Written By Travis Hornsby, CFA®, CFP®
Today's guest, Katelyn Bailey is currently a student at the National University of Natural Medicine studying Naturopathic and Chinese Medicine. She received her undergraduate degree in Bio-Psychology from the University of California, Davis.
Katelyn lives in Portland Oregon with her spouse and really enjoys the value a naturopathic doctor can bring to patients. In this episode, she talks about what having a career as a naturopathic doctor would entail and some of the main differences between naturopathy and other careers in the medical field. She's also done a great job limiting loans outside of student loans like her car loans and credit cards.
In today’s episode, you'll find out:
- How is the typical pay for naturopathic doctors in Oregon?
- What kind of medication can naturopathic doctors prescribe?
- When recruiting new students are some institutions overstating what a naturopathic medicine graduate will be potentially making after graduation?
- What is the 4% rule?
- Are residencies required for naturopathic students?
- Is it best to own your own practice after graduating?
- What type of retirement accounts should I open while still in school?
- How many accredited naturopathic colleges are there in the US?
- If she had a chance to start over. What would she do differently?
- What are two paths Katelyn can take to pay her loans back?
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Episode 7 Transcript
Katelyn Bailey: I sort of assumed when I started this program even not being aware of the fire movement that I would just pay them off as quickly as I humanly could. Once I realized the amount of debt I was gonna walk out with realized that maybe that wasn't even going to be possible.
Travis Hornsby: Hello and welcome to the Student Loan Planner® podcast. I'm your host Travis Hornsby and I'm excited to be here today with Katelyn Bailey a student at one of the major alternative medicine naturopathic institutions in the West Coast.
Travis: So Katelyn thanks so much for being on the podcast today.
Katelyn: Thanks for having me, Travis.
What is a Naturopath?
Travis: So I've got a question for you what is a naturopath?
Katelyn: Yeah it's a little bit less common than your primary medical doctor where a subset of alternative medicine and depending on the state were considered primary care doctors and so we're able to prescribe medications run your bloodwork through the lab even do minor surgery and then in some states where our licensure isn't as broad or considered more lifestyle doctors and so we spent a lot of time talking with people about nutrition sleep tactical medicine and so we're just able to tap into people's health when surgery and medications haven't quite reached what's going on for them.
Travis: How is a naturopathic doctor related to a chiropractor?
Katelyn: We actually share similar history a lot of chiropractic colleges used to have natural product programs or vice versa. And so our routes overlap quite a bit. A lot of the prominent natural possum history we're also chiropractors and or chiropractic still consider themselves the drug list profession and that they don't write prescriptions and so we differ in that way and that in a lot of states we have prescribing rates and we can prescribe quite a few medications much like your conventional doctor and we do get trained in the manipulation like chiropractors. But I would say it's not our main modality.
Are They Able to Prescribe Medicine?
Travis: OK what kind of medications are you guys allowed to prescribe?
Katelyn: It varies on the state.
Katelyn: But it does include antibiotics some pain medications. It's really the comfort of the doctor and what their specialty is. And so you'll see some doctors who don't have a lot of interaction with mental health patients and so maybe they aren't prescribing the big heavy hitters like benzodiazepines or opioids. But we do write a lot of prescriptions for your cholesterol medications acid blockers kind of everyday medications a lot of people are on.
Travis: Sure. So so some people might view naturopathic medicine acupuncture is as controversial fields right. So I mean obviously I'm sure that's that could be a whole podcast I'm talking about all those things. What would you say in terms of the value that a naturopathic doctor can provide to patients just in general.
Value of Naturopathic Doctors
Katelyn: Yeah. So I think a lot of the pushback on natural gas is that there are some schools that offer online programs and you can get a degree and call yourself a naturopathic doctor without ever seeing a patient without ever setting foot in a classroom. And so that's where a lot of sort of misconception occurs.
Katelyn: But I think the benefit is that our training we spend a lot more time talking about like said the lifestyle medicine and how to manage nutrition and how to manage sleep stress exercise in a way that may be a conventional doctor just doesn't have the time to do especially in a larger hospital system. You know they're really oriented to seeing patients quickly in an efficient manner. And it's not unusual for us to have the time to sit down for an hour sometimes two hours and really take a deep dive as to why someone's maybe blood sugars and getting under control or why their medications aren't helping lower their blood pressure or their diabetic status. So we have the benefit of more training in those areas and also more time to sit down with patients and really figure out what's going on for them.
