Marriage, Medicine, and Money (a free summit)

My internet friend Brent Lacey of The Scope of Practice podcast is putting on the free Marriage and Money, M.D. Summit 2021 next week November 15-17 (Monday-Wednesday).

It’s even eligible for a whopping 20 hours of CME.

This is one of those entirely free Facebook-based live online summits, and it includes hours and hours of content about marriage and finance from a bunch of physician and physician-spouse speakers. The private Facebook group is already live.

This is also one of those events where you can upgrade to a VIP pass for lifetime access, extra content, and a host of other perks. That cost before the summit starts is $99, $149 when the conference starts, and then $249 after it ends. Since it’s a CME event, you can use your CME funds to upgrade if you so desire.

(And that, dear reader–in case you missed it–would be the typical affiliate part where if you pay for an upgrade you also conveniently support this site.)

Functional Embezzlement

From Charlie Munger’s Herb Kay Memorial Lecture, “Academic Economics: Strengths and Weaknesses, after Considering Interdisciplinary Needs” (University of California at Santa Barbara, 2003):

…I asked the question “Is there a functional equivalent of embezzlement?” I came up with a lot of wonderful affirmative answers. Some were in investment management. After all, I’m near investment management. I considered the billions of dollars totally wasted in the course of investing common stock portfolios for American owners. As long as the market keeps going up, the guy who’s wasting all this money doesn’t feel it, because he’s looking at these steadily rising values. And to the guy who is getting the money for investment advice, the money looks like well-earned income, when he’s really selling detriment for money, surely the functional equivalent of undisclosed embezzlement. You can see why I don’t get invited to many lectures.

Fee-drag is insidious and nearly invisible to the human mind at a glance. As COVID-19 demonstrated, we are not wired to intuitively understand compound growth. When you see your accounts growing, you are happy. Even if you see your fees, they may seem reasonable on a snapshot basis.

What you don’t see, of course, is the effect of those fees year after year. Every loss is another piece that can’t undergo the magic of compounding in your favor. As the saying goes, “it’s time in the market, not timing the market.”

If you ever wonder how nice people can practice in an Assets Under Management model, the same problem works in both directions. Your money is still going up, so they feel they are providing a valuable service, especially in holding you to a plan and preventing you from otherwise hamstringing yourself (like, say, risking your nest egg on chasing meme stocks on Reddit or buying start-up cryptocurrencies).

Psychologically, we’re very good at cognitive dissonance: of not seeing what is inconvenient for us. Those professionals would rather see the “value” they create in terms of investment growth and the end-result financial security and not the excessive value removed from larger investors (and the even larger wealth those clients might otherwise enjoy).

The Big (Temporary) PSLF Expansion

You may have heard the news by now: PSLF has been (temporarily) expanded (again).

Back in 2018, TEPSLF created a new pot of money to help borrowers who had used the wrong payment plans in the past.

Now, in a final heave of their national emergency powers, the government will finally fulfill the spirit of the original law: more people getting forgiveness, fewer people missing out because of technicalities and bad servicing.

All “federal” loans are forgivable.

The inclusion of FFEL loans in the PSLF program is more noteworthy than you might think. You see, Direct Loans (the only current option and always part of PSLF) are provided and held by the federal government. The government forgiving its own loans is the whole point of the program. The now defunct FFEL program however was instead a public-private partnership: loans provided by private banks and secured by the federal government. In order to pay off FFEL loans, the government is going to encourage tens if not hundreds of thousands of borrowers to consolidate loans into the Direct system in order to forgive them, paying private companies real money in the process. This is why PSLF has specifically never included FFEL loans in the past (even though one could consolidate those FFEL loans and trade them in for a Direct Consolidation loan, making them eligible with minimal effort).

The fact is that for recent graduates the news is largely irrelevant. Very very few people graduating in recent years hold any FFEL loans or Perkins loans, and nearly everyone is using the correct payment plans. It’s just much easier for new graduates to set themselves up for the program than the older borrowers who were further along in the process (and who have been getting rejected or lost years of payments [often due to bad servicing]).

At baseline, people need to stop worrying about the PSLF rug being pulled out from underneath them, but hopefully, this second expansion will assuage lingering doubts. The program is still real, and it’s never going away retroactively.

Here is the Department of Education’s “Fact Sheet” about the overhaul.

And here is the very readable official description of what it all means and what to do next. This is the official party line, and it’s what you need to read.

The bottom line is that if you have any FFEL or Perkins loans, you need to consolidate those now and file a PSLF form (well at least by October 31, 2022). There are a lot of people working in public service and academics who are magically eligible for forgiveness this week that weren’t before (and there are going to be some very anxious people trying to track down employment verifications from back in 2008).

 

 

 

Don’t forbear your loans during residency (if you can help it)

The most fiscally responsible thing you can do as a resident with student loans is either enter an income-driven repayment (IDR) program like REPAYE, PAYE, or IBR or (rarely) refinance privately. Please see basically any chapter of the book.

Everyone is currently enjoying a 0% federal interest rate, but that’s set to expire this fall. No one gets a permanent pass on student loan management.

But not everyone is willing or able to do the most fiscally responsible thing. There are many reasons trainees forbear their student loans during residency and fellowship. Some live in high cost of living areas like San Francisco or New York and feel they can’t afford to live and spend a few hundred dollars a month on their loans. Others have families or other obligations that require the redirection of their salary. Still a third group could potentially make payments but is frankly unwilling to because they want to use that money to actually live their life, especially those that are tired of putting said life on hold during school and training while their non-medical colleagues continue to enjoy a higher cost-of-living lifestyle and share well-curated streams of filtered vacation photos (at least pre-COVID).

I’m not judging, but I can say this: very few residents should ever forbear their loans.

