Money Moves I Wish I Made as a Grad Student, Part 1

I started my master’s degree in public health before going to medical school. The courses I took in the program were incredible and I learned a great deal about how to improve community health. Unfortunately, I went into debt during the process. The program wasn’t cheap, and I hadn’t yet acquired the self-discipline to practice basic money management. Needless to say, I made quite a few financial mistakes. Although I learned valuable lessons, here are some things I would do differently if I could do the process all over again.

1. Reconsider where I live. Cost of living matters. As a young 22 year old who had just finished undergrad and had zero financial worries, I didn’t give much thought to the cost of living. All I knew was that I wanted to move to Washington, DC and use my newfound public policy degree to “change the world.” Although I did end up working in policy and doing some pretty cool things, I certainly did not change the world. What I did change, however, was my financial status.

   Living in DC was incredibly expensive, especially for someone like me who had never paid a bill in my life. I was sharing an apartment that cost $1800 a month (not including utilities) and was a health policy intern barely making $10 an hour. It didn’t take me long to realize that I needed more income. After my dad refused to let me use his credit cards to cover my expenses, I soon got a second job working nights and weekends at a workout gym. Despite having two incomes, I still struggled. Although these hard times taught me grit and compassion for the less fortunate, life would have been much easier if I had moved to a cheaper city closer to my family and friends.

2. Avoid credit card debt and lifestyle creep. This much easier said than done. As a grad student with student-loans that seemed to always run out before the semester ended, I found myself running short on funds. Pair that with multiple credit cards and a lack of self-discipline and you’ll quickly see how I accumulated a substantial amount of debt in a short amount of time. For starters, I was living in one of the most expensive cities in the country (Washington, DC). Everything from groceries to basic public transportation was much more expensive than it was in the south where I was from.

   Secondly, after 12 months of struggling, I had upgraded my jobs and was now getting paid almost double what I was making before. Although I was still barely making ends meet, I had so much more money in comparison to the year before that I upgraded my living situation. Instead of staying in my crappy, bug-infested apartment, my roommate and I upgraded to a sky-rise in the middle of the city. The hardwood floors and marble countertops were nice but came with a pretty hefty price tag…$2300 a month. Although I had started my masters degree and now had access to student loan money, I was using that money to pay for my expensive private school tuition at the Milken Institute for Public Health and naively relied on credit cards to fund basic expenses when the money from my jobs ran short. I would always tell myself that I would pay off the card at the end of each month, but sometimes that didn’t happened. There always seemed to be something else more important that I needed to spend that money on. At the end of the year I found myself nearly $4,000 in debt.

3. Make a spending budget. Part of the reason I started racking up credit card debt was because I had terrible spending habits. I had these terrible habits because I never had to make a budget before graduating from college. Even though I worked part-time in undergrad, my father paid for my room and board and even provided a small stipend for incidentals. Any money I made from my work-study went directly into my pocket to spend as I wanted. As a result, I created a bad habit of buying nice dresses and cute shoes whenever I went to the mall. By the time I moved out to DC and started working as a young adult, I kept that same terrible habit.

   To make matters worse, I had no idea how much money I was spending. Sometimes I would go grocery shopping, spend $100 for a weeks worth of food, then still end up eating out at restaurants twice a week when I “wanted something different.” Occasionally, I’d travel out of town, go visit friends in other cities, or simply go back to Florida for a holiday. Again, I did all of this with no budget and ended each month wondering where all of my money had gone. If I could do it again I’d definitely create a spending plan and try to stick to a monthly budget.

4. Check your monthly account statement. Once I started med school, my spending habits changed. Not because I magically started creating a budget, but because I realized I needed to stop relying on credit cards and actually start paying off the balance quicker. I set up automatic monthly withdrawals to cover my credit card payment and tried my best to avoid buying unnecessary clothes at the mall. Although these were good changes, I had neglected to take a vital step….check the monthly credit card balance. This might not seem like such a big deal, but mistakes happen more frequently than we may realize.

   Whether it’s a charge that showed up twice or a monthly payment you never authorized, it is imperative to check your accounts frequently. Even though I occasionally looked at my debit card balance, I never checked my credit card account history. When I finally did, I was mortified! I was paying nearly $70 a month for some added credit card protection I didn’t need and never remembered authorizing! Although I was able to call the bank and stop paying for that service, I was angry that I had such a high charge each month for something I never even wanted! As a struggling medical student, I could think of several other things I could spend that $70 on, none of which included handing it out for free to a bank. Ladies and gents, check your statements.

This is just part 1 of the financial mistakes I made in grad school. Stay tuned for part 2 of disastrous things I did with money before I got responsible and started paying back my bills. Tell me, what money mistakes did you make after college? If you could do things different what would you change?

9 Things I learned when I purchased disability insurance

As an incoming resident physician, I need disability insurance. Although a group policy is offered through my employer, it doesn’t provide enough coverage to adequately cover my monthly expenses or insure my future income. Thus, I purchased an individual long-term disability insurance policy. This is what I discovered:

1.     Disability Insurance is expensive. Quotes from different companies from $100-250 per month.  Apparently, a substantial number of people use disability insurance, so companies raise the price to cover the payouts and ensure they aren’t losing money. Many companies offer “graduated” premiums (which allows clients to pay a reduced monthly premium for a few years in exchange for a higher premium later in life) to make it more affordable. I still opted for a “level premium” with a set rate and it’s $110 a month.

