|
Recently, in one of the letters to the editor to Podiatry Online, in response to my website, a doctor wrote in with a mathematical example how, if many things go correctly, you will end financially way ahead with your podiatry school gambit.
His example was as follows:
The real issue raised in podiatry bytes is whether or not the cost of the DPM degree is worth the benefit. Assuming that one starts at age 31, owes $140,000 in student loans, works 34 years, earns $35,000 year 1 and 2, $45,000 year 3 to 5, $56,000 year 6 to 9, $80,000 year 10 to 14, and reaches "average" $110,000 year fifteen and never goes above average, he/she will earn $3,029,000 and pay back $255,585 in student loans, netting $2,773,415.
Note: this estimate uses loan figures above average and earning figures well below APMA estimates. This net is $700,000 more than one could expect to earn in most other careers (except medicine, dentistry, and securities) and assuming that they had no student loans. This economic advantage is neutralized if student loans exceed $250,000.
I wrote him and asked him to show me the math, which he kindly obliged. Here was his explanation:
I am not sure of the math you need to see, but I will give it a shot...The best place to start is to determine whether my underlying assumptions are correct (or at least in the Ball Park). If they are not, I will be happy to recalculate using the new assumptions. I made the following assumptions for my calculations: 1) income is important but not the only reason one would choose a podiatry career, 2) average student debt is $140,000 (I used the figure you quoted rather than the lower APMA number), 3) interest rate of 9%, 4) payback started at age 31, and 5) the doctors practices for 34 years. In addition, I assumed a much lower income than APMA data, especially earlier in ones career. I also assumed the doctor started practice at age 31 and earned $35,000 the first two years; $45,000 the next 3 to 5 years; $56,000 years 6 to 9; $80,000 years 10 to 14; and hits the average of $110,000 at year 15 and stays average until retirement.
I assumed that by 15 years, a doctor should have established a reputation and sufficient practice know how to hit average. Granted, some people may never reach average, but that is true in every type of work. The $110,000 average income number is still significantly lower than the APMA estimate and it assumes that the doctor never practices in a group where average incomes are even higher (even though group practices will be growing). Hopefully, they at least picked a career they enjoy.
The assumptions will have to be changed significantly to make podiatry a poor economic choice. If the doctor delays payments for four more years and accrues interest, the $140,000 grows to $200,396. Payback over fifteen years is now $365,000, still making podiatry a better economic choice. If the interest rate is moved to 12% and payment is delayed four years, payback is now $487,604 over fifteen years. Subtracting this debt from the $3,029,000 still makes podiatry a better economic choice when compared with averages from other good careers (averaging $60,486 per year). Again, that figure assumes no student debt, even though it includes others with advanced degrees who would likely have student debt, including college professors, pharmacists, lawyers, CPAs, MBAs, dentists, and primary care physicians. If I removed dentists ($122,000), primary care physicians ($136,000), and securities analysts ($119,000), the average drops to $49,622. A podiatrist can also choose to work past age 65.
I don't want to disparage the conscientious attempt of this doctor to show the financial possibilities that exist within the profession, though I do have some problems with the assumptions made. BUT then again, he would most likely have problems with the assumptions I make also.
Let's review the basics. When we talk about salaries we are, unless duly noted, almost always referring to pre-tax (gross) income. If someone offers you a contract working for $40K, he is not offering you $40,000 tax free dollars. It sounds simple, but even I tend to forget this. When you look at surveys or explanations like the one above, you really need to know if you are talking about NET or GROSS income. I believe, or I hope, the doctor above is talking about gross incomes because the APMA averages he quoted were in terms of GROSS income (as quoted from the APMA survey, "The average income 'after practice expenses but before taxes' of a podiatrist was $110,631 in 1997." ). So remember, in the example above - that first year, you are talking about $35,000 GROSS...meaning before taxes - which is about $28,500. Yeah, there's a professional salary if I ever saw one.
The biggest problems I have with his explanation are as follows:
[ 1 ] That you can begin paying back your loans according to a fifteen year schedule when you are getting paid $35K. Which is why the four year (Only four? I doubt it) deferment/forbearance is more likely.
[Deferment, incidentally, is usually limited to a two year period following graduation and while you are in residency. The interest on your loan can still be subsidized (depending on the loan) and your payments can be postponed. However, once you pass this point, you need to take a forbearance (hardship) or an unemployment deferment to postpone payment. During these times, but depending on the loan, the interest will most likely still accrue.]
