Saturday, January 31, 2015

Approaching Student Debt

Annnnnnd! A very good day to you today!

I'm glad you're joining me for another discussion on career paths. This time, we're talking about how to approach student debt. For the sake of this discussion, I'm going to talk specifically about the experience of #DPTstudent(s) since that is something I have personal experience in. Nevertheless, there are financial and career path principles here that are ubiquitous to nearly all lines of work and paths of life.

And so, I'm pleased to present to you:


Approaching Student Debt

So, you're about to graduate with a fancy new doctorate degree in physical therapy. You are soon able to call yourself "Doctor" so-and-so. You are probably planning out when you're going to take the National Physical Therapy Exam (NPTE) and hopefully pass with your license to practice. Then, it's time to join the workforce!

As you know, you must now also map out a plan to tackle on a probable six-figures of United States Dollar (USD) debt. It's not an easy task. Taking on say $20,000 dollars of debt is already quite a challenge. $100,000??? Eeeesh!

Well, if you've been looking around the job boards, asking around on Twitter, or lurking in Facebook support pages, you've probably seen people despair on how little newly graduated DPTs are making. Moreover, you're probably experiencing the sinking feeling of discouragement, that emotional drop of when you think of how it may take the rest of your life to pay off your student loans.

Let me first say, it doesn't have to be so. There IS a better way!

Secondly, the first job will always suck. It will always pay less, the hiring managers will always try to sucker you for less; and searching for the best pay, best location, and best setting always seems to come up with empty results.

THIS. IS. NORMAL!

The poor pay has to do with the fact many places of employment retain senior staff members who are terribly expensive. They may be offering you $30-$35/hr. That's because they need to balance out the budget for the employee who has worked there for 15 years and is now making $45-50/hr. Unfair? YOU BET! But, that's the game -- for now at least.

So what is the better way? Aggressive balance.

You see, there are lots of jobs in settings and locations that basically for lack of a better word: STINK. Skilled nursing facilities, hospitals in the middle of no where, home health regions which basically feel like you're driving from one end of the state to the other... these segments of the job market pay frighteningly well. They also aren't very fun to work in, hence the awesome pay.

Here is my suggestion: Achieve aggressive balance by using the numbers to guide your path.

One of my favorite tools in dealing with paying back debt is Power Pay. This free online tool gives you the ability to schedule out your payments against your income. It also does so by rank, so you can choose how you wish to pay things off.

Personally, I've always advocated first paying off the debt retaining the highest interest rate. In any case, you can choose for yourself how quickly you'd like to pay off your debt. Once you do so, you'll be able to back track how much money you'd need to make and live off of to meet such a goal. Oh, one really cool thing about this tool: It schedules out your payment scheme to REGULAR budgets. Meaning, you have the same monthly budget in tackling your student debt. Pretty cool, huh?

The other issue I like to remind new grads of is the Time Value of Money and HUMAN CAPITAL. In simplest terms, the money you have now may be worth more now than saved later because you are just joining the workforce. Therefore, don't worry so much about the retirement fund, that will take care of itself if you are financially disciplined in ANY form. This also relates with human capital to which you're life, earning potential over your working years, and the economic value you contribute as a person is ENORMOUS. You JUST graduated. You have LOTS of incredible things to do and to become.

All this to say, when you're looking at places of employment, don't worry so much about the benefits unless you aim to stay at that company for a long time. Typically, I advise new grads to quit their first job in the first or second year so they can get a new job at "regular," non-new-grad rates. This way, you can get a higher cash flow in to pound away at your student loans (more on this in a post, linked below).

So, where are the best places to get cash flow? SNFs, home health, travel assignments, and registry work. These segments pay SIGNIFICANTLY better than outpatient ortho. How much better? Well, when I was a director, I would consistently be authorized by corporate to make new grads an offer of high $30s/hour. We're talking at least $37/hr and even up to $40/hr if the time in the job market was right. This was compared to starting rates at $30-33/hr at outpatient ortho and acute care hospitals. Keep in mind, I had PTAs and COTAs making $30-33/hr per diem!! THAT's the difference.

Also, home health can pay new grads up to 6-figures if you're a work horse and the region you cover isn't insanely vast. Also, travel assignments can pay upwards of $50-70/hour depending on how rural the area is. Registry, however, is a bit more humble and typically will pay $45-65/hr depending on the market. It's not sounding so bad, anymore, is it? GOOD!

HOWEVER, if a company offers amazing benefits -- especially stuff like high rated (5-8%), matched defined contributions (or even defined benefits) into a 401k, 403b, etc. DO IT! It's practically free money. Sure, you'll live a little more frugally, but, my inclination is always to max out those benefits. You'll be surprised how much that plan will be worth when you roll it over to something like a Roth IRA. There was a company I worked for which the plan essentially amounted to $10k in retirement funds per year! Think about it. This will give you the best of both worlds, you can save for the long term while you supplement hours with say work at the local SNF who may need you for 3-4 hours on a Saturday morning. Working 3-4 hours there may equate to working for an entire day at your regular place of employment!