2.     The definition of disability is important. The definition of disability is variable. Some people might consider themselves disabled if they can’t work full-time, while others may only consider themselves disabled if they are unable to work at all. The broader the definition of disability, the harder it is to claim the benefit. Physicians need “own-occupation” disability insurance so that if we are unable to meet the specific demands of our own specialty (i.e. Surgery) we will get compensated, even if we can technically still do the work of another specialty (i.e. Family medicine). As a family medicine resident who plans to specialize in sports medicine, I still opted for an own-occupation definition of disability.   

3.     Gender bias is real. Disability insurance is more expensive for women than it is for men. Insurance companies claim that women are more likely to get disabled and seek payout from disability insurance (due to factors like pregnancy) so they charge us more for it. To avoid paying such high premiums, I purchased a “unisex” policy (which is the same price for men and women). These policies offer similar coverage and tend to be cheaper than gender-based policies for women.

4.     Some companies are better than others. When I contacted a few disability insurance brokers, I realized that one company was vastly cheaper than the others. Mass Mutual was the only company that offered an individual unisex disability insurance policy for female resident physicians. Since unisex policies are cheaper for women than gender-specific policies, the monthly premium for disability insurance from Mass Mutual was vastly cheaper than any other company. On the flip side, Principal offers discounted gender-specific policies for men, so many male residents purchased individual disability insurance policies through that company instead.

5.     Certain “riders” or added protections are essential. When I shopped for disability insurance, I had the option to buy additional protections. As a resident physicians with high-income potential there were 3 main riders I needed: 1) a cost-of-living-adjustment rider (so that my payout will increase with inflation each year), 2) a residual & recovery rider (so that I am compensated for any partial disability until I am back to my full productivity), and 3) a future purchase option (so that I can purchase more disability insurance after residency when my salary increases without having to re-qualify or pay a much higher price). Since I have a substantial amount of student loans, I also purchased a student loan rider so that if I get disabled before I pay off my debt, the disability insurance policy will pay me an extra $1700 for up to 10 years to cover my student loan payments.

6.     There is a limit on how much individual disability insurance we can buy. By law, resident physicians can only purchase an individual disability insurance policy with a max benefit of $5,000 per month. (They don’t want to incentivize us to become disabled by compensating us more than our current salary). We can purchase more disability insurance as attending physicians, but we need to have an individual disability insurance policy as residents so that we are fully covered now and can upgrade our coverage later for a cheaper price.

7.     It’s cheaper if you’re healthy. As I filled out the disability insurance policy application, I answered a TON of personal questions. Insurance companies take a very thorough history to determine our risk of being disabled in the future. I was asked about my own medical history and that of my family. They wanted to know if I had broken any bones, got in any recent car accidents, and whether I had ever smoked cigarettes. I was also asked if I had plans to travel out of the country or engaged in any high-risk behaviors like rock climbing or sky-diving. They wondered if I had ever gotten pregnant and the result of my last “wellness check” from the physician. Because I was young and healthy, my rate remained low.

8.     The price varies by state. I currently live in Florida, but I will begin residency in Atlanta, GA. Apparently, my disability insurance premiums are lower with my Georgia address than they are when I use my Florida address. Insurance companies look at hobbies, accident rates, and other data and determined that we pose a greater or smaller risk to them depending on where we live. California is one of the most expensive places, Georgia is one of the cheapest.

9.     Be wary of group policies through professional organizations. As physicians, we can buy into the group disability insurance policy through the American Medical Association or our specialty-specific organization. These policies seem cheaper and looked enticing. However, after doing some research I saw several drawbacks. First, the premium was not “level,” meaning the cost of policy could increase every few years as I aged. Secondly, they did not offer sufficient “future purchase options” so I couldn’t upgrade my coverage as often as I’d like (i.e. when my salary increased as attending physician). Lastly, buying into these group policies would negate or significantly reduce the payout from any disability insurance coverage I already have from my residency. Group policies usually cancel each other out, individual policies do not.  

Bonus: Many residents are eligible for the guaranteed standard issue policy at their institution. Every doctor needs their own individual long-term disability insurance policy. However, there is a special version of policy available to many pysicians-in-training. It’s called the guaranteed standard issue (GSI) policy and it allows physicians-in-training to get their own individual long-term disabiity insurance policy for a lower rate and with guaranteed approval. They get to skip the medical underwriting portion of the application can instead be guaranteed approval at a lower rate. Unfortunately, many insurance agents don’t tell clients about this policy so be sure to ask about it. These GSI policies are usually available to residents, fellows, and other physicians who just finish training with the past l3 months.

My point? Disability insurance is a must for resident physicians. It’s a bit expensive, especially for females, but we can get around that issue by purchasing a unisex policy and/or opting for a graduated premium. When we buy this insurance, we need a definition of disability specific to our own specialty, with the 3 main riders for complete coverage. Purchasing this policy in residency is cheaper and gives us the protection we need. Be mindful of what address you use on the application since the price varies by state and remember that group policies through professional organizations may be insufficient.

Disability Insurance 101: why you need it, what to include in your policy, and how to purchase it

When we’re first starting our careers, our focus is trying to advance and increase our pay. With our tight budgets, one of the last things on our mind is paying for added insurance. Trust me, I get it. However, as [future] high-income earners, long-term disability insurance is essential. It may not be at the top of our priority list, but it should be.

