Young doctors in debt

If Meg and Chris Reis started paying back their student loans soon, they'd be out $2,553.41 a month

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(Money Magazine) -- It's Wednesday evening and Megan Reis can't remember when she last saw her husband Chris. Small wonder. Since Sunday morning, Meg has worked more than 60 hours at Advocate Hope Children's Hospital, the Chicago-area facility where she is training in pediatrics.

Chris, meanwhile, has put in a 24-hour day followed by a 12-hour one at the nearby Loyola University Medical Center, where he's learning anesthesiology. Meg guesses she hasn't seen him since Saturday.

Actually, Chris recalls later, it was Tuesday morning: They saw each other for 10 minutes in the parking garage of their nondescript condominium building, crossing paths as Chris returned from a marathon workday and Meg headed off to one in her parents' old Ford Escort. "She was actually late getting to work," says Chris. "That's the only reason I saw her."

Such are the lives of medical residents: med school graduates getting years of on-the-job training, putting in brutal hours for salaries that, on an hourly basis, work out to a little more than they could earn stocking the shelves at Costco.

It's all supposed to pay off, of course. Once they become full-fledged doctors (attending physicians, in the trade), they'll have six-figure incomes, more reasonable hours, a respected occupation and work that they love.

But for this generation of doctors, and for Meg and Chris in particular, financial security won't come guaranteed with their medical licenses. As health-care economics squeeze physician salaries, rising college and med school tuitions are putting young doctors ever deeper in the hole.

Chris and Meg live frugally, work hard and are making the kind of investments in their future that would make any parent proud. But they're also on track to finish their medical training in the next few years with a staggering $700,000 in debt.

And in the near term, their austere, stressful and sleep-deprived lives are about to grow even more so. Meg, 28, is due to have their first child in November. Although they've lined up day care, they still aren't sure about babysitting help for the early mornings and late nights that they'll both be working.

They'd like to have more children. Meg also dreams of working part time once Chris' training is finished in three or four years, but they don't know if they'll be able to afford it. They're entering uncharted territory. "I just don't really know what the cost of having a baby is," Meg confides.

Chris, 29, grew up in a small town in southern Illinois. He was always interested in science but didn't consider becoming a doctor until he was in a graduate program studying neuroendocrine physiology. "I wanted to be able to talk to people," he says. "I didn't like sitting in a lab dissecting rat brains."

He was accepted to medical school at the University of Illinois, where tuition would have been just $9,000 a year, but chose instead to go to Midwestern University's Chicago College of Osteopathic Medicine, in large part because he thought it would improve his chances of getting a residency in the Chicago area. Starting tuition: $29,000.

Chris, who left his master's program owing $17,000 in student loans, was well aware that he'd finish med school with at least $200,000 in debt. But the message he got from the school, he says, was "Don't worry about it. You're going to be able to pay it off someday. It'll all be taken care of."

Soon after he arrived at Midwestern, Chris met Meg, another first-year student. Meg had small-town roots too - she had spent her teen years in farm country outside Peoria and had triple-majored in premed, biology and psychology at a small college less than 100 miles from home. They found each other easy to talk to and started going out in their second year.

Well, not exactly going out. With both of them conscious of how fast their student loans were piling up - Meg had finished her undergrad days debt-free but had no financial assistance for med school - their courtship was low-key. They didn't hit the bars as often as classmates did; instead, says Chris, "Our dates were studying for the test the next day."

Chris and Meg went through four years of medical school - two years of classes followed by two years in what are known as rotations: one- to three-month blocks spent learning about different medical specialties and passing standard milestones such as assisting in the delivery room. "I like it when the dads cry," says Meg. "I always watch them."

They got married in October 2005, their last year of school, and celebrated in their characteristically thrifty way: The honeymoon was a midweek, three-day Caribbean cruise. "We found the cheapest boat, the cheapest tickets," says Chris. Married on a Saturday, they were back the following Friday to start their next rotations.

Already they had selected the specialties they wanted for their residencies and effectively, for the rest of their careers. Chris, drawn to both orthopedics and anesthesia, picked the latter because of the likelihood that he'd have a more predictable schedule as a practicing physician.

