Introduction: Part 1:  College through Professional School

     I have had the good fortune to work alongside many talented PAs and NPs during my career in Emergency Medicine.  I wasn’t exposed to any APPs during my residency training.  Once I began working with them, I was impressed by their knowledge, experience, and work ethic.  Me being me, it wasn’t long before I was looking at my new colleagues through the lens of financial optimization.  After assessing how much money they made and how long they went to school compared to physicians, I calculated how long it would take me to catch up to them financially, given my late start.  At the time, I only thought about it from my perspective as an emergency physician and quickly concluded that I had made the more optimal financial decision.  

     Seventeen years have passed, and I now better understand personal finance, the time value of money, and how lucky I have been.  I have also seen the world change around me.  College and medical school tuition has rapidly increased.  Interest rates on student loans have skyrocketed.  I finished college and medical school with around $120,000 of total debt, which I immediately consolidated at 2.5%.  I now encounter physicians with unbelievably large amounts of student loan debt financed at shockingly high-interest rates.  With loan amounts 4x larger and interest rates 3x higher, has the math changed?  What is the new financial break-even point between an MD and a PA?

Scenario Model: What is the new financial break-even point between an MD and a PA?

     To answer these questions, I created a complex scenario representing the plethora of real-life choices people must make year-to-year as their lives and circumstances change.  The model begins in 2006, the year I graduated from residency, and tracks two bright and ambitious individuals through their financial journeys as medical professionals.  No model can incorporate every tax, expense, or decision.  Still, I believe this is a realistic scenario that compares the career of an average PA to that of an average Family Physician.  I didn’t write this article for someone on the fence between medical school and PA school, as I don’t believe that should be a purely financial decision.  I wrote it for APPs that have already made their decision.  As you will see, if you work hard and manage your finances correctly at the beginning of your career, you have some tremendous advantages over your physician counterparts.         

     This narrative is split into three sections.  Part 1 introduces the story, provides background, and takes us through college and professional school (years 1-8).  Part 2 covers the early professional career (years 9-17).  Finally, in part 3 we will cover years 18-31, taking us through early retirement age, and discusses lessons learned.  I had to make several assumptions for this exercise, which I have listed below.  The financial choices made in this study were predicated on Business is the Best Medicine’s Financial Vitals Checklist, a step-by-step- guide on what to do with your next dollar, which is available here.   

Rules and Assumptions

        For this exercise, we will assume the following:

  1. Participants have own-occupation disability insurance through their employers.
  2. Participants save/invest 25% of their income unless otherwise specified.
  3. Once they start employment, participants will build and maintain an emergency fund equal to 3 months of their expenses.
  4. All retirement account balances are invested in a Total Market Index Fund and a Total Bond Market Fund in a ratio of 80/20 unless otherwise specified.
  5. All brokerage account balances are invested in a Total Market Index Fund and a Total Bond Market Fund in a ratio of 80/20 unless otherwise specified.
  6. All returns from 2006-2023 are based on the historical returns of the above indexes during this period.  
  7. All dividends are re-invested automatically through a DRIP (Dividend Reinvestment Program).
  8. This example does not include real estate in the Net Worth evaluations.  For this exercise, think of the participants as renters.
  9. The Cash portion of the net worth statements refers only to the emergency fund, not ordinary checking/savings account balances.
  10. Each “Year” in the study runs from July – June, consistent with the school calendar. 

Background & College (YEARS 1-4)

     Jane and John Doe are twins born in March 1988.  They grew up in a middle-class neighborhood in a suburb outside of Knoxville, Tennessee.  Their parents were blue-collar workers who instilled in them the benefits of higher education and a love of the outdoors.  Unfortunately, their father died of cancer when the kids were just starting high school. This led them both to have an interest in medicine and a desire to help people.  Jane and John were good students who enrolled at the same state university, starting in the fall of 2006.  They each studied Biology and declared themselves Pre-Med.  They both did well in their classes, were popular with their peers, and liked by their teachers.  In fact, they were so similar, it was like they were . . . . twins!  Each dreamed of becoming a physician and saw medical school in the future.  

     During his 3rd year of college, John was growing restless at school.  He couldn’t imagine spending another four years in medical school and another 3 to 5 years in residency.  He planned to get married and start a family and was unsure when that would happen if he spent eight years training.  John was also nervous about the cost of medical school.  He wanted to start working and make some money. 

Choosing Paths: Medical School vs. PA School

John had shadowed at a family practice clinic as part of his pre-med program and met a physician’s assistant working at the clinic.  They became friends, and after some soul-searching, John decided to attend PA school.  On the other hand, Jane held fast to becoming a physician.  She was sad that she and her brother would take different paths but felt that John was making the right decision for him.  She did well on the MCAT and was looking forward to medical school.   