Travis: So do you get insurance reimbursement or how does that how does actual payment process work for services?
Katelyn: Yeah again varies on the state because our licensure we're not federally licensed. It's a state by state basis so where I live in Oregon the state sees us as equal to primary care doctors. So in that sense, we do get reimbursed by insurance companies in other states where we're unlicensed. We don't have the full scope of sort of services that we can offer people and so that tends to be that that's a cash PAYE type fee for service oriented clinic where you're sitting down and just having someone pay per hour per procedure that they come in for.
Salary for Nautropaths in Oregon
Travis: So what's interesting here is what would you say the average income is of a naturopathic doctor is in Oregon?
Katelyn: It's definitely going to be lower than your conventional doctors. You know you may might look at conventional doctors who go into primary care in sort of one hundred thousand one hundred fifty thousand is being sort of an average family doctor family medicine income. We're probably in that realm but maybe towards the lower end because of like I said the difficulties with insurance companies we sometimes don't always get reimbursed at the same rate as conventional doctors.
Katelyn: So I'd say conservatively read around the $100,000 mark and then depending on where your outside clinic interests lie as far as maybe getting involved with supplement manufacturing or writing sometimes closer to $150,000, $200,0000.
Travis: So I have to be a little bit of a devil's advocate here so the naturopaths that I've worked with Student Loan Planner® their income has been a lot lower than advertised after graduation. Right. So I don't know if this is because of the expectations or kind of higher or if people kind of thinks that they're gonna be in the top quarter of the income distribution and then obviously the law of averages comes into play or if this is because maybe I'm talking to a lot of these folks that are not in some of these states that accept as much insurance.
Are Instutions Overselling jobs After College?
Travis: What do you think the chances are that the schools that are trying to recruit people to pay you know tons of money for the education are overstating the results of graduates in terms of income and job placements.
Katelyn: I think it's it's difficult because I think it's a profession where you get out of it what you put into it in you know conventional doctors have sort of a whole path after graduation where they do residencies fellowships research and so they have a very clear picture of where they're going after graduation and oftentimes a very sort of certain income stream of you know maybe I don't get a really high paying residency but at least I know I'm going to make some money in residencies on the naturopathic side. They aren't required they are recommended and they're highly competitive and prestigious but not everyone gets them. And so what that leaves is a lot of people after graduation kind of in a point where they have to really turn on an entrepreneurial gene that maybe they don't have and build their own practice.
Katelyn: Because a lot of doctors were highly integrated into big hospital systems obviously not involved with the V.A. or Medicare. So we have to really orient ourselves towards private practice in creating our own income streams. And I think the school can spend more time getting people prepared for that as far as a business owner and how to prepare yourself right out of graduation to make money.
Katelyn: So I do think it's difficult because you have to have a vision of where you see yourself going after graduation and make sure it's profitable. And I think a lot of times the school focuses on making us great doctors but we don't always have the training to make ourselves scraped small business owners and great private practice operators.
Travis: And honestly that's the whole key indicator of what or whether or not you're going to be successful right. Can you operate a small private practice?
Katelyn: Exactly. And so I think that's where a lot of people struggle they tend to join other people's practices as independent contractors taking either an amount of money per patient that they see or sort of flat rate regardless. And so that tends to maybe limit your income potential because you're under the contract of someone else's practice that they've created. And that's I think fairly common especially the first couple of years I was joining an existing practice and just kind of taking a smaller amount of income than you could potentially make if you were really able to set up a business for yourself.
Job Options After College
Travis: Can you tell me what the typical new grad what kind of job they're getting. Are they working for somebody else straight out of school as an associate or are there big corporations in the naturopathic world that employ new grads. What are the job options look like?
Katelyn: I would say the vast majority end up joining existing practices and that's sort of like I said taking on an independent contractor role within someone's practice and sometimes their other Nautro paths sometimes they're chiropractors or M.D's who want to sort of credit integrative setting for their patients.
