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Podcast: Financing your medical school education

In this episode, hosted by Chris Warner with special guest Aimee King, we focus on everything you need to know about financing your medical training.

 

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You’re listening to The Financial Literacy Podcast, brought to you by MD Financial Management.

Canada’s only national financial services firm dedicated to helping physicians and their families with their unique financial needs.

CW: Hi everyone! My name is Chris Warner and I am a Insurance Consultant. I am so excited to be hosting today’s episode of The Financial Literacy Podcast, where we will be focusing on everything you need to know about funding your education in medicine. We are joined by a very special guest, Aimee King, Early Career Education Specialist, Thank you so much for being here today.

AK: Thank you so much for having me. It’s great to be here.

CW: So, today we’re going to dive into ways that students who have decided to pursue a career in medicine can best prepare themselves financially, not just for their time in med school, but through their residency, possibly a fellowship, and then into practice.

AK: Yes, and this conversation is really important because the cost of an education in medicine is not only much higher than most other fields, but it also follows you much further into your career once you’ve completed training. So, getting a head start on your finances will help you start off on the right foot and save you added stress later on.

CW: Right, so how soon should medical students start preparing?

AK: At birth. I’m kidding, but I’m also not. If you’re lucky, your parents will have started saving some money for your education when you were young, but even at that, not every parent can be expected to save enough to cover the costs of medical school. For kids who always dream of being a doctor, they should be working towards building their own savings from part time jobs, gifts and so on. The earlier you can start saving, the better.

CW: I feel like that’s true of saving for education in general nowadays since tuition costs have been on the rise. But like you said, the cost of medical school is even greater. How much greater of a cost should students and families expect?

AK: Well, in Canada, the average undergrad student leaves school with about 30 thousand dollars of debt. Medical students should expect to add at least another hundred thousand on top of that. In a recent study, I believe it was 16% of med school grads owed over 200 thousand dollars. then factor in residency where even though they’re earning a salary, they’re still accumulating debt from their medical So, by the time you begin practice, and practice set up costs  you could be looking at close to 300 thousand dollars of debt.

CW: Wow! Is it even possible to save that much by the time you start school?

AK: Probably not. But I don’t want that to discourage students. Will it be tough? Yes. But there are lots of options to help lighten the load. And if you’re passionate about this field, and you’re able to work hard and stay focused on your goals, the rewards will pay off. Literally.

CW: So, planning early is definitely a good start. But what should that plan look like? Like you said, it’s not enough to just start putting money away as soon as you can. What else should students and families be doing?

AK: Well, unfortunately, there’s no one-size-fits-all plan or solution. But knowing the different resources that are available will help you start to see which ones might work best for you and your circumstances.

CW: And if you’re not sure what options might work best for you, speaking to a financial advisor is always a good idea. Our MD advisors specialize in finances for physicians and can help both students and their parents in ways a traditional advisor might not.

AK: Absolutely! Even if you think you’re financially savvy, physicians are financial outliers and there are many tools available to them to help them be set up for success., so I would definitely recommend an MD advisor who would be more familiar with these processes.

CW: Ok, let’s get into some detail about the different options that are available when you start to put together your financial plan for med school. What would you say should be the first step?

AK: Hopefully step one was taken care of by the parents by starting to put some money away for the child’s education into an RESP. It can be tough to save for your child’s education on top of other financial obligations, but the value of time will help these savings immensely.

Step one for the prospective med student would be to open a TFSA when they turn 18 and start saving any money towards their own education there.

The benefits to both of these accounts are that the investments grow tax free. 

That means you can make smaller contributions over a long period of time and still end up with substantial savings.

CW: That seems like a pretty easy step, are there differences between the two accounts?

AK: Yes, they are very different.

An RESP, is a registered education savings plan, it’s opened by a parent, on behalf of a child or a family account if there’s multiple children, specifically for education.  The two big benefits of the RESP is it’s a tax-sheltered account that parents, grandparents, family friends, etc. can use to save up to $50,000 for a child’s post-secondary education. The funds grow tax free and are then taxed as income to the child when withdrawn, therefore at a much lower tax rate than the parents. The other one is that the earlier you start saving the better, because the government will match 20% of your contributions on the first $2,500 each year with the Canada Education Savings Grant, up to when they turn 18.

The family account gives the flexibility to have multiple sibling beneficiaries, just in case one child doesn’t want to pursue post-secondary education, the funds aren’t lost and can be allocated to another child. In the rare event that none of your children want to pursue post-secondary, you can withdraw the funds, but there are taxes and penalties you’d have to pay. I would recommend, instead, to transfer your funds to an RRSP if you have contribution room, the government matching grants would also have to be return

A TFSA is a Tax-Free Savings account that can be opened by anyone 18 and older, the current yearly contribution limit is $6,000 and that gets set by the government each year and there are penalties if you go over your contribution limits.

The TFSA is a great tool for your own education savings because the money can be used for whatever you want and it grows tax free, and your withdrawals aren’t taxed.   

CW: But there are all sorts of other grants that students can apply for on their own, right?

AK: Absolutely! Grants, scholarships and bursaries are essential in financial prep for students.