What is it and who needs it?

Unless you are already financially independent or were lucky enough to have a trust fund in your name, disability insurance is a must. Although we’d like to think we’re invincible, we are not. If some unfortunate event occurred that caused you to become disabled and prevented you from doing your job, you’d still need a way to support yourself. You can’t predict whether you’ll be disabled in the future so you must insure against that risk right now.

You may be tempted to wait to purchase this coverage when you make more money, but I’d caution you against that. The younger, healthier, and earlier in your career you are, the more you need disability insurance. You have your whole life ahead of you with decades of potential high earnings, long-term disability insurance protects you in case this were to change.

Do you still need it if you have a group policy through your employer?

More than likely. Long-term disability insurance may be offered by your employer, but that policy may not offer sufficient coverage. Most employer group policies only pay out 60% of your income if you get disabled, up to a certain maximum per month. The amount they provide may not be enough to cover your monthly expenses, pay back your student loans, and still allow you to save for retirement. As a rule of thumb, the higher your salary, the more likely you are to need an individual long-term disability insurance policy, outside of your employer.

Secondly, group policies may be less likely to pay out if you do become disabled because their definition of disability may be too broad. In other words, it may be harder to meet your job’s definition of disability to even apply to receive the benefit. For example, you may consider yourself disabled because you can’t do your current (high-paying) job as well, but the insurance company might deem you able to do some other (lower-paying) job and refuse to pay out, leaving you to deal with the decrease in pay on your own. You want to protect yourself against that risk by getting your own individual long-term disability insurance policy.

Some people may be able to purchase a group disability insurance policy through certain professional organizations. Although these policies seem enticing, they can have several drawbacks. The premium may not be “level,” meaning the cost of the policy may increase every few years as you age, eventually costing you a substantial amount as you get older. It also may not offer sufficient future-purchase options that allow you to upgrade your coverage as your salary increases.

What to look for in a good policy?

A good individual long-term disability insurance policy has 3 components: enough coverage, a specific definition of disability tailored to your own occupation, and additional riders for added protection. Let me explain.

Along with enough coverage and a specific definition of disability catered to your [high-paying] job, you also need to purchase disability insurance “riders.” Riders are added protections you pay for to ensure that you have all the coverage you need. Examples of riders you should consider purchasing are the: cost-of-living-adjustment (COLA) rider so that your payout will increase with inflation each year, residual and recovery rider so that you are compensated for any partial disability until you are back to your full productivity, and a future purchase option so you can purchase more disability insurance if your salary increases without being denied or charged outlandish rates because of your age or medical conditions.  

How do you purchase it?

As a graduating medical student, I knew I needed disability insurance. I emailed a few vetted brokers/agents that had a track record of working with high-income professionals and entered some basic information on their websites to get quotes. Once I found a policy that had the benefit I wanted with the riders I needed and an own-occupation form of disability, I then chose the cheapest policy.

The insurance agent asked me a bunch of medical questions as he filled out the application on my behalf. He inquired about my hobbies, medical history, and travel plans to discern my “disability risk” as requested on the form from the insurance company. I then reviewed the information in a secure portal and signed the form online. I was approved within 24 hours.

Are there any good deals for doctors?

Yes! Many physicians-in-training qualify for something called the guaranteed standard issue (GSI) policy at their residency or fellowship training program. The GSI policy not only gives you a discount on the price but it also guarantees you will get approved. Most disability insurance comapnies will assess your risk for being disabeled in the future by asking about your personal and family medical history. If you have a chronic condition, have had a series health scare in the past, or have a benign condition like an essential tremor they could deny you coverage. This is not the case with a GSI policy. Everyone who submits and application can get approved. Since these policies don’t require any “medical underwriting” or extensive approval process they are a great option for physicians who are still in training and looking for an individual disability insurance policy at a lower rate.

To summarize: Disability insurance is a must-have for high-income professionals. We can’t predict what may happen in the future so we owe it to ourselves to get insurance that will “protect our income” just in case we were unable to work for some reason. Oftentimes, group policies from our employer are helpful but not sufficient. We need an individual own-occupation disability insurance policy with extra riders until we become financially independent. Be aware that you may be able to get the guaranteed standard issue policy at your training institution which is a great option for many people. If you don’t already have a policy, I encourage you to get one today.

Tell me, was this helpful? What additional information about disability insurance would you still like to know?

Types of Insurance We All Need (in addition to health insurance)

Many of us are young and healthy with our entire lives ahead of us. As we continue to progress in life, we need to make sure we are doing so with the right protection. In other words, we need insurance. I don’t just mean medical coverage and car insurance though. Let me explain.

1.     Almost everyone needs long-term disability insurance. Unless you have a huge trust fund, enough passive income to completely cover your monthly expenses, or enough retirement savings to deem yourself financially independent, you need disability insurance. Why? Because if some unfortunate event were to occur that prevented you from working, you’d still need a way to support yourself. Disability insurance guarantees you a certain monthly income if you were to get fully or partly disabled, suffer from some medical illness, or get into an accident that prevented you from working your job. Since you can’t predict whether you’ll be disabled in the future, you need to insure against that risk right now. The younger, healthier, and earlier in your career you are, the more important it is to have disability insurance.

