallow if all the other variables are not carefully managed. Math can be very unforgiving.

What are graduating medical students doing about medical school debt? Today, medical school graduates have two distinct pathways for managing medical student loans.

Forbearance or Deferment: Mandatory Internship/Residency Forbearance allows graduates to forego making payments on federal student loans during the residency program as interest accrues on the entire principal balance. Similarly, the Graduate Fellowship Deferment (GFD) is available during fellowship training, although it differs from forbearance in that interest accrues on the unsubsidized and Grad PLUS Loan balances only. All interest on subsidized loans is subsidized by the federal government. Although both methods of delaying repayment are now seldom used, they remain a viable way to manage federal student loans for some people.

Income-Driven Repayment (IDR) plans: IDRs make repayment more manageable and feasible when income is low during residency training. In the Income-Based Repayment (IBR) plan, calculation of payment starts with adjusted gross income (AGI) and subtracts 150% of the federal poverty guidelines for the graduate’s household size. The resulting amount is referred to as discretionary income and is multiplied by 15% to determine the annual repayment amount (divided by 12 months for the monthly repayment amount). A simple formula for the calculations is (AGI-150%) X 15%)/12. The program has income requirements and requires proof of financial hardship (i.e., total federal loan debt is higher than income). IBR has a forgiveness clause stating that any balance can be forgiven after 25 years and the forgiven balance is taxable.

In 2012, another IDR – Pay as You Earn (PAYE) – was implemented as a result of a presidential order. This repayment plan uses 10% of discretionary income to calculate the monthly payment with the formula (AGI-150%) X 10%)/12. The program is not available to anyone who borrowed for the first time before October 2007.Those borrowers have to use the IBR. PAYE has a forgiveness clause after 20 years and the forgiven balance is taxable.

Both IBR and PAYE calculate a standard cap payment based on paying off the total debt in 10 years at the time the repayment plan is set up. This standard cap payment is the default payment when the IBR or PAYE calculation exceeds the standard cap payment. Therefore, when residents transition from resident earnings to physician income, it is generally wise to stay in the IDR plan unless their income is high enough to sustain a higher payment and pay the debt off more aggressively.

Both IBR and PAYE also make it possible for borrowers to use a Married Filing Separately federal income tax return in the formulas. However, the loss of marital tax benefits means higher taxes. Therefore, this option should only be used if the tax loss is recovered by the savings in monthly payments during the repayment year.

In 2015, in an effort to expand PAYE to another 5 million borrowers, President Obama proposed that the Department of Education change some rules to target lower-income borrowers and discourage high-debt/high-income borrowers (e.g., doctors and lawyers) from taking advantage of the PAYE generous repayment terms. In December 2015, revised PAYE (REPAYE) became available using the same repayment formula as PAYE but allowing all Direct Loan borrowers to qualify regardless of when they took out their first loan. Now, older loans can be consolidated and qualify for REPAYE. Unlike IBR and PAYE, REPAYE does not have an income requirement or require proof of financial hardship. REPAYE has a forgiveness clause after 25 years for graduate students (20 years for undergraduates) and the forgiven balance is taxed. REPAYE does not have a standard cap payment and does not allow use of the Married Filing Separately IRS tax return. REPAYE does provide a major incentive: It limits interest charged to borrowers. The borrower is only charged 50% of the accrued interest on all of their loans. In essence, it is like getting a 50% reduction in student loan interest rates. A video that explains and compares PAYE and REPAYE can be viewed here. Another video that explains the benefits of REPAYE for medical school graduates can be viewed here.

Needless to say, repayment has become complicated and some companies are capitalizing on this confusion (e.g., Doctors without Quarters) to help graduates sort through the maze. Medical school financial aid offices are also becoming more adept and involved with the loan process by ensuring that graduates are aware of the differences among the repayment plans as they strategize which one to use.

IDRs become even more important in loan-forgiveness programs because they can maximize opportunities for forgiveness. According to the Public Service Loan Forgiveness (PSLF) implemented in July 2009, a borrower must make 120 income-driven repayments while working in a not-for-profit organization to reach loan forgiveness. Only Direct Loans (DL) qualify for loan forgiveness. If a borrower with Federal Family Education Loans (FFEL) wants to qualify the FFEL loans for PSLF, they must consolidate their loans under the DL Consolidation Loan Program. The consolidation process is available at

With more than 78% of U.S. hospitals and 98% of current residency programs claiming not-for-profit status, it is no wonder why medical school graduates want to set up income-driven repayments as soon as possible after graduating from medical school. The potential for PSLF to discharge a portion of medical school loans tax-free is significant. Unfortunately, not all medical careers are amenable to not-for-profit employment.

Nonetheless, IDRs could be a great way to manage debt while maintaining the possibility of benefiting from the PSLF.

