Medical School Tuition And Young Physicians Indebtedness If tuition continues its rapid increase, young physicians may find it difficult to repay their medical school debts, and some students may be deterred from attempting a career in medicine. by Paul Jolly ABSTRACT: Medical school tuition and medical student debt have increased dramatically during the past two decades, but loans are available on favorable terms, which makes it possible for students without personal or family means to get a medical education. As an investment, medical education is an excellent choice; its net present value is more than a million dollars. Cost is nevertheless a strong deterrent to potential applicants, especially minority applicants. If tuition and indebtedness continue to increase while physician incomes do not, there may come a time when only the wealthy can finance a medical education, and medical schools may have increasing difficulty recruiting qualified students. Recent increases in medical school tuition and high levels of indebtedness among graduates are matters of concern to the medical education community. Although concern about rapidly increasing costs is seen throughout higher education, the situation in medicine seems especially troubling in view of the much higher levels of indebtedness there and the lengthy training required before the graduate can begin earning a professional income. The purpose of this paper is to report the facts about tuition and indebtedness and to assess the burdens on medical students, residents, and physicians. 1 It is based largely on data from the Association of American Medical Colleges (AAMC), collected on graduation questionnaires among member institutions each year. Study Findings How much has tuition increased? In 2003 median tuition and fees for state residents in public schools was $16,322; for private schools the median was $34,550. In the two decades since 1984, median tuition and fees increased 165 percent in private medical schools and by 312 percent in public medical schools, growing far more rapidly than the Consumer Price Index (Exhibit 1). 2 In constant-dollar terms, the increases were 50 percent and 133 percent, respectively. A medical education is far less affordable to students and their families today than it was two decades ago. Paul Jolly (pjolly@aamc.org) is senior associate vice president at the Association of American Medical Colleges in Washington, D.C. HEALTH AFFAIRS ~ Volume 24, Number 2 527 DOI 10.1377/hlthaff.24.2.527 2005 Project HOPE The People-to-People Health Foundation, Inc.
DataWatch EXHIBIT 1 Medical School Tuition In Current Dollars And Constant 2004 Dollars, 1984 2004 For public medical schools, increases have accelerated in recent years, presumably in response to tight state government budgets. In a single year, from academic year 2001 02 to 2002 03, median tuition and fees increased 4.4 percent in private schools (2.8 percent in constant dollars) and 11.9 percent in public schools (10.2 percent in constant dollars). The increases from academic year 2002 03 to 2003 04 were even greater: 5.7 percent in private schools (3.4 percent in constant dollars) and 17.7 percent in public schools (15.1 percent in constant dollars). In six public medical schools, the increases in tuition and fees exceeded 45 percent. How much has indebtedness increased? In 1984, 87 percent of public medical school students graduated with medical school debt, and the median amount for those who had debt was $22,000. 3 For private medical schools, 90 percent had debt, and the median amount was $27,000 (Exhibit 2). Although the fraction of 2003 medical graduates with debt has declined to 85 percent of public and 81 percent of private graduates, the median amounts for those who have debt have risen to $100,000 and $135,000, respectively. Inflation contributes to these increases, of course, but even after adjustment to constant dollars, the debt levels have risen more than 150 percent. The amount of debt reported by medical school graduates varies from none to more than $350,000. Among 2003 graduates, 17 percent reported no educational debt, while 15 percent reported debt of less than $50,000. Almost 5 percent of 2003 graduates reported educational debt of more than $200,000 (Exhibit 3). Approximately 37 percent of 2003 medical school graduates entered medical school with debt incurred for undergraduate education, with a median amount for those in debt of $16,000 for public and $17,000 for private medical school graduates. Although these debts are significant for some students, for the majority they are either absent or relatively unimportant compared with medical school debt. How can students finance these costs? Fortunately, there is ample financial aid available to medical students. Grants provide 12 percent of the total cost in public medical schools and 18 percent in private medical schools. Loans are readily available on favorable terms. Students can borrow up to $8,500 per year under the feder- 528 March/April 2005
