The Impact of Student Loans on Financial Freedom
Updated: Dec 13, 2022
Note: transcription provided by Otter.AI, which is a technology company that develops speech-to text transcription and translation applications using artificial intelligence and machine learning.
Christopher H. Loo, MD-PhD: Today, we have a very special guest. He's with the White Coat Investor. And his name is Andrew Paulson. And he's going to talk to us all about student loans, his company, how he helps doctors, educate themselves about student loans, different financing different repayment. So we met at FinCon and I got to hang out with each other with the White Coat Investor team. And it was a pleasure to meet him. So now I'm trying to introduce Andrew to my audience. So welcome.
Andrew Paulson, CSLP: Great. Hey, thanks for having me. Christopher. Excited to be here.
Christopher H. Loo, MD-PhD: Yeah. It is a small world. We met at FinCon. Jim was speaking and we learned more about your company. And I was like, Oh, this is an interesting area, it's very important especially for medical students and residents to learn about how much student loans to take out, when it comes time to repay, the different repayment options. So, this is something that's very informative. So, tell us a little bit about yourself, your company, your beginning, your affiliations with White Coat Investors, and then we'll go from there.
Andrew Paulson, CSLP: Yeah, absolutely. So, my name is Andrew Paulson. I co-founded the company, Student Loan Advice.com. I'm not a physician, but my wife is a nurse. So we have some healthcare background. And I kind of started out in the business world chasing a dream and chasing a passion and working in the investment industry and worked on the east coast for a couple of years kind of chasing that dream. And I realized that I was really interested in working with individuals on figuring out retirement and their finances. So back in business school, that was something that I really loved doing was talking about the stock market and how to manage your money. And then I had moved into a role where I was helping organizations make investment decisions, but I really wanted to get back into a position where I was working more individual, with people and consulting or advising, and the White Coat Investor reached out, they were looking for someone who had financial background and understanding somewhat in healthcare, and I really fit the role, and I was looking to jump into an entrepreneurial opportunity. And so I co-founded the company called Student Loan Advice.com with the White Coat Investor. Just because they had seen this as a great financial literacy platform for physicians, dentists, and really healthcare professionals broadly in lots of high earners. But they had seen that in terms of student loans, there's a lot out there and there's so many nuances to it. And that's where the idea came to set up this company where we do one on one consultations and help them manage their student loans in the most optimal way paying them off or going for loan forgiveness, but bottom line getting you out of debt in the most optimal way.
Christopher H. Loo, MD-PhD: That's so awesome. I know because student loans are so important because that's how a lot of medical students, DOS, dentists, they finance their education. And it's really important to understand that because, when I was going through medical school, the only option you had, this was back in 2007, the only options you had were to consolidate all your loans, refinance and lock in a rate. But now you have an income base, your student loan forgiveness, you have all of these different vehicles. So I want to introduce Student Loan Advice, because I think the White Coat Investor is doing a lot of very great work in terms of financial education and information. So I'm trying to get that out to my audience as well. Broadly, you don't have to give us a lecture, but tell us more broadly about the student loan market different options in how a Student Loan Advice.com fits into the picture?
Andrew Paulson, CSLP: Yeah, absolutely. So, student loans are about a $1.7 trillion industry. So there's, I think it's about 40 million people right now that currently have student loans. So it's massive, and it's a massive issue out there. And so many of you out there that have gone into healthcare have large student loans. And not only do you have large student loans, but you have a complex pay off process. Where for a long period of time you were in your professional degree program, earning your medical degree or your dental degree. And, and then after that, you go into your residency and your period of training, and they're asking for you to start paying on those $300,000 student loans that you took out for medical school. And that's a tough pill to swallow.
And like what you were saying when you graduated back in the 07-08 area, the only option was to just privately refinance those and start paying lots and lots of money every single month at those student loans, which is really difficult when you're making 50, or $60,000, as a resident. So one of the things that they created is these income driven repayment programs, which help you reduce your payments, particularly while you're in your training, or even after you get out of your training and kind of get your feet under you. Getting that attending job and figuring out how to manage your student loans. And that is often a big plus for people. Because when you're making 3-4,000 a month, you can have monthly payments, somewhere in the 2-400 range, which is a lot more affordable than a $4,000 monthly payment. And so we walk through all the different repayment plan options that are at your disposal, and how to choose them.
Because if you're single it tends to be pretty straightforward on how to manage your student loans, particularly when you're in your training. But then if you're married, or your spouse has student loans, that's where it can get more complex, picking the right repayment plan is extremely important. And it can be in 1000 meters, you could lose that 1000s of dollars if you pick the wrong repayment plan. So we help people kind of navigate that process. And there's not only this refinancing and paying them off kind of the old school way, as our parents had told us growing up, there's a multitude of loan forgiveness options as well that are particularly available to physicians, one of the loan forgiveness programs, it's called Public Service Loan Forgiveness. And that's a large forgiveness program that's available out there. So in one of our one on one consultations, we go through all your repayment options, understand your student loans, and help you kind of draw out and sketch an optimal plan for getting them done.
Christopher H. Loo, MD-PhD: That's great, that's a great overview. So it sounds like now, there's a plethora of options. And so if, for example, if a graduating medical student has anywhere between 3-400,000 in student loan debt, what are some of the common mistakes or pitfalls that they make that you see commonly when working with clients?
