Young doctor deep in debt gets a financial plan to ease worries
Today, her combined student-loan debts are near $240,000 — a figure racking up about 4.9 percent interest. She's not alone. One recent study says the average 2010 debt for newly graduated docs was $158,000.
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For Dr. Sharel Ongchin, they're more than the tools of the trade.
Studying these tiny organs has driven her education for nearly 12 demanding years — through college (with scholarships), medical school and, now, a residency in Seattle.
Ongchin's career vision is so sharp that as soon as her residency is complete this summer, she is moving to London for a prestigious one-year fellowship there. (She's currently a third-year University of Washington ophthalmology resident.)
But even with her sights set on a career she loves — one that also offers a strong earning potential — the 29-year-old woman is worried.
"It is frightening to realize that I am a quarter of a million dollars in debt after paying for my medical-school education," she says. "With this much debt, I feel like I will be paying off my loans for the rest of my life."
With no credit-card debt or mortgage, and full ownership of a used car she calls a "beater," Ongchin has followed all the unwritten rules for living on a shoestring budget during her residency, which pays about $50,000 a year. Any money she would spend for fun is on hold.
"During residency, you don't have time anymore for your hobbies," so she hasn't played any of the classical piano music she studied for years.
Neither can she find time to buy supplies for hand-crafting jewelry and baby bootees — once her signature gifts. She eats frugally at home, and works with other residents who eat "pb and j sandwiches daily."On top of that, a portion of her monthly paychecks are mailed back to her working-class parents in New Jersey.
"It's very much part of our culture that you take care of bills at home," says Ongchin. "Once you start making a bit more money, it's part of our culture to send it to Mom and Dad."
Today, her combined student-loan debts are near $240,000 — a figure racking up about 4.9 percent interest.
She's not alone. One recent study by the American Association of Medical Colleges shows that more than 86 percent of med-school graduates have debt; the average 2010 debt for newly graduated docs was $158,000.
In fact, the AAMC reports that the cost of private medical schools rose 165 percent — while public med-school costs soared 312 percent — over the past 20 years. Figures from the American Medical Association show that these costs far outpace the rate of inflation.
But Ongchin is not looking for sympathy.
"I know I'm lucky," she says. "I love my job. I get the rest of my life to pay this off, and nobody else but me is responsible for paying back my loan. ... I suppose I could start repaying my loans now while I am still in residency, however, that would leave me with very little to live day-to-day given how large my debt is."
Getting a plan
To put a new lens on her future financial vision, and focus on paying off her med-school loans, Ongchin filled out an online survey to participate in a free financial makeover with a member of the Puget Sound Chapter of Financial Planning Association.
David Moretsky, president/co-founder and certified financial planner at Bellevue-based ICON Consulting has worked with a lot of medical professionals who are later in their careers, so he says he was looking forward to working with her — in part, because she's someone new to the profession.
"She's invested so much time, energy and resources into her education — and she's very good at what she does," he says. "She's going to make a fabulous doctor."
Impressed with both the $25,000 in savings she has built up while living a semi-Spartan lifestyle and giving back to her parents, Moretsky wanted to help Ongchin get the most out of her yearlong London fellowship while preparing for the loan payoffs after that.
"My objective was to get the burden of her loans off her shoulders from a psychological perspective," says Moretsky.
"That's not to say it (the student loan debt) is not a commitment, but rather to keep her from feeling so nervous and uncomfortable about it, and show her she has plenty of opportunity."
With that in mind, Moretsky designed some short- and long-term earnings, savings and debt-payoff projections that could carry Ongchin to retirement at age 65, assuming she maintains her medical career and earns a commensurate salary.
His first piece of advice: Dig into a bit of her savings for $10,000 in living expenses while in London.
"Instead of barely being able to survive while she's there, she should at least try to enjoy it a little," Moretsky says. "She's not even close to living high on the hog, and trying to pay it (her student loans) off will only make the smallest dent in the debt.
"This is risky advice to the masses, and I know there are people out there who are going to be saying 'What the heck is he talking about?' but financial planners have to take a unique look at every single client.
"I don't give clients the broad brush," he says. "People come to us seeking out customized advice, and my advice to Sharel is that she has such great earning potential and she has a ton of time to pay down the debt. Right now, she has a psychological challenge: 'My debt is making me uncomfortable.' "
In general, says Moretsky, "people sometimes make the mistake of paying off their loans too aggressively ... Financially, if you can get a better rate of interest (in an investment) than what you're paying on your debt it may make sense to pay debt off slower.
"If you take the last $10,000 you have to pay off the last $10,000 of your debt, you may have peace of mind, but you might not have any emergency reserve if you need some short-term cash," he adds. "Once you pay off that debt, you can't go back and ask 'Can I get some of that money back?' It's a balancing act."
That's part of the reason Moretsky is advising Ongchin to maintain liquidity and borrow against her savings for the London fellowship.
"She'll still have $15,000, $16,000 in savings, so going for it makes sense," he says.
Insuring the future
He also created a nine-point action plan, with two items important within the next few months:
"Consider covering gaps in existing disability-insurance planning," Moretsky advises. "It's true: people don't even like to talk about insurance let alone go out and buy it. But for someone like her with high income or potential for high income, it's perhaps the most important thing they can have right now."
A serious illness or accident could be "catastrophic" not only for someone with her future earning potential, but for anyone repaying big loans, he says. Disability insurance can help deal with that.
Another recommendation: "target an 'emergency reserves' account at $10,000.
"She's disciplined and responsible and obviously can adjust that higher as her income goes up," says Moretsky. "In general it's important to have a fallback plan "when the dishwasher starts leaking or the carburetor falls out of car."
As a spinoff of that advice, Moretsky recommends Ongchin open a higher-yielding savings account for short-term savings — something that keeps her money a bit more restricted, "more at an arms-length away, but is still FDIC-insured yet pays a higher rate of interest than just going to a brick-and-mortar bank."
Down the road, he says, Ongchin should consider "maximizing retirement plan [401(k) and 403b] contributions to increase wealth accumulation and reduce taxable income" and starting a savings account once her professional career is on track to "work towards down payment for a home purchase."
His bonus advice to her?
"Remember to maintain a long-term focus with your plan," says Moretsky. "Do not expect to anticipate every curve in the road, but be prepared to adjust your plan when necessary. Your financial plan is not a single event, but a journey that may cover 10, 20, 30 years or longer."