In the last few years, as student loan interest rates continues to creep up and burden borrowers and the federal government continues to drag its feet about allowing borrowers to refinance federal student loans, a proliferation of private-sector companies (e.g., DRB, SoFi, and Earnest) offer graduates the opportunity to consolidate educational loans with attractive interest-rate reductions, specifically targeting graduate student borrowers in lucrative careers. Refinancing federal student loans with private student loans is risky, but borrowers making good money increasingly believe it’s worth the risk, given how much money they are paying in interest to the federal government.

One of the reasons the federal government justifies high interest rates on graduate student loans is because, theoretically, graduate students can earn enough money to pay everything back. These higher returns are then supposed to subsidize lower-interest undergraduate loans. Unfortunately, the federal government is losing the stable and lucrative graduate borrower to private refinancing companies. Why wouldn’t borrowers consider switching to a lender with a more attractive interest rate at the risk of leaving the federal student loan program and missing out on PSLF? As long as private companies continue to syphon the most successful borrowers from the federal government loan programs, the federal student loan system will continue to destabilize and be less able to absorb costs and risks. If graduate student loans are supposed to finance (at least in part) undergraduate student loans, where does that leave the system?

What Congress will do next is unknown. White House budget proposals are already trying to change PSLF, albeit the proposals have been ignored by Congress. Nevertheless, the question of what will happen to PSLF remains. On a more comforting note, changes in financial aid programs generally include grandfather clauses for borrowers in existing programs.

The Cost of Preparing for the USMLE Step 1

Filed under: General Money Tips — Jose Espada on November 13, 2015 @ 12:11 pm

Second year medical students are gearing up for what has been coined the most important test in their medical career.  The USMLE Step 1 is typically taken after the second year of medical school and in many cases required by medical schools to have taken the exam before they can begin their third year clinical education.  The exam is responsible for setting the tone or perspective as to whether or not medical students will be viable applicants for those competitive specialties.

Medical students are hearing advice on how to study for Step 1 from all directions.  Like all standardized exams, finding the right fit can be a challenge.  Businesses take advantage of medical student’s test anxiety by flooding the market with study products all guaranteed to “boost your test score!”  As a money conscious student, you want to get the best bang for your buck.  Not to mention, the desire to have every weapon in your study regimen is tamed by your cheapness.

So, let’s examine the cost of studying for Step 1.

Students may be looking at First Aid for the USMLE Step 1, regarded as a requirement for Step 1 by many students as it covers material over the first two years of medical school.  Each year, First Aid releases new editions that contain updated pictures and facts. So, the budget battle is between purchasing the new edition that may not come out until January or February or purchase the previous edition at a discount and hope that you don’t miss out on anything.  Most students will say that you are probably ok with the previous version.  This is key for students who are wanting to get a jump start on studying for Step 1 as early as the fall semester of second year.  The cost is minimal at $45.

Uworld Q Bank is regarded by most students as the highest rated question bank for Step 1.  One of the reasons they are so highly regarded is that they mimic Step 1’s multi-step questions.  Bottom line, according to many students, Uworld is a must.  The uworld site says there are over 2,000 questions in this qbank, and you can get a 60 day subscription for $179.  Learn more by visiting their website here.  There are 2 Uworld Self Assessment Exams available that supposedly mimic the real exam.  Purchasing both uworld self assessment exams is $60, giving you 2-weeks access to each test.  In total, a student can invest $239.

There is another Q-bank offered through Usmle-rx.  Before a student goes out and throw money at everything, you need to first determine if you’ve got the time to do multiple qbanks (which some students highly suggest), and you want to save uworld for last, then the recommendation is to use usmle-rx.  Usmle-rx has 2,267 questions, and is a pretty good deal.  A three month subscription costs $149 and a six month subscription costs $199.  You can get a $30 discount for joining the American Medical Student Association (AMSA) before you make the purchase (joining AMSA is free and literally takes 2 minutes).  Check out more at their site here.

As I understand it, Pharmacology is a huge part of step 1, and while first aid contains a lot of pharm, it is a good idea to get another source.  The consensus is Lange Pharmacology Flash Cards, due to their straightforward simplicity.  The front of the card has a short clinical vignette, and the back contains similar drugs, mechanism of action, clinical uses, and other information.  They cost around $30 and can be found on amazon for about $30.

There are several microcards suggested.  These include the Lipponcott’s Microcards that can be found on amazon for around $40.
Last but certainly not least, is pathoma.  When selecting a pathology review course, most reviewers come down to either pathoma or goljan rapid review pathology.  For $85 you get 21 month access to all the pathoma videos online, as well as the pathoma textbook.  Learn more at the pathoma site.

Preparing and taking Step 1 can be a sizable investment and being cheap can limit your success.  So, a bit of advice, spend the money.  Just be smart about it.