Although long-term disability insurance may be provided through your employer, group policies from your employer may not offer sufficient coverage. The payout from your employer is usually capped at a certain amount and may not fully replace your income. Plus, group policies may be less likely to pay out if you do become disabled because their definition of disability may be too broad. In other words, it may be harder to meet their definition of “disabled” and thus you may be less likely to receive the benefit when you need it. My point? Most high-income young professionals should purchase an individual, long-term disability insurance policy outside of their employer.

2.     You may also need life insurance. Life insurance guarantees a portion of your salary to your spouse or dependents should you pass away sooner than expected. This is critical if someone else depends on the money you make. I will be honest and say that as a single female with no kids, I don’t have an individual life insurance policy. However, if I get married to someone who is dependent on my income or have kids, it will be one of the first things I purchase.

There are two types of life insurance: whole life insurance and term life insurance. Term life insurance provides a benefit to your family if you die during the term of the policy (usually 30 years). Whole life insurance provides a benefit to your dependents regardless of when you die. Whole life insurance may sound more appealing, but you may want to think twice before purchasing it. Unlike term life insurance, whole life insurance is insanely expensive (about 10x more than term insurance), has a lot of hidden fees, and is unnecessary for many high-income earners who can provide money to their families in a more efficient manner.

My point? Most people need term life insurance to make sure their families don’t struggle financially if they were to die sooner than expected (within the next 20-30 years). If you were to die after that time, then you should hopefully have enough money saved (via retirement accounts and other high-yield investments) to take care of your family.

3.     Some professionals need malpractice/liability insurance. Most physicians are familiar with this type of insurance and most non-physicians don’t have to worry about it, but even still, I think it deserves a quick blurb. Malpractice insurance protects you in case you make a mistake at work that severely impacts someone else’s quality of life. You want to ensure that the patients or clients you work with can’t sue you and take everything you own. The ideal amount of liability insurance depends on your career specialty and other risk factors that put you at increased or decreased risk of being sued.

There are two main types of malpractice policies you can purchase: a “claims” policy and an “occurrence” policy. Claims policies cover you if someone files a claim against you during a certain period of time or while you work for a certain organization. The downside is that if someone waits to file a claim against you when you no longer work for that company, then a claims policy will not cover you. On the other hand, an occurrence policy covers you for any event that “occurred” during the time frame you were at the organization or under the policy. With an occurrence policy, if someone waits years to sue you then you are still covered because the action in the suit “occurred” during the time you were covered under the policy. As you can imagine, occurrence policies are more expensive but offer much better coverage. If you are working a job that only offers a claims policy, then you need to make sure you have what’s called a “tail” (added protection that will cover you in case someone sues you after you’ve changed jobs).

My point? Consider getting malpractice or liability insurance. The best kind is an occurrence policy, however, that is also the most expensive. If your job already covers the cost of a “claims” liability insurance policy, be sure to purchase “tail” coverage so that you have liability insurance after you change jobs.

4.     Consider adding an umbrella insurance policy to supplement your car and home insurance . While liability insurance covers you if someone sues you for something you did at work, umbrella insurance covers you in case you’re sued for something you did outside of work (i.e. civil disputes, business deals, etc.). For example, umbrella insurance can pay for your legal fees if your dog bites someone in the neighborhood, you accidentally injure someone at a social function, or some toddler gets injured at your child’s birthday party. It also acts as additional automobile and homeowner’s insurance. Although umbrella insurance doesn’t cover your own injuries or damages to your own property, it does protect you and cover your legal fees from harm you may cause to someone else.

Since umbrella insurance is added insurance, you can only purchase it after you have already purchased a certain amount of automobile or homeowner’s insurance. As a rule of thumb, umbrella insurance is purchased in benefit increments of a million dollars and it is usually best to purchase enough to fully cover your net worth (including the value of all your assets and potential future income). A policy with a benefit coverage of $1 million usually costs $100-$300 a year.  

To summarize, get insurance and enough of it. In addition to medical coverage, car insurance and homeowner’s insurance, most high-income professionals need disability insurance if they themselves are dependent on the income they receive from their jobs. They also need term life insurance if someone else, like a spouse or kids, is dependent on their income. Malpractice/liability insurance is useful in case someone tries to sue you for something you did at work and an umbrella insurance policy protects your net worth from unforeseen lawsuits outside of work. As [future] high-income young professionals, it is imperative that you get the insurance you need to protect yourself and your net worth.

Should you get a 15 or 30-year mortgage?

If you have asked yourself “Should I buy a home or keep renting” and properly considered the pros and cons of buying vs renting a home, you may choose to buy a house. After checking your credit, thoroughly considering your budget, and getting prequalified for a loan from the bank, you may have found a house you like. Now you need to decide what type of mortgage term is best for you.

Point 1: Real estate investors may want a 30-year mortgage

If you are a real estate investor who is buying a home for the sole purpose of using it as an investment property that you rent to someone else, then it is generally best to opt for a 30-year mortgage. As a real estate investor, you are using your tenant’s rent payment to pay off your monthly mortgage, so you are less concerned with paying off your mortgage as quickly as possible. Plus, opting for a 30-year mortgage lowers your monthly mortgage payments to the bank. This means you get to keep a larger portion of the rent your tenant pays you. Opting for a 30-year mortgage instead of 15-year mortgage as a real estate investor creates more cash flow each month, which increases your passive income.

