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From A Financial Standpoint Is A Medical Education Worth the Investment?

A lot of attention recently has been given to college affordability and borrowing money to finance that education.  AFFORDABILITY, it is also an ongoing debate for professional students.  I recently spoke with an incoming non-resident medical student who was deeply concerned about the amount of loans he would have to borrow to attend our medical school.  It was clear to me that the bigger question he was asking is whether borrowing the projected $350,000 in federal loans worth the financial investment in the long run.  It is extremely difficult to quantify the risk in his situation except that the outcome is apparently very good to excellent.  Even at a minimum of 30 years at $160,000 annual salary for a primary care doctor, a lifetime earnings potential of 5 million is a good investment when you consider the cost is less than a half a million to attain that potential earnings.

As I reflected on our conversation, it made me think about it in more concrete terms.  As it stands now, a non-resident student entering in the Fall 2012 will be looking at approximately $330,000 to meet expenses and a resident student will be looking at approximately $240,000 in overall costs to receive an MD from Indiana University School of Medicine.  This is assuming that the student will need to borrow this entire amount based on the 4-year cost of attendance estimates we provide.   While in school, as the student loans are disbursed, they accrue simple interest on the amount disbursed.  In repayment, the accrued interest is added to the original loan balances and accrual interest is now compounded.   The approximate debt at repayment for a non-resident of $360,000 and for a resident at $265,000, would work out to a total repayment after 10 years of repaying the loan of $501,595 and $369,229, respectively.

Of course, some medical professions pay more handsomely than others.    When you consider that an Orthopedic Surgeon begins his or her career at a salary of $400,000 annually, in 30 years, this person would have made $12,000,000.

The definition of a Return of Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.  Applying this principle to the primary care doctor earning 4.8 million gross over 30 years at $160,000 annually and their total payoff on debt at $369,229 puts the ROI at 43.3% annually based on the gross earnings.   Even if we were to calculate the Net ROI, it would be pretty good returns.

So, the question, is attaining an MD worth the investment?  Yes, I believe so.   I also think that asked this question of almost all physicians in practice, they would say yes on the financial aspects of medicine.

The views expressed in this content represent the perspective and opinions of the author and may or may not represent the position of Indiana University School of Medicine.
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Jose Espada

Jose Rivera Espada is the director of financial aid at IU School of Medicine, a nine-campus allopathic medical school in Indiana. Jose’s experience includes working as an assistant director of financial aid at Butler University and a financial aid coun...