Buying a Car as a Medical Student

Filed under: General Money Tips — Jose Espada on November 4, 2015 @ 12:41 pm

I am nervous when Dr. Haywood speaks to the medical students at our campus visits about the need to have reliable transportation.  He looks to me and suggests to students to contact me inferring that I will be able to help them secure the funds to get that reliable ride.  Unfortunately, the issue is that medical students who borrow through the federal student loan programs are not able to get funding specifically to purchase a car or adjust the Cost of Attendance (COA) for car payments.  For the frugal medical students who still have room to borrow additionally, they can use the funds to purchase a car, if needed.  But, to simple adjust the COA to purchase a car or maintain car payments, this is a federal guideline no-no.

Student’s freak out at the thought of having to purchase a car, especially those who come from places like Boston, New York or Washington DC where there is actually a Mass Transit system that allows for the absence of a car.  Mass Transit that does not exist in Indiana.  Here, a car is a need and not a want.  I sometimes marvel at the four cars parked in my driveway (my clunker van, my daughter’s car, my wife’s car and our recent $11,000 used van purchase).  I am proud to say that I have only purchased used cars for most of my life and they have all been good to me.  Three out of the four cars in our driveway sport over 100,000 miles.  My spouse finally convinced me to sell my daughter’s car (2003 Mitsubishi Lancer with 80,000 miles).  A nice little car and clean, too.  It is in pristine condition, but probably won’t get more than $2,500 for it according to the blue book.  In fact, we already have a buyer, a 3rd year PhD student from India who wants the freedom of being able to drive everywhere they need, but not until she gets her license.  Now, she has motivation to get that license.  We will her with the parallel parking test.

For medical students, the purchase of a car is necessary for their upcoming clinical years, which will require them to travel to hospitals around town at odd hours of the morning and night as well as throughout the state of Indiana for those away rotations.

People lose their MINDS over cars!!!  These useful toys often become one of the biggest barriers to living debt free.  Remember that outside a mortgage or rent, car payments are usually the biggest costs in someone’s budget.  Below a list that I recently saw posted in a blog that was written by a medical student detailing the list of car-madness pitfalls that students should avoid.

  1. Don’t Buy a New Car.  The second you drive your shiny new debt-mobile off the lot it depreciates 11%.  Is the new car smell really worth thousands of dollars?  NO.  Over the next 5 years, a new car is estimated to depreciate 15-25% of its current value per year.  This means that you can buy a lightly used car for far less the cost!
  2. Take Pride in your Junker Car.  In a society that values a person by the fanciness of their car, you have the opportunity to show how hip you are and stick it to the man.  Instead of flaunting your wealth (or in most cases your pretend-wealth), flaunt your sensibility.
  3. Avoid monthly car payments.  If you have to make payments, then you can’t afford it.Buy a cheaper car, or save up more money.  Somehow the car industry has sold the idea that having a car payment is the American Dream.  People nowadays get excited about paying off their car because it means they can rush down to the nearest dealership and sign up for a new and bigger pile of debt!  (But it’s ok, because the newer debt-mobile has a built in coffee maker, touch screen controls, shinier paint, seats made of the finest leather from the soft underbelly of a water buffalo, and 200 more horsepower that you will definitely need while complying with legal speed limits).  This is madness!  Cars instantly and continuously depreciate in value.  Yet rational human beings willingly pay interest on something that is GUARANTEED to be worth less every single day.

Use this simple rule: if you can’t afford it, don’t buy it.  Instead of taking out a car mortgage, use foresight and save up before you buy the car.  One common argument against my rule employs opportunity cost.  The argument is that car payments allow you to invest the money you would’ve spent by paying for the car in cash, and that the investments will earn you a higher percentage than the mortgage rate.  This argument is also used against people who want to pay cash for a house.  While technically true, my response is this: The opportunity cost argument is only valid if you actually invest the money you would’ve spent on the car.  However, I am willing to bet that in most cases the extra money is not invested, but rather it mysteriously vanishes out of your wallet due to creeping lifestyle costs.  Opportunity cost only works if the alternate scenarios are things that you actually plan on doing.

  1. Don’t Lease a Car.The only logical reason to lease a car is if your profession requires you to drive a new car at all times.  This certainly does not apply to a medical student in debt.  DON’T DO IT.  A common argument for leasing a car is that it saves you from costly repairs.  Here’s my reply:

Imagine you lease a car, and the contract is $200/month for 24 months.  Over those 2 years you will spend $4,800.  Now let’s imagine that instead of leasing a car, you bought a used sensible car for $4,800.  That car only has to last 2 years and 1 day for it to be better than leasing a car.  Even if the engine falls out of the frame on the very last day, it still comes up equal.  More realistically, you’ll put in a couple hundred dollars of work over the years, and the car will last much longer than the opposing 2 year lease contract, saving you more money per extra year compared to the person who leased their car.