EXHIBIT 2 Median Educational Debt Of Indebted Medical School Graduates, 1984 2004 EXHIBIT 3 Educational Debt Of Medical School Graduates In 2003 HEALTH AFFAIRS ~ Volume 24, Number 2 529
DataWatch ally subsidized Stafford loan program, and they can increase the amount to $38,500 per year on an unsubsidized basis. The current interest rate on the unsubsidized Stafford loans is 2.82 percent at or near historic lows. When combined with undergraduate Stafford indebtedness, the total borrowing limit for Stafford loans is $189,125, and students have ten years to repay. Loan consolidation can stretch out repayment of these federal loans to thirty years. Additional borrowing is available under alternative loan programs at 4 percent, with up to twenty years to repay. In 1987, the earliest year for which data are available, students reported that they planned to finance 34.2 percent of their medical education from personal and family sources. By 2003, this percentage had shrunk to 18.0 percent, as rapidly increasing costs outstripped growth in personal and family resources. Do minority students incur more debt? U.S. medical schools try to enroll diverse classes of students. Although diversity may be sought by geographic origin and social class as well as by other characteristics, schools seek to enroll a critical mass of people who are members of racial and ethnic minority groups that are underrepresented in medicine. It is well known that African Americans, Latinos, and Native Americans typically come from families with lower incomes than whites, and it is widely believed that such students are particularly concerned about incurring debt. 4 AAMC data show that minority students who become medical students do incur debt, at about the same rate as white students (Exhibit 4). There are small differences in the incidence of educational debt. The percentage is somewhat higher for black and Mexican American students, lower for Asians, EXHIBIT 4 Medical Graduates Educational Debt, By Race And Ethnicity, 2003 530 March/April 2005
and slightly lower for Puerto Ricans. Many Puerto Rican students are in Puerto Rican medical schools, and those schools have lower tuitions than mainland medical schools. The reason for the lower borrowing level for Asians is unknown. When they do borrow, the median debt among minority groups is similar. Exhibit 4 also shows the median indebtedness of those who have educational debt. The levels are slightly higher for black graduates and somewhat lower for Asians, Mexican Americans, and Puerto Ricans. Do expectations of indebtedness deter students from applying to medical school? The leadership of U.S. medical education would like to have diverse classes of medical students in terms of race/ethnicity and socioeconomic status. A serious concern is that the high cost of medical education may deter applicants, particularly those from the groups of concern here. In a recent national survey conducted for the AAMC by a national polling organization, students who appeared to be qualified for medical school on the basis of academic achievement were asked why they did not apply to medical school. 5 A number of reasons were given, including the cost of attending medical school, the time it takes to become a doctor, and the demands of the physician lifestyle. Cost was a major deterrent for all students, and it was the number-one deterrent for black, Hispanic, and Native American students. Do students from lower-income families borrow more? Some medical students are supported in part by their parents while in medical school; others may be financially independent. It seems likely, however, that most students from wealthy families receive some financial support. While more than 90 percent of medical students who have reported parental income less than $75,000 graduate with educational debt, the data show that only 60 percent of students who have reported parental income between $200,000 and $500,000 have educational debt, and only 55 percent of those with parental incomes greater than $500,000 do. The amounts borrowed are also somewhat less for those with wealthy parents, but one might well ask, Why do they borrow at all? There are two possible answers: Either they are financially independent of their parents, or their parents simply take advantage of the highly favorable terms for educational borrowing. Wealthy people typically understand and use debt, and they may decide that these loans allow alternative uses of funds that return more in earnings than the interest on the loans. Can young physicians afford to repay their loans? Physicians incomes are far higher than incomes in most other occupations, allowing repayment of even relatively high levels of debt once a practice is established. The estimated median physician income in 2003 was $187,600. 6 In recent years, however, physicians incomes have increased only slowly, and in constant dollars the amounts have trended slightly downward (Exhibit 5). Since 1990 median physician income has increased 34.6 percent, almost exactly in line with consumer prices. Since medical graduate indebtedness has increased more rapidly, repayment of educational loans is clearly more difficult today than it has ever been. HEALTH AFFAIRS ~ Volume 24, Number 2 531
