Buying a house during residency

11.07.16 // Finance

Should I buy a house as a resident?

Probably not.

The American tendency to prioritize owning your house or car can be a bit misguided. When you buy a house with a mortgage, the title may be in your name, but it’s really the bank that owns it. You’re slowly buying it from the bank, paying interest all the while. It’s not that buying a home is a bad idea; it’s that owning a home is not intrinsically good financially. Owning something instead of renting isn’t always better.

Before we discuss the pro/cons, a disclosure: we bought a house when we graduated medical school, and we bought (and sold) a house during medical school as well.

Downsides

It takes on average 4 years to break even on the transactional costs of buying and selling a home. You can’t just compare the monthly mortgage payment on a potential house and the monthly rent for an apartment or house rental and see which is lower. The mortgage will typically be lower, but this masks several things:

Upkeep costs. You’ll need to pay for repairs and maintenance on your house that you wouldn’t be responsible for as a renter
You’ll need to pay taxes and home insurance, which may not have been in your original mortgage projection. This is deductible if you itemize deductions, but note that the “extra” savings on these are related to your marginal tax rate on the difference between these amounts and the standard deduction. An inexpensive house or townhome isn’t going to make a big dent in your tax burden.
You’ll almost certainly lose money to realtors when it comes time to sell. 6% is common (3% to each agent [who then share that with their broker]). With the rest of the closing costs, earmarking 10% is considered a good estimate.

Bottom line: Even if the monthly mortgage payment + the upkeep etc comes out to a better deal than a rental, you’ll still have to take #3 into account. Whether or not the closing costs will make or break the +/- versus renting will depend on how much you sell the house for when the time comes and how long you held the house for (i.e. how much total money you’ve saved vs renting over time). In most cases, selling the house for exactly what you bought it for will actually result in a loss.

Buying a house and planning to sell it after a three-year residency, for example, is essentially investing on margin unless rental prices in your area are super high. You’re just hoping that real estate prices rise fast enough to counteract the costs of a real estate transaction.

Upsides

Conversely, there are some benefits. Your mortgage interest and real estate taxes are deductible, so if your house will cost enough to make your tax deductions bigger than the standard ($9300 head of household or $12600 for couples in 2016), then you can itemize deductions and get some of that money back (essentially reducing your monthly payment). Note that deductions don’t give you a dollar back for every dollar deducted, they merely reduce the income you’re paying taxes on and so save you a fraction of that dollar at your marginal tax rate. But because the standard is always an option, it takes a fair amount of tax to make it all worthwhile. If your itemized deductions add up to 13,000, for example, then you’ll only really save yourself the tax paid on the extra $400: $100 if in the 25% tax bracket that many married residents are likely to find themselves in.

You get to own a house. While upkeep could be a big headache, owning a house and having your own space could be awesome. While owning a home isn’t “priceless,” this part of the value is at least partially a personal calculus. Additionally, sometimes owning is the only healthy option. Some places, particularly small towns, don’t have much of a renter’s market. There may be no houses for rent in the areas convenient to the hospital nor decent apartments. In some unusual cases, you may feel like you don’t have a choice but to buy depending on where you match.

Real estate can also be an investment. Most houses a resident (or graduating medical student, really) can afford probably aren’t your forever home. That said, depending on what your finances will look like when it’s time to upgrade, you could conceivably keep your first house as a rental property (though again this may impair your ability to qualify for another mortgage etc when holding the additional debt). It also assumes you want to deal with being a rental owner/real estate investor, which comes with its pro/cons, costs, and headaches. But buying a home now with a low-interest rate in a good area for rentals may be a viable long-term plan; it depends a lot on the local market.

You can also consider buying and finding a renter for a spare bedroom to help defray your costs. This essentially allows you to be a real estate investor and homeowner all in one with someone else paying part of your mortgage while you still get to enjoy (part of) your home. It’s a good way to hedge your bets.