  1. Find a mechanic you trust.  This is a lesson I have learned from my father in law.  He has the talent of building relationships with owners of business establishments.  Both of our cars were purchased from a dealer that he knew, and inspected by a mechanic he trusted.  The used car market can be scary, and making friends with professionals can help you avoid lemons.  When buying a used car, make sure to have it inspected by someone who knows what they’re looking for.
  2. Learn about the used car market.  When students realize they will need to purchase a car, they shouldn’t rush out and purchase the first car they see.  Instead, they should start watching the market.  Comb through the classifieds and pay attention to the asking price in relation to the year, model, and mileage.  You need to be able to pick out a good deal, as well as avoid something that is too good to be true (often a lemon).  A nice guide for the worth of used cars is thekelly blue book.
  3. Realize that a car is not an investment.  The only thing you should be worrying about is the amount of miles you expect to get out of your car, compared to the cost.  Repeat after me: Miles per dollar.  Miles per dollar.  Miles per dollar.

Maybe it’ll help if we make it into an equation: Value of car = (expected miles it will last/cost).  Notice that according to this equation, the more expensive your car is, the less real value it has.  Remember this when you’re tempted to upgrade to a fancier model that has gps services, professional sound system quality, gold-lined seat upholstery, extra horsepower, etc.  Remember, your car is a tool, and its purpose is to get you from point A to B, and since you are swimming in debt, you want this tool to be as cheap as possible.

What better advice than coming from a medical student himself.  Keep it simple.  Buy smart.  Buy inexpensive (not cheap!… I didn’t like that… you can get good quality items for less, but you must be an intelligent consumer to do so).  Get the most bang from your buck!  Get the best you can with what you have now!  It will save you money in the long run!

A financial perspective to Interviewing and relocating to a residency program.

Filed under: General Money Tips — Jose Espada on October 23, 2015 @ 1:55 pm

Summer and early fall, reminds me of what is at stake for fourth year medical students.  After three years of hard work, it comes down to selecting a specialty area and financially investing more in the process that will help secure their future.  For many, it means getting into another $15,000-plus in debt to pursue those dreams.  After all, what is another $15,000 at this point when you have already invested over $250,000 in attaining your Medical Doctorate?

One of the first steps is applying to medical residency programs in the applicant’s specialty choice.  This is done electronically through the Electronic Residency Application Service (ERAS) that transmits residency applications, letters of recommendation, the Medical Student Performance Evaluation (MSPE), transcripts and other supporting credentials from applicants and medical schools to residency and fellowship programs.  This can be expensive depending on the advice of the student’s academic/career advisor and a host of different factors.   We have seen medical students who have spent in the range of $1,500-4,000 with a few outliers on either extreme.  The cost is tiered depending on the number of applications.  In talking with students some have applied for more than 80 programs, especially for those very competitive programs like Dermatology, ENT, Neurosurgery, Orthopedic Surgery and Plastic Surgery.  I am sure there are others.

The excitement increases in October with applications off to residency programs and students begin hearing back from residency programs inviting them to interview.   You begin seeing the joy on student’s faces as they share the number of interviews they have received and see the good feeling knowing that someone out there wants them.

Most of the costs related to securing a residency position is associated with the interview.  The cost of travel, accommodations and incidental expenses can vary depending on where the student interviews and how many interviews they go to.  The Class of 2015 spent an average of $3,400 ranging from as little as $500 to over $15,000.  Residency programs do not reimburse students for interviewing expenses.  The student must budget carefully and try to keep costs contained.

The applicant is at the mercy of the residency programs on when they interview.  This can get expensive.  It is not uncommon for an applicant to be in New York, then to Los Angeles and back to New York again.  Have you looked at the cost of flying lately?  Of course, this all depends on the career and in some cases, you have to do what you have to do to secure a competitive residency position.

The National Residency Matching Program (NRMP), is a private, not-for-profit corporation that provides a uniform date of appointment to positions in the graduate medical education (GME) in the United States.  The fee is minimal, but yet another cost.

Although in the financial aid world, we can account for these expenses detailed above, what we cannot account for is the expenses related to relocating to a residency program.  In March, when the student finally knows where they will be going, there is the surprising relocation expenses.  In some cases, relocating can cost upwards of $10,000 in cities like San Francisco, New York, Boston or Washington DC. These expenses are not provided by the residency programs and financial aid cannot not help a student with these expenses.  There are private loan sources available for this and we make students aware of these resources, but keep in mind that they are private loans and can be unpredictable and expensive.

The financial pressures do not stop there.  The joy of matching and finally relocating brings other financial pressures, especially when your first pay check as a resident is not until the end of July or early August.  As you can see, financially speaking, why fourth year is a financial whirlwind.  Preparing for this year is essential and we often suggest that students begin planning as early as possible by setting aside unused financial aid from previous years.

There are ways to save money.  While traveling, keep your meal selections frugal.  Often the residency programs will provide a meal or two.  Take advantage.  If you need to purchase new interview attire, look for specials during the off season (generally in the late spring and early summer).  Research the interview location to help with transportation budgeting (shuttles are generally less expensive than using a cab).  Perhaps, checking with the alumni office on alumni in the area that could recommend cheap and safe accommodations or possibly shack up with an alumnus.