[ 2 ] Also, the $140,000 in loan figure was a quick estimate that I made after taking into account the $35,000/year (times 4 years) budget which is found on almost all school websites (around $34-35K), and the fact that most students take loans. BUT this $140,000 is a figure of principal from podiatry school only, and it does not take into account any undergraduate loan you may have taken. ALSO, remember this, some of your loans (the majority probably) are unsubsidized. This means that they start accruing interest from the second the money is disbursed to you. As a result, upwards of $20,000 of loan money you took your first year in podiatry school has accrued interest for 3 years by the time you have graduated. The money from second year for 2 years etc. Then you tack on 2 or 3 years of residency and it is easy to see that the $20,000 or so that you took the first year already has FIVE years of interest on it....the second year four years of interest, etc. THEN, you can consider that the first couple years in practice you won't quite be able to pay them, which is another couple years. So by the time you can actually pay them back, the loans from your first year in school have maybe 7 or 8 years of interest on them. Don't even get me started on how much interest your undergraduate loans will have on them by this time.
By his own admission, the economic "advantage" of podiatry is neutralized when loans reach $250,000. If you take the podiatry loans at $140,000 you only need $110,000 of undergraduate debt to reach this point. That is only $27K/year in undergraduate loans which, in this day and age, is entirely plausible. I know that the "AVERAGE" amount of podiatry student loans taken, according to the APMA, is $105,000, but I challenge this figure too and I discuss it more in the essay, "The Loan Danger Hides Again!"
[ 3 ] That you can work from year 15 to year 34 (19 straight years) making the APMA average net income of $110,000. I am sure there are guys who graduated from school 20 years ago who, over the last 19 years have averaged a consistent $110,000, but I am not so sure that a student out of residency within the last five years will ever have the opportunity to make a consistent $110,000 for 19 straight years.
My biggest problem with the whole thing is that I simply don't agree with the VIEW (no, not the TV show, though I don't often agree with them either). To say that, in the long run, you will have made 3 million dollars and have averaged $60K/yr bothers me because, to paraphrase the words of one of this century's greatest economists, John Maynard Keynes, "In the long run, we are all dead." Although Keynes would agree that the loans are well worth a good payoff in the end (he was the one who strongly suggested our government should work in a deficit to get out of the Depression), he was looking at an economy that could be influenced to improve. I do not believe the circumstances surrounding podiatry (and medicine in general) are as easily influenced by us. By insurance companies? Yes. Government? Yes. Us? No.
Is our economic situation more like "the family farm," (nearing occupational extinction, leaving behind a handful of mega-farmers and many who were forced out of the business) or more like "the steel industry" (down but not out...with some adaptation, new markets, and tremendous amount of thanks for the torment in the Japanese steel industry). In either case, the prevailing similarity is...that it is NOT the same as it was and, for the most part, will NEVER be that way again. Barring unusual circumstances, are we just someday going to need more family farms? Barring unusual circumstances, is the US steel industry just going to take over the Earth again? Podiatry, like steel or the family farm, may survive to some degree, but is that anything to bank your whole future on if you don't have to? Would you become a family farmer? Would you want to train for six years to be a crane operator at US Steel only to find that crane operators are a dime a dozen in a shrinking industry?
I prefer, and I think students owe it to themselves, to look down the road from HERE and NOW to the end, instead of making some assumptive view after 34 years of practice which is conveniently hypothesized to be successful. There is no guarantee that you will make it until tomorrow, so why gamble on a pile of podiatric dominos that have to fall with atomic precision in order for you to come out ahead? What will it be like for you over the next 3 years? The next 5 years? The next 10 years? These are some of the best years of your life...and according to the doctor's explanation above you will spend almost all of those 10 years as a podiatrist grossing between $35,000 and $56,000 with an ever accruing $140,000 of EDUCATIONAL loan (not house loan, not car loan, not a practice loan, not a buy-in amount) hanging over your head like a guillotine blade. The thing (the Deus Ex Machina that comes rushing in at the end) that makes the whole equation above work to your advantage is the $110,000 you make from years 15-34 without any loan payments. This alone accounts for 2 million of the 3 million dollars. The first 15 years you make a million dollars but spend nearly half of it on loans. The second 19 years you make 2 million dollars to even everything out, but what happens if you only get 10 or 12 years at the average? Or less. All things being equal, it is nice to think that if you pay your dues for 15 years the end will justify the hardship. But can you even begin to conceive of how much this field and industry can change within 15 years? Do you want to know how much it changed in the last ten? And all for the worst.