So if you need to buy a house or simply “need” to buy a house

Try to limit your mortgage to 2x your annual income, even if a bank will give you more. Consider 3x to be an absolute limit.
20% down payment is normally considered “good” and will give prevent you from having to pay private mortgage insurance (PMI). Most residents who buy houses do not achieve this.
If you have medical school debt (and by odds, you probably do), you may need some variety of physician loan. There are 100% financing varieties as well as ones that require some money (usually 5%) down. Physician loans will allow you to use your match letter as proof of future income so that you can close on a house before you actually earn a paycheck and tend to ignore your student debt in making their approval calculations. LeverageRx is a neat totally free platform I recommend that will let you rapidly comparison shop multiple physician loan lenders (yes that’s a referral link, but check it out).
If you aren’t planning on a public service career and loan forgiveness via PSLF, you’d want to see how private refinancing stacks against REPAYE, but you’d definitely want to wait to do any refinancing until after your mortgage clears.
Whether an ARM is worth it will depend on how likely it is that you’d keep the house past the fixed-rate limit, how much lower the rate is compared with a conventional 30-year fixed, how much the per-year increase is capped, and if there’s a maximum cap. Any lender can run the options for you so you can see what it means for the specific house you make an offer on. A 5/1 ARM (fixed for 5 years, variable for 25 years) is the most common variety. It’s possible, for example, that a 5-year ARM rate could be 1% less than the 30-year fixed with a 0.5% per-year maximum increase after 5 years (and thus would take a minimum of 7 years before it would overtake the conventional loan’s rate). If you know you’ll hold a house for less than 7 years, then you’re taking on minimal risk in choosing the ARM.1 7-year ARMs also exist if you want a smaller benefit with less risk. In this scenario, I also assume a 15-year is out of the question (because a 15-year fixed loan is more expensive per month but usually has better rates and by far lowest amount of money lost to interest). An ARM is best when you know you’ll only be holding on to a house for the fixed period of time before moving/selling and are confident you’ll be able to sell when the time comes.

The slow growing tide against PSLF

11.03.16 // Finance

Jason Delisle does a nice job describing the majority of the arguments used to suggest that PSLF should be severely curtailed or destroyed in “The coming Public Service Loan Forgiveness Bonanza” for the Brookings Institution.

PSLF will be revised at some point if no other reason than this:

In 2014, the CBO estimated that the Obama administration’s proposal to cap the amount that could be forgiven under PSLF at $57,500 would save $265 million over 10 years (2015 to 2024). The agency recently revised that figure to $6.7 billion.

I don’t think the people making these programs had any idea how much graduate school costs and the incentives they were promoting through potentially unlimited forgiveness.

I still think current borrowers will be grandfathered into the program, and I think politically it is for more likely for forgiveness to capped +/- changes to eligibility rules than for the program to just disappear.

Delisle also lumps all IDR programs together as IBR and says that IBR, PAYE, and REPAYE are functionally equivalent. This certainly isn’t true for pre-2014 borrowers, but also doesn’t take into account REPAYE subsidy or changes to the payment cap (for example) and their effect on the amount forgiven under the PSLF program.

And while he discusses how a cap would help combat the perversion of this program in justifying tuition increases to students, this would really impact longer degrees like law and medicine. A $57,500 cap would still be very enticing to people going for masters degrees in things like social work or speech-language pathology.

You’ll be seeing more like this over the next year (presumably including profiles of rich suddenly loan-free doctors) as the first round of forgiven loans happens in 2017.

Additional thoughts on residency interviews

10.26.16 // Medicine

After a few years of seeing medical students on their interviews from the other side, here are a few of my favorite new considerations for dos/don’ts during your interviews (note, many of these also apply to your personal statement):

Don’t: Say negative things about other fields.

The fact that you think other fields suck is not the reason people want to hear when they ask you, “Why X?” The biggest problem with field-specific negativity is it often reveals your naivete. An applicant applying to radiology who says they didn’t go into medicine because they don’t like writing long notes and spending the day on the phone calling specialists may sound silly, because of course a radiologist spends all day dictating reports instead of notes and talking to referring clinicians on the phone. Every field has its pros and cons, and in many cases, the overlap between fields can be as substantial as it is surprising. There’s no free lunch in medicine. So stay positive.