Check out This is a site developed by two medical school graduates in response to travel costs related to the interview process.  You may find the information helpful.

Additional money saving ideas can include sharing a hotel/rental car with classmates that might also be interviewing at same program (happens more that you might think).  You can get some assistance in how to do this at the AMA Alliance.  Stay with family and eat their food while on the interview trail…it’s free!!!  Leave the wife and kids at home! It adds expense to the trip and you cannot be reimbursed for it through the financial aid process.

There are lots of flights, hotels and cabs in big cities create a great deal of expense during the interview process.  Take the opportunity to get an idea of cost in the city you interview in.  A good indication is the cost of flights, hotels and cab rides can give you great insight on what you may experience, if you choose to live there.  For example, a city like New York City can be loads of fun with lot’s to do, but is also extremely expensive on a resident’s budget!  Keep in mind that your residency paycheck will be the same/similar if you live in a place like New York or if you in Indiana.  The latter will go further as the cost of living will be a major difference.  The cost of living is far more inexpensive in the Midwest and South than living on either coast (something to think about).

So, needless to say, this time of year can be stressful amidst the joy of feeling wanted.

Should I join the military to pay for medical school?

Filed under: Armed Services — Jose Espada on August 17, 2015 @ 3:06 pm

I recently read an entry in the “The White Coat Investor” regarding the decision to join the military to pay for medical school.  It was an intriguing read.  If you are not aware of what I am talking about, it is the Armed Forces Health Professions Scholarship Program (HPSP).  The HPSP pays the medical student to attend medical school and train with a military residency in return for the medical student’s commitment to practice medicine in the military.  The benefits include a $20,000 sign on bonus received during the medical student’s first year of medical school in addition to paying the medical student’s medical school tuition, health insurance and monthly living stipend of more than $2,200 monthly (based on 2015-2016 information).  At IUSM, we have approximately 55 medical students who have opted for the HPSP, mostly Army and Navy.

Of course, as a financial aid professional, I believe in making students aware of opportunities such as the HPSP and if there is interest, I suggest they meet with a military recruiter to learn more about the opportunity.  I have found that military recruiters can be very good or very bad, depending on their background.  If they come from a medical corps background, they can be very informative and insightful on expectations; otherwise, they can be more of a used car salesman approach.  Fortunately, many of the recruiters I have had the pleasure of assisting, have been the former.

The White Coat Investor makes a great point, which I will repeat here, “I would never recommend someone join the military for the financial benefits.  The unique hassles of the military such as going through the military match, dealing with military bureaucracy and hospital rank structure, not having control over where you live, and potential deployments cannot be compensated for with money.  Only a true desire to serve your country and those who put their lives on the line for you and your loved ones each day can compensate you for that.  In the end, this decision should be made based on the prospective medical student’s desire to be in the military and not the financial ramifications.”

If money is the only motivator, is it worth the investment?  Well, let’s see.  If I add up the compensation while in medical school as a resident medical student, I come up with an approximate value of $250,000 or $350,000 for a non-resident student.  This is compared to borrowing these amounts as an investment and paying back the loans with interest at a ballpark of $448,945 or $550,000 respectively.  This is assuming it will take 10 years to pay back the amounts after a 4-year residency program.  So, it is easy to see where an HPSP would be worth its value financially during medical school.  Now, if you look at it from a career standpoint, then the position may change depending on what type of career you go into.  It is still a great deal financially while in residency since the resident income for an HPSP Resident is near $70,000 annually while the civilian residency salary is near $54,000.

The military physician makes approximately $130,000 per year while in their active duty service (this includes military housing allowances).  Based on a resident (versus non-resident) medical student, after 4 years of medical school, 3 years of residency, and 4 years of post-residency practice, the military physician has received benefits of approximately $1.125 million and the civilian physician has received benefits of $1.083 million (based on average civilian physician compensation), essentially a draw.  The balance is tilted in favor of the civilian route for a cheaper medical school, cheaper loans, a higher-paying specialty, or a more lucrative private partnership type position.  Conversely, the balance is tilted in favor of the military route for a more expensive medical school, a lower paying specialty, or prior military service.

On 529-Plan Knowledge

Filed under: Uncategorized — Jose Espada on July 17, 2015 @ 11:33 am

I recently sat down with a medical student parent who did not know what a 529 Plan was.  I was struck by this and began researching the 529 Plan.  Despite these plans being around for more than 15 years, the 529 college savings plans are not utilized in great numbers.  A recent survey by Edward Jones of just over 1000 U.S. adults (including parents and those without children) indicated that “66% of Americans don’t [even] know what a 529 is.”

First launched in the 1990s, 529 plans are tax-advantaged savings vehicles intended to help parents and other adults save for college education. Financial planners can choose from 529 college savings plans that offer stock funds, bond funds and other investments and 529 prepaid-tuition plans, which offer a promise to keep up with tuition inflation. Earnings in both types of 529 plans grow tax-deferred and can be withdrawn tax-free when used for qualified higher-education expenses, such as tuition and room and board.

