Handling Student Loans
Something tells me this topic is relatable to many SRNAs and CRNAs. Perhaps even a tender topic. Maybe it resembles a parasite in your bank account. I would guess you have heard many ways on how to best approach or manage your student loans. It is likely the overwhelming majority of people told you to not worry about loans in regard to both your undergraduate and graduate degrees. This becomes even more common when they are grad PLUS loans for anesthesia school.
Depending on when the loans originated, the interest rate may be vastly different from current rates. Today, grad PLUS loans run at 7% with refinance rates around 5%. A year ago, refinance rates were closer to 3%. In recent history, I heard of rates as low as 1-2%. And don’t forget about the fees to refinance. Some borrowers turn this into a math problem. Borrow money at 5% and invest my paycheck to make 8% in the market. It looks good on paper. This mathematical approach does not account for volatility in the investments nor the emotional aspect of carrying a NON BANKRUPTABLE personal debt. This approach of essentially investing borrowed money in a total market or S&P index fund may be valid with rates less than 3% (questionable with 4-5%). Drag it along like a sad puppy paying the minimums, but diligently investing along the way. Don’t live like a big shot, because you may have a negative net worth. Note that I said investing borrowed money and not buying a new car with said money. If you struggle putting away money each month after payment minimums are made, just pay them off. There will never be any rebuttal from me if you pay off debt, even if it has a low interest rate. In summary, any loans over that 3-5%, just get rid of them. It’s not worth keeping those money suckers around.
I won’t politicize this topic, but rather examine it through an ethical lens. There is secured and unsecured debt. Secured debt is something that holds value, like a house. If you can’t pay, the bank seizes the house and sells it to recoup the losses. Student debt is unsecured. If these loans are faulted on, the bank can’t sell your DNAP diploma for $250,000. It is a straight loss. Interest rates should be high on unsecured debt because it is without the backing of value as the gold in Fort Knox and quite frankly, risky for the bank. The ethics of the situation revolve around who is granted loans and the “fairness” of the process. Another frank moment – banks do not loan money because they are run by the nice guy down the street. Banks are in it to make money. Big banks are publicly traded companies with obligations to their shareholders to produce. How to they produce? Interest and fees both of which paid by borrowers. Even that savings/checking account you have – no interest paid to you. They loan out that money similar to the above scenario. Pay you 0.01% interest on your checking account and loan it to some poor SRNA for 7%. Let’s cut this rant short and get back to the ethics.
A loan is something that is borrowed with the promise of return, plus interest. In my mind, when a contract for a loan is signed, the borrower is giving their word to the lender that the agreed upon value will be repaid within the specified time frame, say 10 years. For anyone who signed a loan (myself included for a mortgage loan), you are giving your word that it will be repaid. Again, we could go on about qualifying for loans and the underwriting process, but that’s not what this post is about. This is about people trying to shrug off their student loans or have the federal government step in to save the day. You signed, it’s your word, you pay. I don’t trust people who go back on their promises.
UNPOPULAR OPINION ALERT: I don’t feel bad for CRNAs with student loans. The profession pays soooo well that even the most overpriced programs are manageable. This isn’t social work or the arts. I feel bad that those folks didn’t have anyone saying, “hey, I understand this profession is important to you and society, but I don’t know if this $40,000 annual salary is worth $300,000 in student loan debt. Maybe there is a better way to get there.” Of course, universities would never say such a thing. Good news, CRNAs aren’t in this boat. Not even at the same dock or in the same ocean. CRNAs make AMAZING money. The average annual W2 income is 3X the mean income for a family of 4. If people with average incomes survive, CRNAs can too.
Some CRNAs are carrying debt from undergrad plus a car note plus a mortgage plus credit card debt. I understand that everyone comes from different circumstances and therefore I do not fault anyone for previous financial decisions. The decision at the time felt like the right one. No blame going around. However, I think it is a poor decision to choose to live vastly above one’s means and carry great volumes of debt once you have financial awareness. That stress alone is enough to sour a person. Life is simply better with financial security.
The average person takes out hundreds of thousands of borrowed dollars to get through school, which gives this practice a sense of normalcy. When you are one of many in your cohort, not to mention the profession as a whole or other graduate students for that matter, it makes it feel like the thing to do with no reason to question it.
Should I refinance? A better question is, “How serious are you about getting rid of your debt?” Making CRNA money, most debt could vanish within months or a couple years depending on your ambition to pay it off. It usually isn’t worth paying the fees to refinance to save a year of interest. Run the numbers, but if you are serious about kicking debt to the curb, just eat the interest and bust it out. If you can refinance to 2%, drag that sad puppy along and get serious about your investing. Again, if debt is an emotional burden, it isn’t worth keeping it around to see a higher return in the market.
My wife borrowed $27,000 at 7% to fund her undergraduate education. I told her shortly after graduating nursing school, “You make too much money to have this debt.” In her eyes, paying the minimum and carrying out the loan over 10 years was just what people did. She is absolutely right. Most people carry out their loans. But most people are broke and don’t win with money. After a discussion regarding the impact accrued interest would have on her total debt, she was motivated to minimize any additional financial burden. She was making $25 per hour and paid off her loans in 11 months. She paid for her Nurse Practitioner education out of pocket. I am proud of her.
For the first time on this blog, I am speaking from a different perspective. Well, sort of. I did not borrow money for my undergraduate or graduate degrees, but I do understand the financial burden. No, I’m not a trust fund baby—although that must be nice. I adopted the mentality very early on that I had no choice but to pay for my own education. In high school, I calculated my expected costs of attending one of the most affordable 4-year state universities in the country -- $60,000. I approached anesthesia school in a similar manner. When I started working as a nurse, I knew I needed $88,000 (at the time) for 9 semesters of tuition. Yeah, the college raised the cost, and it ended up being $100,000—plus another $45,000 for living expenses. I lived my RN life as though I was hundreds of thousands of dollars in debt. My salary started at $22.45 per hour. Shortly after, it was increased to $25. Then I signed a weekend contract, which put me up to something around $35 per hour. Not including overtime—lots and lots of overtime. That’s where the gravy came from. Live off $20,000 and stash the rest. Monthly savings goals were met. I saw the dollars add up. My debt was paid before I even started school—on a nursing salary—so I know it can be done with CRNA money. I would recommend it to anyone. Make the sacrifice up front. Current SRNAs, you guys are locked into your financial situation. If anyone has friends or relatives looking at the field (or any other area that they feel requires loans), please encourage them to research the opportunity cost and put some money away before they start.