Don’t: Spout overly familiar things with your field

You may be familiar with concept of “fourth year swagger”: the horrible disease that strikes when a student finishes their third year and, after being exposed to a few weeks of multiple different specialties, thinks they understand everything about medicine, knows all the ins and outs of various fields, and certainly isn’t just parroting the shit that other people who also don’t know what they’re talking about say to them. If you casually repeat things you read on internet forums, this goes doubly for you.

If you had the chance to interview college students applying for medical school, you may have been surprised at how clueless they are about medicine. But of course they are! And almost certainly you were as well. If you think a med school applicant who wants to do a “cardiology residency” sounds naive, then keep in mind your imperfect grasp of your chosen field. You’ve at most done a few months rotating as a student, potentially as little as none before you made your choice. You have no idea what it would actually be like to do that field day in and day out for decades. The things that excite you now will likely be routine. Other aspects that you hadn’t considered may be your passion. So while you need to articulate why you’ve chosen your field, you don’t want to come across as a know it all. Overconfidence is a vice (unless you’re a general surgeon [ba-dum-dum]).

Do: Be normal if you have an MD/PhD…

People with PhDs need to play the game of both implying future academic productivity with a seemingly earnest desire to master clinical skills and do patient care. You don’t want to fall into the trap of seeming like a scientist who views residency and patient care like an obstacle to doing their true work. Or an awkward serial killer. Or, even worse, someone who is tired of doing research.

Do: Own your problems

You just can’t be embarrassed and don’t need to be nervous. Consider the interview as your chance to see if the program is right for you and less about you auditioning for them. It doesn’t matter if you have (in no particular order) a failure, a leave of absence, a heinous evaluation, a stutter, a disfiguring condition, or a weird laugh. You need to be comfortable and happy with yourself if you want people to be comfortable with hiring you. So own it. When appropriate: offer explanations, not excuses; acknowledge everything, apologize for nothing. If you needed to get better, explain how you have and that you’re still working on it (whatever it is).

I recently came across this guide from UW that I liked that addresses this nicely.

Do: Have “questions” ready

The hardest question you’ll get on the trail very well might be “what questions do you have for me?” It’s the hardest because the real answer is none, and you’ll stop listening the moment you ask anything. Here a few of my favored BS ones to put in your arsenal, particularly helpful for later in the season when you’re tired of pretending you care what a random person thinks about anything.

What is one thing that surprised you when you came to work here?
Was there anything you didn’t expect between when you applied and when you started working here? (for a resident interviewer or newish faculty)
How has this place changed over the past few years?
Do you foresee any changes coming to the program or department in the near future?

Specific questions about the curriculum, rotations, electives, dedicated research time, etc are all great—IF they haven’t been discussed already in a presentation, aren’t in a printout in your interview folder, and aren’t readily available on the website. Asking about things people think you should know is awkward. If you do or aren’t sure, try to frame them as opinion questions (e.g. “How do you feel about the research track offering? Is there support for this dedicated time among the faculty?”).

Also consider: my thoughts on not screwing the interview process in general.

PAYE vs REPAYE: interest capitalization cap better than interest subsidy?

10.08.16 // Finance

The PAYE interest cap is essentially never better than the REPAYE interest subsidy. There are reasons PAYE can be a better choice for many borrowers, but the interest capitalization cap isn’t really one of them.

But let’s take a step back: If you’re reading this post, you may already know the relevant facets of income-driven repayment plans that I’m referring to: Within the PAYE plan, any accrued interest that capitalizes is limited to 10% of the original principal amount when you enter repayment. What this means is that no matter how much interest accrues, the maximum principal amount after capitalization in the long-term is the original amount + 10%. Which means that over the long term, the rate of interest accrual is capped (but not the amount, of course). When does interest capitalize within the PAYE program? When you lose your partial financial hardship, which will likely happen at some point during attendinghood depending on how much you owe vs. how much you make. An example would be if you had a $200k loan with $50k in accrued interested; after capitalization in PAYE, the loan would be $220k with $30k in accrued interest instead of $250k, which means at 6.8% $14,960 accrues per year instead of $17,000.