Sallie Mae released a report in April 2015 called “How America Saves for College” that stated 27% of parents are using these plans.  My story may be unique in that we started saving for our daughter’s college costs when she was born in 1990.  In the mid-1990s, we switched to a 529 Plan with the state of Indiana called College Choice.  This decision made it possible for our daughter to choose Harvard University over Duke University and Indiana University, both of which had given her the sun and the moon to attend.  With the 529 Plan, she was able to attend Harvard debt-free with the help of the need-based funding policies.  Hard did not and still does not give merit-based funding.

Sallie Mae also found that it was unclear whether 529 plans were becoming more well-known as the years passes.  Clearly, this year’s statistics was an improvement from 2014, when 63% couldn’t identify a 529 plan.  There was evidence that trends pointed toward significant growth during the history of 529 plans, but over the last few years that trend has slowed.

The total number of 529 savings accounts increased between 10% and 19% each year between 2004 and 2008, according to Strategic Insight, a New York-based mutual-fund research firm. That rate slowed down to around 3% to 4% each year between 2010 and 2013, before picking up slightly. In 2014, there were a total of 11 million 529 college-savings-plan accounts, up 4.7% from a year prior.

It’s unknown what’s behind the slowing growth, but one 529 expert says several factors could be at play. Joe Hurley, founder of, which tracks 529 plans, says it’s the result of Americans having other financial priorities, such as saving for retirement, that trump college savings—as well as confusion about what 529 plans are and how they work.

He says the industry needs to do more to market the plans to families. “There certainly is a marketing challenge which the industry has not conquered,” he says.

The College Savings Plans Network, which represents the 529-plan industry, says the plans have been taking steps to increase the number of new account owners. “Plans are very innovative in their outreach approaches, utilizing everything from matching-grant programs to opening accounts for new parent’s right at the hospital at birth,” says Betty Lochner, chairwoman of the group and the director of the prepaid plan in Washington State.

Certain households are more aware of 529 plans, according to the Edward Jones survey, including those with higher incomes. Fifty-eight percent of respondents with a household income of at least $100,000 could identify 529 plans, compared with 25% of those with household income of less than $35,000.

The survey also found that more households with younger children are aware of the plan: Forty-one percent of those with children under the age of 13 correctly identified the plans, compared with 35% of those with children ages 13 to 17.

At the medical school, I have seen a small increase in the number of entering students using 529 Plans to help pay for their tuition.  Generally, it is for the first year and possible for a partial second year.  What I commonly have seen is that many of the students using their 529 plans is a result of the student getting all of their undergraduate costs covered through merit-based scholarships and may not have had an opportunity to use their college savings while in undergrad.

Questions to Ask a Potential Financial Advisor

Filed under: General Money Tips,Uncategorized — Jose Espada on March 17, 2015 @ 9:06 am

What’s your net worth? Financial professionals think nothing of asking clients this specific question. If the tables were turned, though, and prospective clients asked the same type of question, how would they respond?

Some advisors may think their net worth is none of their clients’ business, just as some doctors may believe their cholesterol levels are none of their patient’s business.  Knowing a financial professional has a sizable net worth doesn’t necessarily mean the person is trustworthy or a capable financial planner. Net worth tells prospective clients nothing about where the money came from. The planner may have inherited it, won the lottery, earned it through a business other than financial planning, earned it from commissions on poor investments, or may have even obtained it illegally (just saying).

Net worth may not reveal anything useful about someone’s understanding of money or knowledge of financial planning. There are plenty of multi-millionaires (doctors even) who are skilled at making money but are horrible money managers and inept at investing it.  On the flip side, there may be many brilliant young financial planners who haven’t had the time to accumulate a large net worth.

You may want to ask if the professional actually follows his or her own advice. Imagine how troubling it might be to find out your financial planner doesn’t have a retirement plan, is a habitual over-spender, or hasn’t gotten around to making a will.  Another reason for the question may be a concern whether the planner is financially stable and will be around in the future.

Another concern may be whether the financial planner is familiar with a potential client’s particular financial issues. This is especially true of a new medical resident or high net worth clients. They need to know a planner can relate to the complexities, responsibilities, and emotional challenges of managing wealth.

All of these are legitimate concerns. Knowing a financial planner’s net worth, however, doesn’t address those concerns. To assess whether a planner is a good fit for you, it would be more useful to ask the following questions:

  • Do you budget; if so, how and what tools do you use?
  • Do you follow the same advice you give clients? Give me some examples.
  • Do you have six months’ living expenses in an emergency account?
  • Do you invest your money in the same manner you will invest mine?
  • If I were to run a credit report on you, what would it tell me?
  • What are some of the things you have learned from your financial mistakes?
  • Tell me what your company has in place for emergency planning and succession planning.
  • Tell me why you can relate to someone with my net worth and the issues I am facing.