Not because it’s not financially responsible (though it’s not), but because if you’re not planning on making payments you should at least look into mitigating the growth of your loans. Government forbearance is the worst of all worlds: none of the perks of an income-driven repayment plan or possible loan forgiveness in a reasonable time frame while also stuck with the high-interest rates of federal loans.

These are the IDR perks you lose during forbearance:

  • Interest continues to accumulate on all loans (even subsidized loans, if you have any).
  • You get no IDR-derived interest subsidy and you get no 0.25% autopay rate reduction.
  • Then, at the end of the forbearance period, the accrued interest capitalizes and gets added to the principal (mean you don’t just owe more money then but your loan will also grow faster in the future).

In other words, the longer you forbear, the worse things get.

If you can stick it out in IDR instead:

  • All monthly payments during residency count towards the 120 monthly payments (10 years) needed for public service loan forgiveness. Even if calculated at $0/month.
  • Even if you switch to forbearance later, the qualifying payments you make still count for PSLF (they don’t have to be consecutive). Since your remaining loan balance after 120 payments will be forgiven, it is in your best interest to have these payments be as small as possible, so don’t waste your low-pay years as a resident unless you need to.
  • Any unpaid interest on any subsidized loans from college is forgiven for the first 3 years
  • 50% of any unpaid interest on all loans is forgiven if in REPAYE.
  • You get a 0.25% rate discount for enrolling in autopay
  • Interest will never capitalize again after entering repayment unless you change plans or you lose your partial financial hardship (for IBR and PAYE).

Those are good reasons to not forbear.

It’s also usually unnecessary. Being proactive means almost no one needs to forbear during their intern year: you’ll likely enjoy $0 payments during your PGY1 year (based on when you were a broke student) and very low payments (based on working only part of the year you graduated) during your PGY2.

So, plan for IDR first. If times get tough in the future, forbearance is only a phone call away.

Post-Match Personal Finance Checklist

Post-Match Fourth Year is a time of impending change, and there is no better time for a soon-to-be physician to learn the basics of personal finance and get their financial house in order before residency.

There are a lot of things you can do, but here are my top 5:

1. Learn the basics of personal finance and make a student loan action plan

There’s some core information that every functioning adult simply needs to know.

The are many resources for the former and very, very few that are comprehensive enough to make sure you’re doing the latter correctly. You can do both with my book, which includes chapters on the psychology of money, how interest works, taxes, and retirement at the level a new intern should understand. It’s available in print and ebook (Amazon, Apple Books), and the full text is available cost-free and advertisement-free (i.e. completely free) right here.

Early steps will almost always involve federal consolidation after graduation, and you will not forbear/defer your loans.

2. File your Taxes

The deadline was extended to May 17 if you haven’t already, but if you don’t owe taxes, you can file at any time without penalty. So do it! Your taxes are used to determine your student loan payments in income-driven repayment plans like PAYE, REPAYE, and IBR.

3. Consider what kind of insurance you need

If you are married and especially if you have kids, you simply need life insurance. The policies for life and disability insurance that you get from your employer are usually not large enough to provide for dependents and aren’t portable. Getting insured while young and healthy locks in future security. No one enjoys spending money on something they hope to never use, but that’s the nature of insurance.

If you own a home, you’ll need home owner’s insurance, and if you rent an apartment, you’ll need renter’s insurance.

You’ll definitely need auto insurance if you own a car, and need to make sure that the personal liability benefits are high (replacing the car is the cheap part; paying for healthcare and property damage, not so much).

At some point before the end of training, you’ll also want umbrella insurance, which is a cheap liability policy-of-last-resort in the rare event that you are on the hook for more than the limits on your home or auto policy (these cost around a few hundred a year for 1 mil policy but do require robust underlying home and auto policies).

Ignorance may be bliss, but insuring against catastrophe will help you sleep better.

4. Learn about and consider purchasing disability insurance

See my longer article about buying a DI policy during medical school. A post-match fourth-year student is eligible to buy a small doctor policy that is portable to all future jobs and can scale with future income increases. Any disability policy must be purchased through an agent, and it may be worth it to contact one now and see if a policy is affordable to you now. You may have access to different discounts at different points of training, and a good agent can walk you through all of your options, the benefits and costs of specific “riders,” and be available to you as your situation changes.

You want to purchase a policy as early as it’s affordable for you but not later than your final year of training. I partner with the fine folks at Pattern.

5. Get at least a vague handle on budgeting

It can be really helpful to use a service like YNAB or Mint to create a real bonafide budget to follow, especially if you’ve ever carried credit card debt, want to be more purposeful in your spending, or need to save up for some big purchases. But I know not everyone is going to do that. What’s easier for many people is to determine your reverse budget.

You figure your actual take-home pay (your paycheck after taxes and any retirement, FSA/HSA contributions, etc). Then, determine your fixed expenses, which are the things that happen no matter what like rent and student loan payments, and your mandatory variable expenses (e.g. utilities). The last category is the hardest because they may change month to month, so estimate high, not low. Note that you’ll want a 3-month emergency fund, and any retirement contributions that receive a match from your employer should also be considered mandatory. The difference between what you bring in and the costs you know you’ll need to account for is the maximum amount of money you can “spend” every month.

You should, of course, spend less, and you’ll need to if you want to afford things like travel, but you should never spend more unless you’ve already saved up for it. Figuring out how to plan for the big stuff as well as get deeper insights about your current spending habits are two of the big benefits of software like YNAB. You might consider setting up different folders in your savings account (or even different savings accounts) in order to hold money for special purchases like a wedding or vehicle. Then you can plan for those big-ticket items as an amortized monthly expense.

One key to making budgeting easier mentally and psychologically is a big gap between your income and your expenses. That’s why choosing wisely for the big fixed expenses like housing and transportation is so critical.