Meg chose pediatrics. "I love working with kids. The really sick ones, you can help them and make a difference to their families," she says. "And then you have the well kids whom you get to know right from the minute they're born. You're like a part of the family in some ways."

By the spring of 2006, as med school was drawing to a close, Meg and Chris had a total of more than $450,000 in debt. Soon they added $200,000 more: Matched with residency programs in the Chicago area, they bought a condo unit convenient to their hospitals. They didn't seriously consider renting, since they knew their residencies would keep them in one place for at least four years. And they didn't want to move farther away from Chicago in search of cheaper housing. "When you come off a 30-hour shift, you don't want to drive an hour home," explains Meg.

They ended up in a quiet town called Willow Springs, near a forest preserve bursting with deer. It's a nice place but, like their careers, is not quite as glamorous as it sounds. In the couple's living room, they can hear the horns of Amtrak trains racing along 25 yards from their building; from their balcony, they have a perfect view of a 7-Eleven convenience store.

No matter: Their lives, for now, revolve around work. A short day for Chris - one in which he isn't at the hospital for 24 hours straight - starts at 6:15 a.m. and lasts 12 hours, through back-to-back surgeries. He loves the physical, mechanical aspects of his job inserting a breathing tube or putting an I.V. catheter in a neck vein. "It makes my day go by pretty fast," he says, "when I get to do a lot of hands-on stuff."

And although one might not regard a doctor who knocks patients out as a people person, Chris likes the contact he has meeting people before they go into the operating room, administering medication and monitoring their vital signs during surgery, and escorting them to the recovery room. "I enjoy making sure that I took care of them the way they wanted to be taken care of," he says.

Meg's days are spent admitting and discharging children, learning what has happened to them on prior shifts and addressing any problems that come up on hers, and assisting part time in a private practice. In the hospital, she's often dealing with the most heartbreaking of cases: kids diagnosed with cancer, families grappling with whether to remove their child from life support.

"It's not something you can get used to," says Meg. At the same time, she adds, even the hard cases remind her why she became a doctor. "You see both sides of it. You see the kids who don't make it, but you see the ones who do well and go home and hopefully you never see them again unless they come back to visit you."

The couple's work is rewarding, but not in the monetary sense. Their combined earnings are around $88,000 which, given their exhausting schedules, averages out to about $12 an hour. They go to great lengths to avoid taking on more debt. When their bikes were stolen a week after they moved into their condo, they didn't buy new ones; instead, they used reward points from their credit card, which they pay off each month, to buy a single replacement. Next year, they hope, they'll have enough points for the second one. They rarely go out. For dinner Chris has been working his way through a cookbook filled with 30-minute recipes.

Not even special occasions merit a splurge these days: Meg, a theater fan, had missed The Lion King before it closed in Chicago, so this year, for their anniversary, Chris wanted to get tickets for Wicked. "She said, 'No, no, the baby's coming,' " recalls Chris. "So she got flowers and candy."

At the same time, they're trying to save what they can. They have an $18,000 emergency fund in a high-interest savings account. They contribute regularly to Meg's 401(k) and Chris' 403(b) plans.

While they don't have to make student-loan repayments yet, their low salaries qualify them for hardship deferrals the interest keeps accumulating, and the amount they owe keeps growing at the rate of about $17,000 a year.

The magnitude of their debt hits Chris every time he logs on to his student-loan provider's Web site to check their accounts. "While I'm sitting there, I have a little panic attack," he says. The numbers are sobering: If he and Meg started repayment soon, they'd be out a total of $2,553.41 a month. That's like two additional mortgage payments on top of their existing one. And they could be paying student loans until they're nearly 60 years old. "People hear 'doctor,' and they think, 'Oh, high salaries and luxury lifestyle,' " says Meg. "But I don't think people are aware of the debt you accumulate."

Pediatricians' salaries, meanwhile, are on the low end of the scale for physicians, and if Meg works part time, she could earn as little as $40,000. Chris will likely make at least $250,000 a year, but he may opt for extra training in pain management, delaying his big salary hike and adding more interest onto their loans.