Andrew Paulson, CSLP: Yeah, so one of the first ones is they don't realize that so many of those student loans that you took out in medical school, they start growing the minute that you take them out. So the ones that you took out when you were a first year medical student all the way up until your fourth year, the minute those come out, they start accruing interest, because they're typically unsubsidized student loans. So the first issue is just a misunderstanding that they start growing right away. And also that you know that they're growing if you have a 7% interest on $100,000 in student loans, that’s growing $7,000 a year.
And then I'd also say that lots of physicians, when they go into their training, they will put their loans into forbearance. So they won't make any payments. And they'll just say, You know what, when I'm done with my residency or my fellowship, that's when I'll start dealing with them to figure them out. But that's often a very, very big mistake for many because your loans don't stop accruing interest when you go into forbearance. Forbearance is just withholding payments for a certain period of time, but what would happen is your loans are accruing interest, and they're growing over time. And then at the end of any forbearance period, the interest will capitalize. So let's say for example, you graduate with $200,000 of a principal balance and $50,000 of interest that accrued since you finished medical school and then went through a three year residency, but you haven't paid on your loans for seven years. And that 50,000 actually becomes principal. So instead, it starts growing in accruing interest off 250,000. And so that's a one, one mistake that I often see is people going into forbearance, because they see that big payment when they go into their training, and they can't afford that.
But what you can do is you can look into an income driven repayment program, and the payments are very affordable. And for a lot of people in your intern year, you're going to have $0 payments, assuming that you didn't make anything when you were in MS for your last year of medical school, highly unlikely that you were working when you're going around doing interviews. But the other thing that it benefits you enrolling in an income driven repayment program, is it also keeps the door open for loan forgiveness tracks. So there's two main loan forgiveness tracks, one of them is Public Service Loan Forgiveness which occurs after 10 years of working. And there's another one called taxable forgiveness, which is 20 or 25 years. And I mainly see physicians doing the Public Service Loan Forgiveness track. And if you just enroll in one of the income driven repayment programs, let's say for your three year residency, you could get payment for three years towards that program, and it keeps the door open for that path. So that's another big issue is if you end up working in a non for profit, or a 501(c)(3), or you work in academia, when you finish your training you've missed out on on a huge opportunity if you weren't making payments in one of those income driven repayment programs, because you could be well on your way, reaching the 10 years of required payments to get your loans forgiven tax free through that program.
And then I was just gonna say the other issue that I see is people privately refinancing their student loans, when it's the wrong time, and people not privately refinancing when it's the right time. So a little bit confusing, but the bottom line, when you're in your training, it's almost always a good idea to just keep your loans federal, and keep the door open for loan forgiveness, unless you're positive you're going to go into a private practice, that's when I think you can, yes, go ahead. And in private, refinance your student loans. And the other thing, if you took out some private student loans, when you were in your undergrad, or any medical school, you should look to private refinance those when you graduate, and you're starting to get a paycheck as a trainee. And also when you become an attending because you can typically get that interest rate down from where it was when you were in school. And that's another issue that I see is, people are carrying too high of interest rate balances well into their training and attending years.
Christopher H. Loo, MD-PhD: Wow. So yeah, you've, you've actually done a really nice summary and overview and so it sounds like you know it's good to have someone that medical students can go to, through either blogs or podcasts and videos, and then sounds like you offer a lot of wealth of knowledge and advice. So it sounds like don't do it alone, talk to somebody, talk to a lot of people, figure out what your options are, and then make the best decision because it sounds like a lot of these have a huge financial impact. So, what's the best way for people to contact you and to get a hold of you because I know a lot of people are interested in your services and what you do and what you offer.
Andrew Paulson, CSLP: Yeah, so our website Student Loan Advice.com has a Contact Us tab. You can also reach me and Andrew[at]Student Loan Advice.com is a great way to connect with us. So that way you can kind of dig in and get a feel for what we do if you're curious, we have a blog, we have some posts and some resources that you can do. But if you're confused beyond that, or you think you're on the right track, and just want to make sure that you're doing it in the most optimal way. Feel free to touch base with us, and we'd love to help you out.
Christopher H. Loo, MD-PhD: Yeah. And to the audience. I hung out with Andrew and his entire team, and they're all great people, great guys. And they just offer a lot of wealth of knowledge. So I’ll be sure to put all of your contacts and resources in the show notes. But thanks so much for that. I think you gave a really good general overview and a lot of people are going to reach out to you. I hope to have you on future episodes when we talk about student loans and credit and different types of advice.
Andrew Paulson, CSLP: We'd love to do that, Christopher. It was a pleasure talking to you today.
Christopher H. Loo, MD-PhD: Many thanks again for being here. If you’re new, you can find me online at Christopher H. Loo, MD-PhD, where I have links to other episodes or links to online resources that will support you on your financial literacy journey. I’ll see you there in on next week’s show. While I bring you thoroughly vetted information on this show regarding a variety of financial topics, I cannot promise you a one size fits all solution. This is why I caution you to continue to learn. Educate yourself and seek professional advice unique to your situation. If you want to talk to me, I welcome it. Please reach out via my website or email at Chris@drchrisloomdphd.com. I read and personally respond to all of my emails. Talk soon!
Editor's note: This transcript has been edited for brevity and clarity.