     At the end of their college careers, John and Jane each graduated Magna Cum Laude and were accepted into the same state university for their respective programs.  They had both gotten help from their mother to pay for college, and each received a used car worth $15,000 as a graduation present.  They had identical amounts of student loans as they began professional school.  Their student loan debts were $26,125 each, which happens to be the average debt for a college graduate with a bachelor’s degree in 2010, the year of their graduation.  The interest rate on their loans was 6.8%, the average rate for Federal Unsubsidized Loans from 2006-2010.  Their mother could not help them anymore after college, and they would both have to borrow all the costs while in professional school.  Their net worth statements as they finish college are below.  

Year 4 Net Worth Financial Optimization

Professional School & Early Career (YEARS 5-8)

     John did well in PA school, enjoying the fast pace of learning.  During his 2nd year rotations, he decided he was most suited to primary care.  Upon graduation, PA Doe immediately got a job at an Urgent Care.  His in-state PA School tuition was $38,000 per year, for which he took out student loans at 6.8%.  He was able to borrow federal unsubsidized loans up to $20,500; the rest were private loans at the same interest rate.  His living expenses totaled $20,000 per year, which were also covered by his student loans.  John’s PA school loans accrued interest while he was in the program.  His college loans were deferred but accrued $3,553 of interest while in PA school.  This interest will be capitalized (added to his loan balance) at the time of repayment.  

     Jane also enjoyed her first two years of medical school.  She felt challenged by the constant studying but made some good friends and was excited to enter her 3rd-year clerkships.  Her in-state medical school tuition also happened to be $38,000 per year, and she also lived off $20,000 per year.  Jane paid for everything using unsubsidized loans, meaning all her loans accrued interest while in school.  John & Jane’s respective net worths at the end of YEAR 6 are shown below.       

Year 6 Net worth Financial Optimization

   Starting Out: John’s PA Career

John began working full-time in the fall of 2012, the beginning of the 7th year of this study.  His FT employment consisted of 14 x 12-hour shifts per month at $60/hr., which made his yearly salary $120,960.  He also worked a total of 6 extra shifts during the year when his UC was short-staffed and received a $2,500 Christmas bonus each year, bringing his total yearly salary to $127,780. 

His job included disability and health insurance, and he was eligible for a 401k match after 6-months.  The company’s 401k plan matched 3% of his salary if he contributed 6%.  John rented an apartment and kept the car his mother had given him.  John was determined to maintain a savings rate of 25% of his gross income, allowing him to save/invest $31,945 yearly.  He was in the 28% marginal tax bracket as a single person, leaving him approximately $5,800 a month for his monthly living expenses.  He calculated his emergency fund goal based on this number (3 x $5,800 = $17,400).  

Financial Optimization and Emergency Fund Building

     John followed the Financial Vitals Checklist and used all the money he was able to save in 2012 to contribute to his emergency fund.  In early 2013, John was able to complete his emergency fund savings.  At the beginning of the same year, he was automatically enrolled in his company’s 401k, contributing 6% of his salary to obtain the match.  John also began repaying his student loans at that time.  His college loans were $327/mo., and his PA School loans were 1,319.62/mo.  Repaying these loans took a large portion of the 25% savings rate that John set for himself. 

In 2013, the income limits for contributing to a Roth IRA as a single individual were $112,000 – $127,000.  He was able to reduce his AGI by contributing to his 401k, which allowed him to make a partial contribution to his Roth.  He used the remainder of his save/invest money to continue contributing to his 401k.    

     John continued with this pattern during the first half of 2014.  The contributions to his retirement plans, emergency fund, loan payments, and brokerage accounts during this time are outlined below.  

2012 (July – Dec)2013 (Full Year)2014 (Jan – June)
Roth IRA025301630
Cash Savings15,972,50427.500
PA School Loan Paydown015,8357,918
College Loan Paydown03,9181,959
Brokerage Account000
John’s Total Contributions, including Employer Contribution to 401k

Jane Chooses Residency

Jane excelled in many of her clerkships but ultimately decided to go into Family Medicine to develop a more profound, longer-lasting relationship with her patients.  She graduated in June 2014 and will start her residency at a hospital in Houston, Texas.  While in Medical school, her college and medical school loans accrued interest.  Her loans will be capitalized at graduation and then deferred while she is in her 3-year Family Medicine residency.  The siblings’ respective net worth statements are below.

Year 8 Net worth Financial Optimization

Conclusion Part 1

     At the end of year 8, twins John and Jane Doe are 26 years old.  While they each have a negative net worth, Jane’s is 4x worse than her brother’s.  John is making a good salary working as a PA, while Jane still has six months left of medical school before beginning her residency.  When they meet for dinner, John is paying the bill for now.  Is this a medical remake of The Tortoise and the Hare, or will John’s financial head start prove too much for Jane to overcome?  Stay tuned for Part 2 of this series, which will follow John and Jane through the next eight years of their lives, including Jane’s residency, the start of her career, and navigating a global pandemic.