In contrast, REPAYE has a subsidy that pays half of the unpaid accrued interest on a monthly basis. The reason the above question is basically never is because REPAYE interest never capitalizes unless you leave the plan. Because there is no hardship requirement, your interest will continue to accrue at the same rate it always has. Only if you try to change back to a different repayment plan (say, to lower payments as a high-earning attending) would your interest capitalize. That $200k loan in REPAYE will always accrue the same amount of interest every year (until you begin to pay down the principal, of course).

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Organizational stupidity

09.29.16 // Miscellany

Please read and cherish this incredibly cynical essay in Aeon, “Stupefied: How organisations enshrine collective stupidity and employees are rewarded for checking their brains at the office door.” I’m going to superblockquote a chain of some of my favorite parts. Please tell me this doesn’t describe every hospital you’ve ever worked in:

No matter how hard you search there is little – if any – leadership to be found. What most executives actually spend their days doing is sitting in meetings, filling in forms and communicating information. In other words, they are bureaucrats. But being a bureaucrat is not particularly exciting. It also doesn’t look very good on your business card. To make their roles seem more important and exciting than they actually are, corporate executives become leadership addicts. They read leadership books. They give lengthy talks to yawning subordinates about leadership. But most importantly they attend many courses, seminars and meetings with ‘leadership’ somewhere in the title.

Ha, yes.

But often there are very weak reasons for following ‘industry best practice’. For instance, when the Swedish armed forces decided to start using Total Quality Management techniques, some officers naturally asked: ‘Why?’ The response: ‘This is presumably something we benefit from, since this is what they do in the private sector.’ In other words, we should do it because others are doing it.

Applying methods and policies wholesale because they worked somewhere else without then evaluating those changes is a critical role of most middle managers.

At the outset of our research, we suspected that organisational life would be full of stupidities. But we were genuinely surprised that otherwise smart people would go along with collective stupidity, and be rewarded for doing so. Mindlessly following rules and regulations – even if they were completely counterproductive – meant that professionals would be left alone. Using empty leadership talk would get ambitious people promoted into positions of responsibility. Copying other well-known organisations meant a firm could be seen as ‘world-class’. Launching branding initiatives meant that executives could focus on the easier work of manipulating surface images and avoid the much messier realities of organisational life.

This is just brutal.

Working in a stupefied firm often means blinding others with bullshit. A very effective way to get out of doing anything real is to rely on a flurry of management jargon. Develop strategies, generate business models, engage in thought leadership. This will get you off the hook of doing any actual work. It will also make you seem like you are at the cutting edge.

This is what people are hoping to master when they go back for that MBA.

Literally every business/leadership/whatever book I’ve ever read should have been a few blog posts or a short essay. While a lot of people have been piling on recently and calling BS on the organizational psychology and tedious bureaucracy that compose the contemporary large organization, I’m actually tempted to pull the trigger this time and read the book (if only for the refreshingly direct approach).

Thoughts on studying in medical school

09.26.16 // Medicine

Let’s start with this premise: In the 21st century, the medical school basic science curriculum is probably best learned through guided self-study and likely not whatever your school is trying to teach you (especially if that involves the blind leading the blind via TBL). How much you can fulfill this ideal will unfortunately depend on how cooperative your school is with reality.

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Nothing > Fitbit

09.23.16 // Medicine

Among young adults with a BMI between 25 and less than 40, the addition of a wearable technology device to a standard behavioral intervention resulted in less weight loss over 24 months. Devices that monitor and provide feedback on physical activity may not offer an advantage over standard behavioral weight loss approaches.

That’s the conclusion of a 2-year 471-participant randomized controlled trial in JAMA of how wearable tracking technology affects weight loss.

Wrinkles: Only 75% completed the study. And both groups did lose weight: 3.5 kg in the “enhanced intervention group” and 5.9 kg in the control.

One wonders if meeting your goals with a wearable might cause some people to skip working out or quit an exercise session earlier than they might otherwise do (at least on occasion). The study also didn’t use one with any of the gamification principles that some people have promoted as making exercise more “fun.”

The public would prefer you to not be tired

09.20.16 // Medicine

The public apparently likes the 16-hour shift cap:

After people hear arguments both in favor and against eliminating the 16-hour shift limit, voters’ opposition holds firm at 86%, 79% strongly opposed,” she said. “Eight in 10 would support decreasing the shift limits for second-year residents from 28 hours to 16 hours as well.

