Let’s begin with the story of Ben (any resemblance to any person either living or dead is purely coincidental), a pretty “average” doctor. Between scholarships and parental help, he finished his undergraduate studies debt-free.

He then borrowed around $40,000 a year at 6.8% to pay for tuition and living expenses for medical school. Because those loans were unsubsidized, that $160,000 turned into $187,000 by the time graduation rolled around.

After graduation, he had a six-month grace period during intern year. That was nice because he had to move across the country and get settled. By then, he owed $192,000 total ($160,000 principal and $32,000 in interest). At the end of that period, the $32,000 in interest capitalized and became part of the principal, meaning that the loan was going to grow a bit faster from this point on.

Because the hours were rough and he was tired of living like a student, he decided to live in a pretty nice apartment near the hospital. He also felt like he needed a newer car because his ancient one was an unreliable clunker without AC and no backup camera. He did the math and realized he wouldn’t be able to make payments, so he opted for forbearance throughout residency.

Three years later, he graduated and decided to become a hospitalist. The forbearance period ended—triggering another round of interest capitalization—and his new capitalized loan balance was $231,000.

He decided to be proactive at this point and opt for the standard repayment to pay down his loans in what he considered a timely ten-year fashion. He paid $2,700 a month for 120 months for a total of $319,000, and he was finally student-loan debt-free. That was another $88,000 in interest over the ten years of repayment. Ultimately, he paid twice what he initially borrowed. That four-dollar Starbucks latte he bought as a first-year medical student actually cost him eight bucks.

This story illustrates one option, but not a particularly good one. Now that I have your attention, we’re going to break down all of the terms and all of your options over the course of this book.


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