Point 2: Deciding on 15 or 30-year mortgage varies based on your circumstances

The decision to get a 15 or 30 year mortgage is not as black and white for residential homeowners. If you are buying a home to live in yourself, the optimal loan term depends on factors unique to your own circumstances. For starters, the bank only offers 15 year mortgages to people who meet certain criteria. Only people with a certain credit score and debt-to-income ratio are eligible. Secondly, a 15-year mortgage has the advantage of offering a lower interest rate than a 30-year mortgage. This lower interest rate will save you lots of money over time. I’ll expand on this with the next point.

Point 3: A 15-year mortgage saves you money in interest payments

The main perk of having a shorter loan term, like a 15-year mortgage, is that your interest rate is lower AND the time on which you pay interest is shorter. Both of these factors save you lots of money in interest over the life of the loan. For example, let’s say you and your spouse want to buy a home that costs $250,000. Let’s also assume that you saved up 10% for a down payment (or that your parents gave you a very generous wedding gift for $25,000 that you then used on your home). If you chose a fixed 30-year mortgage with a 4.5% interest rate, by the end of the 30 years you would have paid back the $225,000 you borrowed PLUS an additional $185,000 in interest fees. You nearly paid double for the house!

However, if you had instead taken out a fixed 15-year mortgage (which usually comes with a lower interest rate, so let’s say 3.75% interest), then you would have paid back that $225,000 in 15 years in addition to paying only $69,000 in interest. By opting for the 15-year mortgage you paid off the home in half the time and saved $116,000 in interest payments! I don’t know about you, but I can think of a bunch of things I’d rather do with $116,000 than pay it to a bank in added fees. You are going to pay a lot of money in interest regardless, but the difference in interest you would pay on a 30-year mortgage compared to a 15-year mortgage is HUGE.

Point 4: A 30-year mortgage has lower monthly payments

In case I’ve just convinced you to opt for a 15-year mortgage, let me remind you of one downside. In order to pay the loan in 15 years, you have to pay the bank a much higher monthly payment. Using the example from above of a 250,000 home with a $25,000 down payment and a $225,000 loan, the payments on a 15-year mortgage at 3.75% interest are $1,919 per month.  The monthly payments on a 30-year mortgage at 4.5% interest is $1,423 per month, which means you pay almost $500 less each month. For many people, that difference of $500 is huge. They may want to take that $500 and put it into their 401K retirement account. Or, they may want use that $500 to pay back student loans, credit card bills, or other high credit card interest debt.

Point 5: There are other ways to save money in interest if you opt for a 30 year mortgage

Keep in mind that if you decide to get a longer mortgage term initially, all is not lost. The interest you pay on your mortgage over time will be higher, but there are ways to combat this. You can: 1) pay more than the required payment each month on your mortgage (if there is no prepayment penalty), 2) send in extra monthly payments each year, or 3) refinance your mortgage to a shorter term after a few years to lower the interest rate.

To Summarize, if you’re a real estate investor, you may want to opt for a 30-year mortgage. This will lower your monthly payments and increase your monthly cash flow. If you’re buying the home to live in yourself, it depends.

·      You may want to opt for a 15-year mortgage if you are established in your career with a steady salary and can afford the higher monthly payment.

·      You may want to opt for a 30-year mortgage if you would rather have lower monthly payments (at the expense of a higher interest rate) in order to pay off high-interest rate debt (credit cards and student loans) or fully maximize the employer match of 401K retirement accounts (if you have one).

If you decide to opt for a longer mortgage term now, you may be able to pay off the loan faster in other ways (i.e. by sending in extra payments, paying more than the minimum each month, or refinancing later).

5 Things To Do Before You Buy A Home

As a young professional, one of your biggest decisions is whether you should buy a home or keep renting. After thoroughly considering the pros and cons of buying a residential home, you might have decided that buying a house is the ideal choice for you. Before you start the home-buying process, here are 5 things you must do before you purchase a home:  

1. Get an official copy of your credit report. Your credit report plays a big role in whether you can purchase a home. It determines the interest rate on your mortgage and can even be used to estimate how much money the bank will loan you to buy a home. Your job as a [future] homeowner is to get an official copy of your credit report from all 3 of the major companies that compute it (Experian, TransUnion and Equifax). You need to make sure there aren’t any false charges, incorrect debt amounts, or fraudulent claims on your credit report that are negatively impacting your credit score. Once you see your actual credit score, you’ll be able to estimate the interest rate on the mortgage and determine your monthly payments on different loan amounts.

2. Learn some basics about the local housing market. You will have a better chance of finding your ideal home if you gather some preliminary information about the housing market first. Go onto real estate websites like Zillow.com and get an idea of housing prices in your desired area. Look at recent selling prices, especially in certain desirable neighborhoods. You should also search for new developments and the construction of new homes.  Your real estate agent may have a few places in mind, but it is helpful if you have an idea of the housing market for yourself, doing so will give you a more realistic idea of what’s available within your price range and desired area.

3. Get prequalified for a mortgage. Unlike a pre-approval, a pre-qualification is a non-binding estimate from the bank of how much money they will lend you to purchase a home. This is important because unless you have $250,000 sitting in a bank, you are going to need a loan to buy a house. Getting an idea of how much money you have access to will determine the size and location of the houses you consider buying. It will also help guide your real estate agent since it gives them a more accurate budget to use during the search.

