Long believes it is wiser to allocate resources to student loan repayment than to investing. “The stock market is volatile and mostly favorable to long-term and patient capital,” he said. “On the other hand, loan repayment contributes positively to net worth immediately, has favorable tax deductions attached, and lowers the overall risk that debt entails.”
Explore This IssueDecember 2014
Many physicians believe that they can make higher percentage gains in the stock market than they pay in debt interest. “While this may be true at certain times, it introduces a new level of risk into the doctor’s finances,” Long said. Financially, student debt loads hurt one’s credit, which adds expense to purchases such as house mortgages and insurance. Pouring cash flow into stocks instead of paying off debt is essentially doubling down one’s risk, the same basic concept as borrowing $100,000 to invest with, because you are merely investing with leverage. “It has the potential to work out, but it also may result in losing not only investment monies, but personal assets as well. There are also taxes to pay should you make gains, plus the costs or fees incurred from investing,” he added.
The bottom line is that debt loads can limit your options, such as taking a new job or saving up for retirement. “In today’s economic environment,” Long added, “it is increasingly imperative for physicians to unburden themselves from debt loads to protect their families and provide greater freedom of choice.”
Karen Appold is a freelance medical writer based in Pennsylvania.