For now, Chris and Meg are short on time and money. And with a baby coming, they're going to have less of both. "Plenty of people say we're nuts for having kids in residency," says Chris. But of all the things they've put off having or doing, they don't want to delay starting a family anymore.

Money Magazine set Chris and Meg up with Donald Duncan, a Chicago-area planner and investment adviser with D3 Financial Counselors. (They later get additional advice from Victoria Ofenloch of Mediqus Asset Advisors, a Chicago financial management firm for doctors.) As Duncan, Chris and Meg sit around the couple's dining-area table, Emmy, their cat, finds a seat under Meg's chair. Snickers, their aging, foggy-eyed dog, stretches out on the carpet next to Chris' feet.

Ignore the usual advice You won't often find a financial planner telling a young couple to stop putting money away for retirement, but that's what Duncan advises Chris and Meg to do. "Don't get me wrong I'm a big advocate of saving for the future," Duncan says. But given how short on cash they are and how much their earnings will jump in a few years it makes no sense for them to struggle to put away the $3,500 a year they do now. They could better allocate that money for unexpected child-care expenses, for a vacation fund (Duncan senses from Meg's lament that they're going overboard on the delayed-gratification thing), for debt repayment and, most important, for life insurance.

Get protected Meg has no life insurance. Chris has $50,000 in term coverage through work. That's a problem, says Duncan; if one of them were to die, their remaining expenses would swamp the survivor (even though the student-loan debt of the one who passed away would be forgiven). He does a back-of-the-envelope calculation: $200,000 to pay off the condo, $8,000 for their single car loan, $72,000 for seven years of child care and $100,000 for that child's college expenses. Add it up and $400,000 of coverage for each will do the trick. Given their ages, they should be able to find policies for a mere $25 a month combined. They can buy more later when their incomes rise.

Ofenloch suggests other ways they should be protecting themselves. They need to look into disability insurance in case one or the other is incapacitated. She also points out that they need to title their assets in a way that protects them in the event of a malpractice suit. (Chris consults his paperwork and finds they've done that correctly with the condo.)

Deal with debt To buy their apartment last year, the Reises took out an interest-only adjustable-rate mortgage. They're expecting to sell before the rate resets, but Duncan suggests they refinance into a fixed-rate 30-year mortgage in case they end up staying; perhaps they'll get jobs in the immediate area or their salaries won't be big enough to easily absorb an interest-rate jump. Chris questions whether the transaction costs of refinancing would make it worthwhile. Duncan responds, however, that given the Reises' outstanding credit ratings and their small mortgage, lenders hungry for refi business might absorb the closing costs and appraisal fees. "If you can't do it for no cost," Duncan says, "don't do it."

As for their student debt, which comprises a number of loans with interest rates ranging from 2 7/8 percent to 9¾ percent, Duncan has several ideas. One is to pay off as many of their high-interest loans as possible, since that will guarantee them a high return for their money. Duncan points out a $2,777 loan at 9¾ percent that could be knocked off with spare cash. He suggests they look into borrowing from relatives; instead of paying a stranger 8 percent, he asks, why not give someone they know 7 percent? He also advises them to be in no hurry to pay off loans that carry rates under 4 percent. "String them out as long as you can," he says. "That's the cheapest money you'll ever see."

Keep plugging away Chris and Meg's debt looks overwhelming, but Duncan assures them that there's light at the end of the tunnel. He shows them his calculations indicating that once they're both attending physicians, they could pay off all their student loans in only seven years. (Not that they ought to, given those low-interest loans.) They could even upgrade their standard of living and start saving for college and retirement, he says.

The bad news: If Meg really wants them to minimize the payback time, she might have to revise her plan of switching to part-time work when Chris finishes with his training. "Have that as a goal," says Duncan, "but don't have it as a cut-and-dried idea in your mind."

A few days later, Chris is already working his way down the checklist of planner suggestions. He's lined up a possibility for a refi and learned that he can't buy additional life insurance through his hospital. He started researching disability insurance too but put that off temporarily. "I had to go back to the O.R.," he says. "My pager was beeping."