You may hesitate to ask these questions as a potential client even though you may want to know the answers. Don’t be shy; ask.

If a planner is offended by these questions or dances around answering them, that may be a red flag. If a planner offers answers freely and transparently, you may have found someone who provides exceptional service. Planners who share some of their own financial information are clearly committed to building the needed trust that is so essential between financial planner and their client.

Credit Basics and Understanding Credit

Filed under: Uncategorized — Jose Espada on November 15, 2013 @ 9:52 am

Credit has two definitions—borrowed money that allows you to purchase things, and the likelihood that you will pay back these loans and be approved to take out new ones (this likelihood is demonstrated through a credit score).

Borrowed money can take many forms, such as a car loan, home mortgage, private student loan, or credit cards for product purchases.  Unlike private student loans where credit worthiness is important, federal student loan requires credit readiness.  Unlike worthiness where a credit score is used, readiness requires your credit history be clean.

Your credit score is determined by the three credit agencies and helps lenders determine how much money you’ll be able to borrow and what interest your loans will have. The interest is additional money that you are charged and will need to pay back so the lender can profit on your loan.  In general, federal student loans are favored over private student loans.

Borrowed Money as Credit

Having access to credit means you can buy something before you pay for it. This ability to borrow gives you (the borrower) flexibility in planning your purchases and makes it possible to pay for a large purchase over time—however, you also pay interest on the purchase amount (unless you are utilizing a special promotion that gives the borrower a period of time to pay the loan without interest, so use credit wisely.  The rule of thumb is that only borrow money to make necessary purchases. For some, tuition can be a large expense, so many students in this situation choose to take out student loans to fill in the gap after scholarships and other financial aid has been awarded.  Those who also need to borrow to meet living expenses may end up borrowing through multiple loans to reach the amount they need.

Some education loans, such as Grad PLUS, require a credit check (or be credit ready), not to be confused with credit worthiness. Credit plays a big role in your life, which is why having good credit, making payments on time, and minimizing your debt are so important.

Your Credit

Creditors (and credit agencies) look at three factors to determine your credit score, which determines your eligibility for a loan. The factors are typically referred to as the three C’s of credit: character, capacity, and collateral.

Character. How have you handled debt in the past (have you paid bills on time, pay off lenders early, carry a balance month to month, etc.) tends to determine how you will handle it in the future (profiling your habits). When reviewing your character related to credit, lenders look at payment history, lengths of credit history, and types of credit used.

Capacity. Based on your income and other debt responsibilities (credit cards, car loans, mortgage, student loans, etc.), lenders determine whether you can afford an additional loan. They also take into account amounts owed on different accounts, how much available credit you have (or if you carry a balance over from month to month), new credit accounts, and how many lines of credit you’ve applied for recently.  This is why it is important to hold the line on the number of department store credit cards.  People too often fall into the trap of signing up for credit cards to get a one-time benefit.

Collateral. As a borrower, you will often need to list collateral, or something of value (like a car, fine jewelry, or property), to secure repayment of the loan. If you cannot repay the loan, the creditor will seize your collateral as repayment.

Using these three factors, credit agencies assign you a FICO credit score, which ranges from 300 to 850. This is essentially a rating of the likelihood of you being 90 or more days past due on your bill.

In the past, lenders reviewed these three criteria simply by looking at your credit report. But now, most lenders use an electronic system that assigns numbers to your credit score. The number you are assigned dictates what type and how much credit you can receive. This technique is referred to as credit scoring. A credit score tells the lender how likely it is that you will repay back the loan and adhere to the loan terms.

Credit Agencies and Credit Reports

To determine your creditworthiness, potential lenders will acquire your credit report from credit agencies. You have a right to request a copy of your credit report at any time and can get one for free from each agency once a year. The three credit agencies are:

P.O. Box 740241
Atlanta, GA 30374-0241

P.O. Box 949
Allen, TX 75013-0949

Trans Union
P.O. Box 390
Springfield, PA 19064-0290

Your Credit Report

Your credit report includes the following information:

  • Name
  • Address
  • Telephone number
  • Social Security number
  • Date of birth
  • Place of employment
  • Tax liens, judgments, and bankruptcies
  • Current loan balances, original amount borrowed, amount of payment, status, and number of late payments
  • All credit inquiries for the past 24 months

Negative credit reporting stays on your file for seven years, with the exception of bankruptcy, which stays on your credit for 10 years. NOTE: It is illegal for information regarding race, gender, religion, national origin, checking or savings accounts, medical history, purchases paid in full, and business accounts to appear on your credit report.