Keep in mind that the amount you are prequalified for is not guaranteed. The bank could decide to give you slightly more or slightly less a few weeks later. If you’d like a binding amount, you can get “pre-approved” for a mortgage. Pre-approval is different from pre-qualification because it is a guarantee from the bank that they will loan you a set amount of money at a set interest rate. The loan amount and rate are usually “locked-in” for around 60 days.  

4. Determine your estimated costs. Just because a bank is willing to lend you a large amount of money, doesn’t necessarily mean you should take all that money. You need to come up with a preliminary mortgage amount and determine what your monthly payments would be, factoring in the average interest rate. You should also determine the difference between what you [and your partner] pay now in rent and what you [and your partner’s] homeownership costs would be. You can do this by using a mortgage calculator.

Simply enter the loan amount you will need, the interest rate estimate from the bank, and the term length (15, 20, 25, or 30-year mortgage). Doing this will allow you to see your monthly mortgage payment. Then, you’ll want to add an additional 40% to that number (so multiply your monthly mortgage payment by 1.40) to account for property taxes, homeowners’ insurance, and repairs to get an estimate of what your total monthly homeownership costs would be. If that number is higher than you [and your partner] can afford, then reset the mortgage calculator and type in a lower loan amount. Using this tool will give you a better idea of your true price range, which is oftentimes lower than the amount the bank may have given you during the pre-qualification.   

5. Write down the highest amount you are willing to spend. Shopping for homes can be a stressful process. You may fall in love with one home only to find out later it’s out of your budget. You may also find yourself in a bidding war with another buyer or with a seller who refuses to negotiate the price. Both of these situations can tempt you to pay more than you can afford for a home. In order to prevent this from happening, be diligent. Come up with a price range and write down the highest amount you are willing to spend.

Although you may have gotten prequalified for a certain loan from the bank, it’s important to come up with your own price range, within reason. Be certain that the real estate agent does not show you houses above that price. This may seem a bit obvious, but real estate agents show potential buyers houses out of their ideal price range more often than you think because the agents are paid on commission. The more expensive the home the more money they make in return. Some agents may also want to see you happy in a really nice home, but the money they make as commission is a very powerful incentive. Write down your set price and stick to it.

To summarize, there are 5 things you should do before you buy a home. Follow the steps above as you start the home-buying process.

The Best Student Loan Repayment Plans for Medical Students and Residents

If you have ever tried to learn about student loan repayment plans you might have felt overwhelmed and confused. Instead of spending days researching information like I did, I’ve created a summary of the different repayment plans in a question-and-answer format with some key takeaways for graduating med students and current residents. 

1. What is the Standard Repayment Plan and who should choose it?  

With the standard repayment plan, you will pay off your student loans in 10 years by making “fixed” monthly payments. This means you will pay the same amount each month regardless of how much money you make. The government will determine your monthly payment by adding all of your student loans (and the projected interest that will accumulate on them), dividing that number by 10 [years], and splitting the amount into fixed monthly payments. 

This is not the ideal plan for graduating med students and residents, especially those with around $200,000 in student loans. Unless you have very little money in student loans, the monthly payments required under this plan will be higher than you can afford on a resident salary. Unfortunately, you will be automatically enrolled into the standard repayment plan if you don’t select a different repayment plan.   

2. What is the Graduated Repayment Plan and who should choose it?

With the graduated repayment plan you will also pay off your loans in 10 years, but your monthly payments are not fixed. Instead, they will start out low, and increase every 2 years, until you have fully paid off your student loans in 10 years.

This is also not an ideal plan for graduating med students and residents. The payments under this plan will still be higher than most residents can afford. Don’t get me wrong, paying off your loans in 10 years instead of dragging it out over 25 years will save you money in interest. However, if you can afford the high payments under this plan and want to pay off your loans in a few years, you could save even more money by simply refinancing your loans with an outside company since they can offer you can even lower interest rate.  

3. What is the Extended Repayment Plan?

Through the extended repayment plan you will pay off your loans in 25 years by making fixed or graduated payments. This plan is for people who don’t qualify for an income driven plan and want to spread their loans out over 20-25 years. It is not ideal for medical students and residents since we qualify for income driven repayment plans during residency.

4. What are the income-driven repayment plans?

The Federal Department of Education understands that some people may have acquired a substantial amount of student loan debt that they may not be able to repay with their current salaries. Instead of handing you a monthly student loan bill that may be higher than your mortgage, these income-driven repayment plans base the size of your monthly student loan payments on your income.

Keep in mind that there are several different types of income-driven repayment plans and that the names may change over time. As of 2024, the 4 types are Pay-As-You-Earn (PAYE), Saving-on-a-Valuable-Education (SAVE) which replaced the Revised-Pay-As-You-Earn plan, Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).

Most of these plans cap your student loan payment at 5-15% of your discretionary income. Your discretionary income is your income minus whatever the poverty line is for your family size. In other words, if your income is low, your student loan payment will be low. As your salary increases, the size of your student loan payment will increase. After 20-25 years (depending on the type of federal loans you have) your student loans will be forgiven. Keep in mind that many residents and attending physicians will qualify for public service loan forgiveness which forgives their student loans after only 10 years of payments.