DataWatch EXHIBIT 5 Physicians Incomes, In Current Dollars And Constant 2003 Dollars, 1984 2000 Exhibit 6 shows the monthly payments required, with and without consolidation. 7 Clearly, with an income of $187,500, the average physician can make the required payments, even on a debt of $200,000, especially if consolidation is employed. For the average physician, payments on a $125,000 debt would amount to 9.3 percent of income without consolidation and 3.6 percent of income with consolidation. For a young pediatrician with a starting income of $109,000, the percentages would be 16 percent and 6 percent clearly more burdensome but not impossible. It is important to note that interest rates for these student loans are at historic lows: 2.82 percent for subsidized federal loans. If rates rise, as seems likely, the required monthly payments may increase substantially. Do higher debt levels push students toward more remunerative specialties? Physicians incomes are somewhat higher for self-employed physicians than for employed physicians, and of course they vary considerably by specialty (Exhibit EXHIBIT 6 Monthly Payments Required By Medical School Graduates, By Indebtedness At The End Of Residency, With And Without Loan Consolidation 532 March/April 2005
EXHIBIT 7 Estimated Physician Incomes, By Type Of Employment And Specialty, 2003 7). Repayment will clearly be easier for a radiologist than for a pediatrician. It would be reasonable to assume that graduates with high indebtedness would gravitate toward specialties that promise greater incomes. Many studies have looked for such a relationship between indebtedness and specialty choice, but there is as yet no convincing evidence of a connection. The most recent AAMC data show, for example, that students seeking careers in pediatrics are more likely to report educational debt and degrees of indebtedness as great or greater than those reported by students aiming for radiology (Exhibit 8). Perhaps one reason for the lack of a major effect of indebtedness on specialty choice might be that the higher practice incomes of the more specialized disci- EXHIBIT 8 Debt And Choice Of Specialty Among Medical School Graduates, 2003 Number reporting Percent with debt Median debt for graduates with debt ($) Public medical schools Pediatrics Radiology 420 506 86.7 80.4 99,000 100,000 Private medical schools Pediatrics Radiology 275 351 87.3 76.1 141,500 128,000 SOURCE: Association of American Medical Colleges (AAMC) Graduation Questionnaire, 2003. NOTE: N = 11,810. HEALTH AFFAIRS ~ Volume 24, Number 2 533
DataWatch plines are offset, at least in part, by the longer training times they generally require. A graduate with a large amount of debt may be motivated to choose a discipline where it is possible to begin practice sooner. The motivations of graduates in choosing a specialty involve a number of factors: lifestyle, intellectual challenge, desire to serve, and employment opportunities, as well as income level and required training time. As indebtedness goes higher and higher relative to income, however, there may be some threshold beyond which specialty choice will be affected. Is a medical education a good investment? There is no question that a medical education is a costly investment in human capital, but is it a good investment? Completing a medical education is certainly worthwhile compared with stopping at a bachelor s degree. The median income for college graduates in 2003 is estimated at $45,965, less than a quarter of a physician s estimated annual income. This may be an unrealistic comparison, because those who qualify for medical school admission are above-average college graduates, who might well do better than the average college graduate in a career in engineering or information technology or running a business and would have incomes higher than the average. 