We specifically wanted to meet with a financial advisor who was familiar with physician financial situations - the debt load, training schedule, first job benefits, and physician-specific financial options. I can't recommend Justin more highly for those in the Pacific Northwest, especially within the Portland, Oregon area. We arranged for some educational visits with Justin, at no cost to us, to learn about: loan repayment recommendations tailored to us, the difference between consolidation and refinancing, what types of private insurance outside employment benefits might be advisable, recommendations as we start to move into the adulting world (regular salaries and budgeting, renting vs. buying, first time home buyer tips, prioritizing savings, understanding hospital benefits, etc.), and how to approach future investments.
In an effort to save future doctors (more likely their significant others) the headaches that Scott and I have gone through, here are five reasons you should meet with a financial advisor (preferably one who specializes in physician finances) before you leave medical school and begin training:
1. Either the doctor or the spouse needs financial education.
There should be a mandatory adulting class in high school or college. It is inevitable that between you and your significant other, one is in charge of the finances and the other has no clue what the difference is between checking and savings (not pointing any fingers). According to our financial advisor, among his clients it's the physician who most often doesn't deal with the finances.
Set your marriage and residency up right by getting on the same page finance-wise and meet with a financial advisor who can help you talk through budgeting for your new income levels. Don't make the mistake of overspending because you're finally done with school. It's a long journey to financial independence, you'll get there, but you don't want to make it longer. Be frugal while you're used to being frugal.
2. Medical school loan interest capitalizes when you begin repayment.
Ugh! Since neither of us had undergrad student loans, capitalization came as an unexpected shock. Throughout school we made modest efforts to keep our total loans at a low amount (namely: only taking loans to cover tuition, I worked full- time to cover living expenses, and an occasional loan payment when extra funds were available). That total practically doubled overnight after residency began and we made plans for repayment, when the accrued interest during medical school became principal (a.k.a capitalization... Google it!). If we had met with a financial advisor during 4th year, s/he could have helped us understand capitalization and our options for deferring or paying off loans, which likely could have saved us some money.
3. An amount of student loan interest is tax deductible.
Again, a helpful financial tidbit that I found out through experience after the fact, when we did our first tax return after graduation. Depending on current tax laws, a portion of your paid student loan interest might be deductible, which in essence is like getting that money right back in the form of a tax refund. When we graduated from medical school, $2500 in student loan interest payment could be counted as a deductible on your tax return. In December of that year we had only just decided on our loan repayment options and paid a very minimal amount back thinking we would save money. Had I known that I could have paid off $2500 in interest, before it capitalized (!), and seen a $2500 increase in our tax refund, I absolutely would have cashed in on that. I've tried to remember to share this fact every December to medical school significant others from our school since that mistake.
4. Repayment options are complicated, as are the reasons you might choose them.
When my husband started his residency and the repayment decision needed to be made, I had no clue why I would choose one option over the other, except to choose based on what we could afford. There are standard repayment options and income-driven repayment options. A financial advisor can walk through why you might choose an income-driven option or when that wouldn't be a good idea. When we met with our financial advisor this Spring he said, "If you weren't taking the job that you were now, that repayment choice would have been a costly decision. Lucky for you, it's a moot point now." *insert big eyes emoji
5. Federal loan interest rates are high!
You would think that of all institutions, the government might be interested in offering market low rates to students. Nope! We elected during residency to make fixed payments to the federal loan servicer, with an average interest rate on our loans of 6.5%. After meeting with our financial advisor this Spring, he recommended a couple of private loan companies where we could refinance for closer to 3%. So I'll swallow the fact that I paid off our loans for four years at the higher interest rate and just tell you, it's absolutely worth your time to talk to an advisor about this.
We ended up refinancing all of our student loans through Earnest and have an aggressive goal to pay them off in 5 years. It means we need to be frugal for a little bit longer, but we think it will be worth it when we can start taking what would have been loan payments and start investing in our future.
Shameless plug: a lot of refinancing or loan consolidation companies offer referral bonuses, and Earnest is no exception. So we're including our referral link here. I'm not saying you have to go through Earnest. Do the research, talk with a financial advisor you trust, and see what's the best option for you. No matter what company you choose, there will probably be an acquaintance who has a referral link you can use.
If you choose to refinance, and Earnest looks like the best option for you, THEN feel free to use our referral link for $200 in savings on your loans.
Hey Physicians and SOs - Any other tips you would add?
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