The Equal Credit Opportunity Act (ECOA) guarantees equal access to credit. It is unlawful for a creditor to:

  • Discriminate on basis of sex, race, marital status, or national origin
  • Ask if you are divorced or widowed
  • Ask about future plans to have or raise children
  • Not consider public income as reliable income
  • Not consider alimony, child support, or other payments as income

It is legal to ask for some personal information on a loan application, such as:

  • Name
  • Telephone number
  • Social Security number
  • Employer
  • Length of employment
  • Marital status
  • References
  • Current income
  • Prior debt
  • Current debt
  • Bank account balances

If you are interested in seeing how you are doing with your credit, there are a number of ways you can do it.  Here are a couple of ways.  You can access a free credit report from each of the credit bureaus listed above annually by going to  Or, for smart phone users, you can receive free credit scores, free credit monitoring, account monitoring by signing up for Credit Karma at

September is Life Insurance Awareness Month

Filed under: General Money Tips — Jose Espada on September 18, 2013 @ 3:42 pm

I just recently found out that the month of September is Life Insurance Awareness Month. Although, this is not something medical students are dying to know about. It is something everyone should be aware of. Life insurance can do some pretty amazing things for people. It can pay off debts and loans, providing surviving family members with the chance to move on with a clean slate. It can keep families in their homes and pre-fund a child’s college education. It can provide a stream of income for a family to live on for a period of time. Life insurance can do all of these wonderful things for your family…there’s just one small catch. You need to own life insurance.

One of the topics at our Future Impact Program for our fourth year medical students is the topic of protections. The two main topics of conversation at this event is disability insurance and life insurance? What if you were suddenly gone and your family had to manage on their own? We ask the married medical students when was the last time they did the math to make sure their loved ones would be ok financially?

There’s a growing crisis of too many Americans not having adequate life insurance protection. According to the industry research group LIMRA, 30 percent of US households have no life insurance whatsoever. Here’s the bottom line: A majority of families either have no life insurance or not enough, leaving them one accident or terminal illness away from a financial catastrophe for their loved ones.

To make sure our medical students are reminded of the need to include life insurance in their financial plans, we’ve include the topic of protections in our financial literacy topics. We do not plan for accidents, but we can plan to be prepared and have security.

So how much life insurance does an individual need? Well, this is really not the question, but the question is how much investment capital does your family need at the time of your death to maintain their current lifestyle. For one, how much will be needed at death to meet immediate obligations. And, how much future income is needed to sustain the household.

The first category is fairly easy to ascertain. It is the sum of final expenses (including uncovered medical costs, funeral expenses and final estate-settlement costs) and other lump-sum obligations (such as outstanding debts, mortgage balance, and college costs). The good thing, federal loans are forgiven in the event of death, so this will not be something you need to factor in. The second variable is a bit trickier. It involves calculating the “present value” of future needed cash-flow streams. By answering a few simple questions, you can get a rough sense of the needs for capital that might exist at your death.

To help you assess your life insurance needs, here are apps that can walk you through that assessment.

Android –

i-Pad –

i-Phone – Source:

What is the difference between Fixed Rates or Variable Rates?

Filed under: General Money Tips — Jose Espada on October 26, 2012 @ 3:16 pm

It’s good to have options, but what is the reality when it comes to student loans.  The reality is that federal student loans interest rates are fixed.  Private Loan interest rates are variable rates.  So, what’s the difference?      

A fixed rate is generally higher than a variable rate loan and remains the same over the life of the loan, which means your monthly payments remain stable over time.  A variable rate is initially lower than a fixed rate and may rise or fall as the Prime Rate or London InterBank Offered Rate (LIBOR) adjusts over time, which means your payments may vary on a monthly basis.  Generally, variable interest rates may be higher than a fixed rate as you have the loan over time.

What is a floor rate?  A floor rate is the lowest that a lender can charge you – even if the Prime Rate drops lower than that.  So for example, maybe your lender set their floor rate at 3.00%.  If the Prime Rate goes down to 1.00%, you may still have to pay the higher rate of 3.00%, because that’s the floor rate your lender has set.  Fixed rates are not affected by floor rates.

So, how is an APR different than an interest rate?  What you are charged for your loan isn’t actually just an interest rate, it’s really the Annual Percentage Rate (APR).  You have probably seen the term “APR” related to loans such as car loans and credit cards.  So what does that mean?  The Apr is the annual cost of your loan.  It includes the interest rate and certain fees.  If your loan has a variable interest rate, the APR will also increase based on how much your interest rate fluctuates.

With some student loans, one major thing will cause the APR to be different than the interest rate and this is deferment periods.  During a deferment period you are not making payments on your loan, for example while you are in school and during your grace period.   Deferment periods can cause the APR to be lower than the interest rate.  Why?  The APR is calculated under the assumption that interest is capitalized (added to the principle balance).  However, if your lender does not capitalize the interest for your student loans during in-school deferment and grace periods, your APR goes down.

So, what does this all mean?  In general, federal student loans are fixed rates and nothing changes.  It does not vary according to the market.  It stays the same until the loan is paid off.  In the private loan industry, interest rates do change according to the market and are further influenced by periods of non-payment or deferments.  Interest rates can be complicated.

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