Let me say that MY following explanation is for a single person and uses figures from the 1998 Federal income tax table. If you have a spouse to offset your expenses, then you should send her flowers -- daily. So let's say you add up all of your routine expenses (times 12 months) and other expenditures and determine that you decide you can live on a NET $35,000 (this is only a net $670/week) which will pay all of your bills (rent, food, car, etc) EXCEPT your student loans (my personal experience would lead me to say that I think it is tough to pay between $1,000-1,500 a month when you are only making $35K). In order to clear this $35K (let me remind you this is NO extravagant lifestyle by any stretch) you actually have to make $44,032. Now, lets say that you also want to pay your student loans which run about $1,000/month. This is 12,000/year above the $35K that you need to live. This means that you need to net an income of $47,000 (which even in the doctor's explanation above doesn't happen until well after the fifth year). To net an income of $47K, you actually need to gross around $60,750!!! So as a result, it is not outrageous to think that you will be deferring/forbearing your loans for that long, at least five years or more AFTER you are out of your residency. Otherwise, you will be trying to pay your loans out of a paltry $35K or $45K salary which is the definition of hand to mouth living. So in summary, just to net $35K along with the extra $12K needed to pay $1,000/month on your mortgage (the one on your life), I mean your loans, you need to sign a contract for $60,750. Now go out and ask around and find out how many young practitioners out of residency this July are signing contracts for $60,750 or more. Oh, look, there's ONE.
As a show of good faith, many young doctors just out of residency are willing to take salaries well under the $60K because they believe that if they pay their dues they will reap the reward in the end. Something like, a couple years at $30-40K and then a partnership deal or something. BUT, many times, these associateships do NOT lead to partnership or any level of increased income. So you end up working for $30-40K for 2 or 3 years, only to be told that it is not the right time for the practice to take on another partner (they would be crazy to take on another partner these days anyway), and you end up moving on to another practice to start again at the bottom.
This phenomenon is called "The Bug Swirling In The Toilet Bowl of Low Podiatric Income." This one was NOT described by Keynes, but involves depression just the same. Haven't you ever found a bug in your house and thrown him in the toilet to drown? But he doesn't drown. He goes down and then scrambles to get back to the surface...then you flush again, and, what do you know, the bug is there again trying to climb the wall of the bowl. It looks like he's getting out and *FLUSH*....back down again. (When patients are slow, I sometimes play this game for HOURS....kidding) Then, when the fun wears off, you carefully lay a tissue over top of him and give him the final flush. B'bye! If you don't get that first good break early, you end up going from practice to practice hoping that THIS one will be the one that pays off in the end. Soon you're six or seven (flushes) years down the road still making an associate's wage, still trying to get your head above (toilet) water. Uh oh, here comes the tissue!
It is the length of time at a practice that makes you marketable and makes you your money. Over time, you develop your own patient base (if your lead doctor allows it), and prove your worth to the practice. Unfortunately, sometimes this is not enough, and the economic circumstances at the time are too unfavorable, and you will be let go or kept at the associate level. As an example, a friend of mine who is currently a partner with a large (and very stable) coastal group practice just hired on an associate for $36,000 gross, with virtually no incentive and, I wonder if they told him, no chance for partnership.
Of course, I hope that all of you getting into this field can make things work according to the hypothesis at the top. But I URGE you to view the numerical figures in print and in your contracts with a more critical mind. After all, someone who finally breaks that awe inspiring "six figure" barrier grossing $100,000 is only taking home about $74,145 which is good, but just isn't a ton of money in this day and age. It may be more than your dad ever made, it may be more than any of your siblings make, it may have some mathematical glamour associated with it, but can you keep it up and will it be worth the initial investment? I KNOW THERE IS MORE TO LIFE THAN MONEY, but the more forward thinking college students make decisions about their vocations taking into consideration what it will take to achieve a comfortable living, raise their family, and buy the house they have always wanted. If you are trying to find a field that uses your talents and will provide a living for you in a manner that is commensurate with the investment, investigate things very carefully and talk to many people. Find out what is LIKELY to happen to you, and be skeptical of the things that might happen if...if...if...if....
|
|