Now, other than going to the ends of the earth, picking up travel assignments, and supplementing your income with per diem or registry work, what else can you do?

Being that I'm graduating with an MBA this spring, I've really been opened up to asset diversification. If you know what you're doing with capital or trust someone to do so, feel free to invest what savings you have. Right now, almost ANYTHING is better than letting it sit in the bank. All that said, one of my finance professors was really big in saying that balance in life is more important than the balance in your bank account. This came from the perspective from him working with a lot of clients with unimaginable wealth. Sadly, these people were quite poor in life.

It's important to have balance. When you're young, you have the advantage of having big appetites. That is why I encourage you to achieve balance and do so aggressively. EVERYONE has debt. The world is in a debt based economy since physical commodities no longer giving backing to our bucks.

So what does all this mean?
  • Don't let your debt get your down.
  • Since we all have it, we simply need to become better at managing it.
  • Be a beast about paying back high interest debts first.
  • Don't skip payments.
  • Try not to spend on a whim.
  • Stay disciplined to your payment plan and your budget.
  • Take advantage of employee benefits.
  • Feel free to save a part of your income to invest in short term portfolios.
  • Oh, yes! Housing helps a lot when it is tax time.
  • Live wisely; within your means and prudently.
  • However, also be sure you make yourself rich in life; be happy, be joyful, have fun!
Above all, be balanced. Managing debt is all about managing balance. As a newly graduated student, you will have a thirst and a drive that can make you achieve balance with aggressive success. Following a highly disciplined and driven plan can help you knock out significant chunks of principle in a short amount of time before you move onto the next stage in life. Watching those debt figures go down is rewarding and encouraging.


Quick Thoughts on Loan Forgiveness

Alright! As requested, a quick bit on loan forgiveness. So first, I need to say that while I'm finishing up an MBA this April, my concentration is in marketing which really means my expertise is in business and marketing strategy, such as how market operations/supply chains relate to entry/exit/promotions/positioning. Loan forgiveness is really more in the finance/accounting world, specifically to those who hold the credentials of a CPA, CFP,  CLU, and/or ChFC -- each will mean something different to you depending on where in the planning (or action) process you are.

In any case, I'd like to first link the two most helpful resources regarding loan forgiveness I've come across so far:

  • Office of US Education
    • This website is AMAZING. The Q&A sheet is perhaps most helpful.
    • Read through this slowly, it's a bit of jargon but you'll get through it.
  • APTA
    • Then go ahead and read this link.
    • After reading this one, you'll quickly realize the following (as I have)...

Basically, one of the most important things other than working for the government is that whichever organization you're working for is a 501(c)(3) nonprofit organization - otherwise, you just don't qualify. There are also other independent inclusions such as working for a public health organization but much of that circulates on a case specific basis.

So how do you want to proceed if you want to pay of 120 payments and be done with it all after 10 years? ASK. MAP. GO.

  • ASK: Ask wherever you are intending to apply and work if their organization actually qualifies for such a loan forgiveness plan. There's almost no point in going forward if loan forgiveness is your primary goal for the first 10 years of your career. Also, ask one of the aforementioned finance professionals about how you can precisely approach this in the best way as to not accidentally disqualify yourself from the loan forgiveness.
  • MAP: Map out precise professional and personal goals within that 10 year time frame including 2 or 3 transfer strategies at the 3 year mark, 5 year mark, and 7 year mark. Why? Because those are times when young professionals joining the workforce tend to get fed up, burnt out, or find themselves in need of new challenges to stave off insanity. By mapping out your possibilities, you gain mental flexibility (not to mention peace of mind) should things require a bit of change in your life when those time frames finally arrive. You'll probably want to write this down on a piece of paper and hide it someplace since it won't be relevant until about 4 years from now.
  • GO: Go on your charted course. Don't look back at the more attractive opportunities you may have left behind... that one residency, that one really high paying job, etc.  Look, you committed to banging out this debt in 10 years, didn't you? Yes, I know, you're having second thoughts. And, yes, I know things probably suck right now. But, you've set yourself on this course. Don't blow the opportunity, this is a long term race not a sprint. So..! Grind down, stick to it, and keep going!



I leave you with this encouragement:

Take advantage of strong employment options, not just the top dollar you're being paid. Look for aggressive supplementation. Plan it out. Dig your heels in. And, go knock it out of the ball park!!


All The Best,
-Ben

PS. Oh, one more thing, there are ALWAYS entrepreneurial opportunities. But, that's another post for another day ;) 

PSS. Also as promised, here are a couple links you may be interested in:
  • For more of new grad career strategies, please consider this post.
  • And, for my approach in weighing employment options, please follow the link HERE.

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