These are results from a probably biased Public Citizen survey, a group that vocally opposes the FIRST and iCompare trials that are testing loosening the shift restrictions in surgery and medicine programs across the country.

What I find confusing is that the contemporary discussion always centers on whether or not shift limits are good for residents and/or for patient care. But this focus is always on the impact of shift length on acute fatigue and sleep-deprivation. Nothing about total shift burden, especially when you know that the residents in these studies aren’t magically conforming to the 80-hour rules that are frequently ignored.

I don’t know about most residents, but one imagines a physician to be a lot more likely to do okay on a long shift if (s)he weren’t chronically fatigued working 80+ hours a week. The focus on shift length I think misses the larger and probably more important issue about general overwork, burnout, and chronic fatigue. It’s like being worried about how fresh the oil is in a car without a transmission.

How/Why to Consolidate Federal Student Loans When You Graduate Medical School

09.19.16 // Finance

When you get federal student loans from the government for medical school, you don’t just get one loan: you get at least one per year. Back in the day when graduate students still received subsidized loans, many borrowers would receive three: one subsidized, one unsubsidized, and often a small “low-interest” (5%) Perkins loan. Now, in practice, holding on to multiple loans doesn’t really affect your daily life much. Your federal loan servicer (the company that takes your payments) will apply your payments automatically across all of your DIRECT loans for you (your Perkins loans, if you have any, will be due separately from the rest).

Consolidating your federal loans into a DIRECT Consolidation from the federal government (as opposed to private refinancing, discussed here) does make things look nice and tidy in that you’ll now have a single loan with a weighted-average interest rate based on the rates of the individual loans it replaced, but this paperwork trick isn’t particularly meaningful in and of itself. Unlike private refinance options, you’re guaranteed to not save a single dime on the interest rate. In fact, a slight rounding change could give you a trivially higher rate (it’s rounded up to the nearest one-eighth of 1%).

But there are definitely a few reasons to consider consolidating your loans, particularly as early as you can, in large part due to government’s newest income-driven repayment plan: REPAYE. (Sidebar: please read this for more info about REPAYE and why it’s generally a good idea of residents if you’re not already familiar with the program). And there’s a double reason if you’re considering PSLF.

In short, starting a consolidation when you finish medical school will do four things to save you money:

Reduce the amount of capitalized interest on your loan, which reduces the rate at which it will grow for a long time
Temporarily increase the amount of your REPAYE unpaid-interest subsidy
Help you achieve loan forgiveness a few months faster
Automatically max out the student loan interest deduction on your taxes for the year

We’ll discuss each of these in detail followed by brief step by step instructions. Stay with me.

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[Education Needs] Denied

09.13.16 // Miscellany

Sad, no good, very bad, depressing reality reported by the Houston Chronicle:

Over a decade ago, the officials arbitrarily decided what percentage of students should get special education services — 8.5 percent — and since then they have forced school districts to comply by strictly auditing those serving too many kids.

Their efforts, which started in 2004 but have never been publicly announced or explained, have saved the Texas Education Agency billions of dollars but denied vital supports to children with autism, attention deficit hyperactivity disorder, dyslexia, epilepsy, mental illnesses, speech impediments, traumatic brain injuries, even blindness and deafness.

Special education rates have fallen to the lowest levels in big cities, where the needs are greatest. Houston ISD and Dallas ISD provide special ed services to just 7.4 percent Tweet this link and 6.9 percent of students, respectively. By comparison, about 19 percent of kids in New York City get services. In all, among the 100 largest school districts in the U.S., only 10 serve fewer than 8.5 percent of their students. All 10 are in Texas.

An embarrassing and frankly sadistic cover up.

When asked about the drop at a 2010 state Senate Education Committee hearing, [special education director Eugene] Lenz did not mention the target.

“We fundamentally believe it has a lot to do with improving general education,” he said.

Fundamental beliefs sound a lot of like lies and crazy talk.

Also, I thought everyone actually involved in teaching children agrees that the increased emphasis on teaching toward standardized tests/metrics in young children while simultaneously cutting budgets for anything remotely enjoyable was making “general education” worse.