5. Should you enroll in an income-driven repayment plan like Pay-As-You-Earn (PAYE) or Saving-on-A-Valuable-Education (SAVE)?

As graduating med students or residents, you should consider enrolling in SAVE, especially if you have at least tens of thousands of dollars in student loans. With the SAVE plan your student loan payment is never more than 10% of your discretionary income, which is ideal for residents trying to make ends meet on a $60K salary. The amount of your income-driven repayment is recalculated each year after you file your taxes.

Of note, if you file your taxes as a graduating med student with zero income, then there is a high possibility your student loan repayment your first year residency will be zero dollars. Having a student repayment of zero dollars will actually count towards one of your 10 years of required payments under the public service loan forgiveness program. If you don’t file your taxes and instead opt for a grace period (the default option) then that time will not count toward public service loan forgiveness.  

6. What are the advantages of the new Saving-on-A-Valuable-Education (SAVE) plan?

SAVE is the new plan that has replaced the old revised-pay-as-you-earn (REPAYE) plan. Although REPAYE and PAYE were similar, SAVE and PAYE are much different. In fact, many many people will benefit from being in the SAVE plan and the PAYE plan is being phased out.

SAVE has many perks like:

• You pay a smaller percentage of your discretionary income. Instead of paying 10%, you now will pay 5% to 10% depending on the percentage of undergraduate vs graduate/medical school loans you have. If you only have loans from undergrad you will pay 5%. If you only have loans from graduate school or medical school you will pay 10%. If you have a mix of both, you will pay between 5% to 10% depending on the ratio of undergrad to graduate school loans you have.

• The definition of discretionary income is different which allows you to pay less per month. Under the old REPAYE plan, the PAYE plan, and the IBR plan the amount you pay per month is your adjusted gross income (AGI) minus 150% of the poverty line for your state and family size. Under the new SAVE plan it is different. With SAVE you pay your AGI minus 225% of the poverty line for your state and family size. This difference allows more of your income to be protected from the student loan calculation resulting in a lower monthly payment. In other words paying 10% of your discretionary income in the SAVE plan will result in a lower monthly payment than paying 10% of your discretionary income in any other plan because the definition of discretionary income in the SAVE plan is different in a way that favors the borrower.

• No unpaid interest gets added to your loan balance. This means that any interest accruing on your loans that isn't covered by your monthly payment will be automatically forgiven. If you’re like most physicians who graduate medical school with around $200,000 in student loans, it’s very likely that your income-driven payments in residency will not even cover the interest that is accruing on your loans. Enrolling in the SAVE plan will prevent that unpaid interest from being added to your loan balance. For example, let's say your monthly payments over the year add up to $5,000 but you have $20,000 in interest being added to your loans each year. This means you have $20,000 in interest minus $5,000 in payments which leaves $15,000 in unpaid interest each year. Under most repayments plans, that unpaid interest would be added to your loan balance causing the amount you owe to increase. Under the SAVE plan, that is not the case. The $15,000 of unpaid interest that wasn't covered by your monthly payments will be automatically forgiven.

• You have the ability to exclude your spouse's income, if you file your taxes separately. Under the old REPAYE plan, you could not exclude your spouse's income when calculating your student loan payment. With the new SAVE plan, you can. As long as you and your spouse file your taxes "married filing separately" instead of "married filing jointly" you have the ability to exclude his/her income from consideration when determining your monthly student loan payment.

7. Who should consider enrolling in Pay-As-You-Earn (PAYE) or Income-Based-Repayment (IBR)?

The SAVE plan is the best option for most people. However, there are 2 advantages of PAYE and IBR that some people may benefit from.

1) The payment cap. PAYE and IBR will cap your payments at the standard 10-year repayment plan level even as your income rises. This means you will pay payments that are either 10% of your discretionary income OR...whatever your payment would be if you enrolled in standard 10-year repayment plan, whichever one is lowest. This may benefit some highly paid physicians who don't want to make payments based on their income and would rather make payments based off the standard 10-year repayment plan. The higher your salary and the lower your student loan balance the greater chance you may benefit from being in PAYE or IBR. Look on the federal website for their payment estimator to see whether PAYE or IBR could save you money.

2) An earlier timeline for IDR Forgiveness. The other advantage of PAYE or IBR is that you have a chance to get your student loans forgiven in 20 years instead of 25 years. Although some people enroll in other student loan forgiveness plans like Public Service Loan Forgiveness (PSLF) which will forgive their loans after making 10 years of qualifying payments, not everyone qualifies for that program. If you do not qualify for PSLF, you are still eligible for the default Income driven repayment forgiveness. With this program, your loans will be forgiven after making 20-25 years of qualifying payments. Everyone in the PAYE plan and many people in the IBR plan will have their loans forgiven in 20 years (instead of 25 years) under this default income driven repayment forgiveness program. Those enrolled in the SAVE plan will have to make 25 years of qualifying payments. There is no forgiveness in 20 years under the SAVE plan.

Of note, PAYE and IBR are very similar. Those who do not qualify for PAYE may want to consider the IBR plan. PAYE plan is being phased out over time. A person should consider PAYE or IBR if they are not going for PSLF and would benefit from making payments based on the standard 10-year repayment plan instead of making payments that are 10% to 15% of their discretionary income. Be aware that the PAYE plan is being phased out over the next couple years.