8 The differences are so great, however, that it seems clear that a medical career is financially advantageous. One way of looking at the value of an investment is to compute a net present value, based on assumptions of future costs and revenues. The costs for a medical education are primarily tuition, and the revenues are stipends expected as a resident and income expected as a physician. One must also take into account as a cost the forgone income a medical student or physician would have received as a college graduate. Finally, the calculation must use an assumed discount rate, which determines how future values are reduced to take account of the fact that funds received in the future are not as valuable as funds received today. When this calculation is made for medicine usinga6percentdiscount rate, the net present value of the investment is $1.1 million for a private and $1.2 million for a public medical school education. If, instead of going to medical school, one were given a million dollars to invest at 6 percent interest and pursued a career as a college graduate instead, the financial returns would be roughly the same as going to medical school. Tuition at leading law schools and business schools is comparable to medical school tuition. Although the time required is much shorter, the prospects for employment are much less certain than for medicine, where there is virtually no unemployment or underemployment. These two factors complicate any comparison of education for medicine with these alternative careers. Average income data are not available, but the limited data available suggest that although certain strata are exceptionally well rewarded, lifetime incomes of most lawyers and most business school graduates are lower than those of the average physician. 534 March/April 2005
What Does The Future Portend? It is reasonable to assume that higher tuition costs will lead to higher debt. This year s entering class is facing median levels for tuition and fees $5,381 higher in public medical schools and $5,741 higher in private medical schools than did the class who graduated in 2003. If all of the increases in tuition and fees lead to increased debt, and if the fraction of graduates with educational debt remains the same, public and private medical school graduates in the class of 2007 will have median educational debt levels of $117,000 and $150,000, respectively, even if tuition does not increase at all beyond this year s level. If it continues to increase over the next four years as it did over the past four, median debt levels will be $122,000 and $158,000, respectively. If expenses other than tuition also increase, indebtedness may be higher still. Increases in tuition seem likely to continue, and increasing indebtedness is almost a certainty. Although loan repayment is not yet a serious hardship for most physicians, continued increases in tuition and fees may hinder recruitment of a diverse class, may bias the specialty choices of graduates away from primary care, and may eventually even lead to difficulty in filling the entering classes with well-qualified students. The author acknowledges the assistance of Association of American Medical Colleges staff members Robert Sabalis, Gwen Garrison, and Paula Craw in preparing this report. NOTES 1. The full report is P. Jolly, Medical School Tuition and Young Physician Indebtedness, March 2004, www.aamc.org/publications (14 December 2004). 2. Public schools generally have much higher tuitions for students who are not residents of the state; a few private schools have lower tuitions for students who are state residents. Only a single tuition value was reported for private schools prior to 1995 96. Figures reported for private schools are for nonresidents; for public schools, residents. 3. These and other student data in this report are taken from the Association of American Medical Colleges (AAMC) Data Warehouse. Data are collected in two annual surveys, the Matriculating Student Questionnaire and the Graduation Questionnaire. 4. Some support for this statement can be found in R.M. Hauser, The Decline in College Entry among African Americans: Findings in Search of an Explanation, in Prejudice, Politics, and the American Dilemma, ed. P.M. Sniderman et al. (Stanford, Calif.: Stanford University Press, 1993), 271 306. 5. B. McInturff and E. Frontczak, Medical School Applicant Survey, Unpublished report prepared for the AAMC by Public Opinion Strategies, 11 February 2004, available from the AAMC upon request. 6. The American Medical Association reports physician income in 2000 after expenses and before taxes as $175,000. Assuming that physician incomes have continued to keep pace with inflation, the estimated level for 2003 is $187,500. 7. Loan repayment computations are complicated by the mix of Stafford and alternative loans and by complex rules relating to capitalization of interest, deferral, and forebearance. These data were provided by the AAMC Medloans staff. 8. The mean grade point average (GPA) for medical school matriculants in 2003 was 3.62. According to Stuart Rojstaczer, who reports on grade inflation on his Web site gradeinflation.com (accessed 23 November 2004), the GPA in a collection of selective and not-so-selective colleges was 3.26. HEALTH AFFAIRS ~ Volume 24, Number 2 535