CW: What does that process look like for medical students?

AK: So, before we get into that I think it’s important to note the difference between these options.

Government grants can be issued by either the provincial or federal government, usually in addition to a loan program. When you apply for your loan, the government assesses your household income and other things that could impact your finances, like dependents, and if you are eligible, you could receive additional funds. Eligibility requirements vary by province, as well as your program of study, but most of them are available online for you to check out.

A scholarship or bursary are more often given out through a corporation or a university. They are most often awarded based on merit in addition to financial need, however there are usually some smaller scholarships that are open for specific groups such as BIPOC or LGBTQ+ or other socio-economic demographics - these scholarships are usually from a legacy trust – make sure to look through all the scholarships and apply for all of that you are eligible for! .  This can take a lot of work,  beyond filling out an application with all your financial and household information, you also have to prove your academic excellence. And if you are studying in Canada, there are only 17 medical schools, so the competition is tough. But it will be extremely beneficial to your financial planning. Plus, it looks great on a resume.

CW: Yes, absolutely. And of course, the money you receive through both scholarships and grants, that doesn’t have to be repaid and there is usually little to no tax.

AK: Yes, exactly. So that’s a small portion of your expenses covered that will lighten some of the load from the debt that will stick with you into and after your studies.

CW: Right, because even with scholarships, and grants, and whatever you’re able to save, the reality is, you’re still going to need to borrow most of your funds from somewhere.

AK: Oh, yeah, for sure. There’s only a very small percentage of medical students lucky enough to graduate with little to no debt from medical school.

So, yes, be prepared and start researching financial institutions and their loan and line of credit options.

CW: That’s where the bulk of their financial plan should be focused then, right? On a student loan or line of credit? Because that is what it going to cover the majority of their expenses, and what their work will be focused toward paying off when they’re finished school.

AK: Correct. And that’s also why it’s important to know what the differences between a loan and a line of credit are.  There’s advantages to both, but typically the way the interest is charged will determine the order that med students should use their different debt products. The repayment terms of each will come into effect later and then they can weigh the options available to them including loan relief programs and even debt consolidation.  However most medical students will need a combination of both to fund their medical education.

so you have to consider how you want to approach paying off debt before you even have it.

CW: So, what are some of the main differences between the two?

AK: When you apply for government student loans, you will get two portions, a federal and a provincial portion – this won’t make much of a different until the time comes for repayment. But with a loan, the total amount that you’ll receive is given to you up front, regardless of whether you need it all right away or not. You will be expected to repay the full amount.

When it comes to applying for a line of credit, here’s where being a physician makes you a financial outlier! You have access to promotional offers from the banks for your line of credit. Once you receive your acceptance letter to medical school, you can research which banks have the best offers for medical students. Typically the approved amount ranges from $250,000-$350,000 that sits available to you on a line of credit. You do not need to use it all, in fact, we highly recommend you don’t use all of your line of credit to pay for your tuition and living expenses as you will likely need to access your line of credit for more expenses as you near your transition into practice.

You can borrow more as you need more and pay some back whenever you find yourself with extra money. Think of it like a credit card - it's revolving in that every dollar of your principal that you repay, becomes available to you again to reborrow.

CW: And what should students expect in terms of interest and how that will affect what they owe?

AK: In terms of interest, for both student loans and lines of credit, the rate is usually tied to Prime Rate, which is a variable rate that is determined by the Bank of Canada. Loans are generally Prime or Prime + 1%, while the line of credit typically offers a slight discount of Prime – 0.25%. That discount may not seem like much, but every little bit helps.

The bigger differences lie in how the interest is calculated for each. For your student loans, they don’t accrue any interest while you are in medical school. Typically, student loans would go into repayment and start to accrue interest 6 months after you graduate your full-time studies, however since Covid hit, the Canadian government has extended that grace period until March 2023 for all student loans. Depending on what province you’re in, you may be able to delay your interest from accruing throughout residency as well. You can also claim a 15% tax credit on the interest on the federal portion of your student loans.

The interest on your line of credit kicks in the moment you withdraw funds, you get charged a monthly interest payment. Most borrowing institutions will capitalize these payments while you’re in medical school – which means it’s borrowing from your line of credit to pay the interest; this is also why your debt will grow quicker on your line of credit. However, the grace period for your line of credit can be anywhere from 6 months up to 2 years, depending on your bank before you need to start paying down the balance.

CW: And so, I guess once you start thinking about borrowing, and accruing interest, you also want to think about what the repayment process for managing that debt and paying off those loans will look like. Is that also different depending on whether you go with a loan or line of credit?

AK: Generally speaking, when paying for your medical school, you want to use your borrowing sources in the order that you will accrue the least amount of interest. So once you’ve used your savings and any free money, such as grants and you would use your student loans because you won’t accrue any interest on them throughout medical school, then you would tap into your line of credit because that interest will start being charged from the moment you use it.

The advantage for medical students is that there are options available to you to help pay down your debts. It's great to meet with an MD advisor to make sure that you are aware of all of the debt relief or loan forgiveness programs that are available to you. Your advisor can also crunch the numbers to see if consolidating your debts makes sense as well. By consolidating your debt onto your line of credit, this can free up some cash in your monthly budget and give you only one monthly minimum debt payment. This then gives you the flexibility to either pay more down on your debt, or potentially look to start investing with some of that extra cash."