8. What the heck is Income Contingent Repayment (ICR) and who should enroll in that one?

Income contingent repayment (ICR) is a type of income-driven repayment plan for those with Parent PLUS loans. People with these loans are those who took out student loans on behalf of their kids to help their kids pay for college. My point? This plan is only for those who have Parent PLUS loans. If you aren't sure, check your loan type on the federal student loan website.   

9. Can you change from one student loan repayment plan to another?

Yes. Oftentimes people may choose one of the income-driven repayment plans after they graduate from school, but then change to another type of plan as their salary increases or their life circumstances change. For example, a recent graduate might choose to enroll in SAVE for a few years to enjoy the benefits of the government interest subsidy, then change into PAYE if their income skyrockets so that there is a cap to place on how high their payments can be. Switching was much more common when the old REPAYE plan was in place. Now that there is the new SAVE plan much fewer people need to switch plans but it is still possible.

Trying to get your student loans forgiven? Consider public service loan forgiveness

Public service loan forgiveness got some bad press in the news in the past, but as a physician, I am still enrolled in it. Just in case you have some questions about the program, I’ve answered some common ones below:                                                                                                          

1.     What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a government sponsored student loan forgiveness program. If you work in public service for a non-profit organization, academic institution, or government agency and make 10 years of on-time qualifying monthly payments towards your student loans, the government will “forgive” your remaining student loan balance.

This program was designed for public servants like teachers and police officers who have lots of student loan debt but may be unable to pay it off in a reasonable time, partly because the salary they receive working in public service is less than the salary they would have received in a different profession. The goal of the program is to allow people with a passion for public service to pursue careers in that field without saddling them with an eternal burden of student loans.

The great thing about this program is that many health care professionals qualify too. Before you roll your eyes, hear me out. Many doctors, such as myself, obtained an average of $200,000 in student loans during medical school. Then we entered residency where we were mandated to spend 3-7 years earning a government salary of around $60,000 while working 80 hours a week before we could make “the big bucks.” If we choose to continue working in an academic setting or for a nonprofit health system, we qualify for public service loan forgiveness as well.

2.     Wait, isn’t it sketchy?

I’ll admit, there was some bad press about public service loan forgiveness (PSLF) in the past. During that time, people who thought they met the requirements were finally able to apply for loan forgiveness. Unfortunately, many people were not granted this forgiveness and hearing this news scared many people who were depending on this program.

Although this is less than ideal, there are several reasons why previous applicants were unable to get their loans forgiven. When the program first came out, the rules were vague. There was a lot of misinformation about how to enroll and many people who thought they qualified for the program did not actual qualify for it. Nowadays, the requirements for PSLF are much easier to understand. Now that people are more aware of how to properly enroll into the program, many people who have met the qualifications have gotten their student loans forgiven.

3.     Is it wise to depend on this program?  

A few years ago there were some proposals to eliminate PSLF, or potentially limit how much money can get forgiven through it. Many people got worried that the program would change and didn’t want to depend on it. Nowadays, most of that worry has gone away.

The department of education has made several changes to the program that 1) make the rules much easier to understand and 2) have expanded the number of people who qualify for forgiveness.

As of 2024, many many physicians and other professionals with $200,000 or $300,000 or more in student loans have gotten their debt completely forgiven with the PSLF program.

4.     How do you qualify?

According to the website, you need to have direct federal student loans, work full-time in public service via a 501(c)(3) nonprofit or academic institution, and submit 10 years worth of on-time qualifying payments (i.e. Pay the full amount of your student loan repayment each month through one of the income-driven repayment plans).

5.     How do you actually enroll?

Go to the student loan website, complete the PSLF form, and have your employer sign off on it. Your employer can submit it themselves once they sign it electronically, or you can upload the form yourself, if you have your employer sign the form on paper. Once you’ve submitted the form, the federal loan servicer “Mohela” will verify whether you submitted the paperwork correctly and confirm whether you qualify. Mohela is the official servicer of the PSLF program (they took over for the pervious company Fedloans). You must contact Mohela annually to verify all of your payments and re-submit the employer verification enrollment form so that they know you still work in public service for a qualifying organization. If you have a different loan servicer (such as Nelnet, Navient, Great Lakes, etc), your loan servicer will be switched to Mohela as soon as you enroll into Public Service Loan Forgiveness.  

6.     Do you need to protect yourself if something goes wrong?

I understand that going for PSLF is a risk. There is a chance that the government could change the rules of a program that allows relatively high earning doctors to avoid paying hundreds of thousands of dollars in student loans. If you’d like to protect yourself you can consider creating a “student loan investment side fund.”

Instead of using the money you’re saving in PSLF to buy a better car, a larger home, or have a wealthy “doctor” lifestyle, you can save that money. Specifically speaking, you can take money from each check and put it into a high-yield savings account or put money in an account that is invested in a combination of real estate deals, index mutual stock funds, and money market funds. That way, if PSLF changes in the next few years or for some reason you can’t get your loans forgiven, you will have created a nice nest egg of money that you can use to quickly pay off the rest of your student loans.

If the PSLF program stays the same, then you can keep on investing that money and use it to pay for your retirement or your kids’ college education.

Tell me, are you thinking of going for Public Service Loan Forgiveness too?