Even though you will be making a salary during your residency years, it’s possible that you will still need to access your line of credit, so it’s important to leave room on there.

With a line of credit, you still have access to those funds as long as the account is open. So, you can use that for your residency expenses, and potentially make payments using some of your residency salary.

CW: With all of this growing debt, is there anything that can really make a difference, or are students sort of just stuck in this rut until they start their full-time practice?

AK: Well, this is where budgeting and establishing good financial habits is really going to make the most difference. There are a few decisions you can make early on that will help you cut down on some of your expenses. For example, where you decide to do your studies can be a big indication of what your finances will look like. Your tuition will be different depending on the school and the province you’re in, of course, but some cities are also more expensive to live in than others. If and where you end up re-locating will impact your living expenses…

We have a really cool medical school cost calculator on md.ca that can help you figure out roughly how much your medical education might cost you, we’ve pre-populated it with tuition and estimated living expenses for each school, but you can go in to adjust with your living expenses to give you a better idea.

…which leads into the importance of tracking your living expenses. Unless, you are going to be living at home with your parents while studying, your finances are going to be split pretty evenly between your education needs and personal needs. Knowing exactly where your money is going is the best way to see where you can cut back your spending, and what needs to be prioritized. Med school can be stressful enough, we can’t expect you to track every single expense in an excel spreadsheet and stick to a strict budget, but you can use free budgeting Apps like Mint to keep yourself on track at a quick glance.

CW: And obviously, your budget will change over time, both during your studies and afterwards.

AK: Absolutely. Medical students need to keep in mind that each year of is different in terms of expenses, including residency.

This means you have to manage your finances accordingly. If you have extra funds at the end of the year, as much as you might want to treat yourself, I recommend putting as much as you can aside. Even if you think you’ll be covered for the next year, you may run into some unexpected expenses, or I don’t know, break some of your equipment and need to replace it last minute. It’s always a good idea to have a little set aside for emergencies.

CW: I agree. Better safe than sorry.

Now, we’ve mentioned a few times already, your residency will also impact your finances, even though you’re making money while practicing what you learned in med school. Do you think it’s a significant start in tackling some of that debt?

AK: So, in your residency you will be earning a salary and it is certainly an enormous improvement from anything you would have been making in your part-time job, if you even had one while also attending med school.

But as we mentioned there are also many expenses you will see during your time in residency too. There are courses and exams and training that you will have to pay for. You will also have expenses related to licensing and insurance. Not to mention exam prep materials, and parking at the hospital.

But it is definitely a good start.

You're also paid stipends for being on call, which is exhausting, but will add to your income during residency.  And every year your pay goes up a little. 

In rare cases, there is also a thing called “Moonlighting” where you can earn extra money by providing clinical services in addition to your residency work.

You have to do research on this though, because eligibility and registration is different in each province. And some programs don’t allow their residents to moonlight if the existing workload is too heavy.

CW: It’s definitely a big transition from med school onto your residency. Almost like a culture shock.

Your work load is more intense. You’re getting a lot more hands on experience. All of that, it’s surely a lot to have on your plate, without even talking about any other responsibilities or obligations you may have outside of your residency. Are there any options for those who might not be able to take on extra work? Or even just for those struggling to pay back their loans in general?

AK: Absolutely. Depending on your province or your specialty there are various loan relief programs out there to help ease the burden of your medical school debt. Nationally for Family Physicians there is a loan relief program that can have up to $40,000 of your federal student loans forgiven if you do you residency or practice in remote or underserved communities. There’s also the option of debt consolidation to help ease the monthly cash flow.

CW: Excellent.

Well, I’m sure we could go on for days about all the different aspects and avenues for financing your education, but I think this has given us some great insight on what to expect and how to get prepared.

Do you have any final advice for our listeners?

AK: Just, don’t get too overwhelmed. Like I said at the beginning of the conversation, it is going to be tough, but it is also going to be so rewarding.

Keep in mind you are going to be surrounded by people who are in pretty much the same boat as you. And you are going to work with professionals who were once in your shoes. So, reach out to people. Ask for support. And when in doubt talk to an advisor.

But most importantly, just stay focused on your goals. If you remember why, you are doing this, and you stick to your plan, you will be fine.

CW: Absolutely. I could not agree more.

 Aimee thank you so much for joining us here today. It’s been a pleasure having you here today.

AK: Thank you so much, this was great. And best of luck to all you future physicians out there.  

CW: And thank you again to our listeners for tuning in. We hope that if you are thinking about starting your journey to a career in medicine, or if you’re on that journey already, that today’s episode has helped you gain some insight on how you can better manage your finances along the way.

Remember MD Financial has advisors that specialize in the financial guidance for physicians so you know you are getting the best advice for your specific needs.

Once again, I’m Chris Warner. Thanks for listening and we hope you’ll tune in again soon. Bye.

This has been The Financial Literacy Podcast brought to you by MD Financial Management.

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