Katelyn: So you tend to walk into those positions most readily after graduation. There are some smaller opportunities to get into research. You can stay in academia. We have a lot of residents who eventually become faculty at our school and there's a sort of smaller group of people who may go into either like corporate wellness or also supplement advising. So working with a very supplement company as far as formulation or research or product testing. But I wouldn't say that that's less frequently than the people who are seeking out to join an existing practice.
Travis: Do you think that most of the people that were in the program with you. Do you think that they just had this incredible passion for being a naturopathic doctor? Do you think that they wanted to go into a different health professions path and they just decided that they would do this one or do you think that like what is what is like you know the kind of average student in your program like Is this something that they kind of fell into or is it something they've been dreaming of doing.
Katelyn: Yeah it is funny because I do get kind of the stigma of like oh you guys are just doctors who couldn't get into medical school conventional medical school. And so this is just the path of least resistance. And I'd say it for the vast majority of people that's not the case.
Katelyn: They're here because they want to be in a lot of times it's because they've had their own health issues they've had a chronic issue that medications didn't touch or that they never resolved completely with western medicine and that caused them to seek out this type of medicine for themselves and they saw for themselves the benefit for their own healing and decided that they had enough passion to get the degree themselves so the vast majority of students I think are here because they really believe that our health care system is broken and that it isn't getting people well that it's treating symptoms and not causes. And so that's a big motivator for people to come in and get into a subset of medicine that I think is really looking at the root cause and how to get people well.
Travis: I mean one thing that I can definitely is there a health care system is very messed up. But anyhow one question that I have is you're dependent upon becoming you know an independent contractor right to make your starting salary. Maybe if like $60,000 coming out of school if you're a successful small business owner you might make low six figures and more likely than not you know you're going to maybe start your own practice and have a lot of expenses like rent and overhead utilities to pay. Right. And for a business like frankly like mine like we don't necessarily have the expense of having a storefront of having a receptionist right or you know just these various things that naturopaths would have to pay for.
Travis: So I guess what I'm saying here is the income potential is definitely limited unless you're a stellar small businessperson. Right. And so you come out owing all the student loan debt and then you're kind of a little bit thrown to the wolves. The sense of you've got to go figure out your independent contractor status you've got to probably get a CPA to help you out figure out your taxes when you're making $60,000 to $70,000 instead of maybe a dentist who might be making a $120,000 or $130,000 so there's less money there to pay that flat fee for the professional get help right.
Naturopath Programs
Travis: Yeah I guess the question I'm asking is you know maybe you can tell us a little bit about the length of programs that are out there for naturopaths I know that you're also getting a we talked a little bit before you're getting a master's degree of acupuncture as well that you can talk a little bit about the length of the programs that are out there for becoming a natural path or an acupuncturist and what are the costs?
Katelyn: Yeah I think I mentioned briefly that it is possible to go online and sort of get these degrees from maybe fly by night alternative health Web site oriented schools oftentimes aren't recognized at a state level to get an actual license to practice but in the US I believe we have six or seven accredited natural ethic colleges. It's a four-year program similar layout to conventional medicine in that your first year or two is heavy in the lecture components and then in your later years, you start rotating through different types of shifts and different doctors and seeing patients and eventually and if graduation trying to go for residency.
Katelyn: So it's a four-year program. The acupuncture that I've added on its own is also a four-year program and so when I am melded them together I ended up with a six-year program. And the reason I did that was acupuncture was the first sort of modality that I had for myself and I saw some real sort of dramatic improvements in just three visits and I sort of couldn't believe that I only spent $ 50. So I was here for 30 minutes each time and I have completely eliminated the pain that I was having and sort of caused me to explore it.
Katelyn: So I sort of in the sense that I couldn't choose which subset of medicine I love more I went for both of them. And in retrospect you know I don't know if I would have chosen differently if I had understood fully the implications of the loans after six years. But what I do know is that as an acupuncturist sort of reimbursements at a higher rate with the naturopathic medicine added in because I'm able to bill as a doctor performing acupuncture as opposed to acupuncture is performing acupuncture.
Katelyn: And so a lot of schools you know the for year Acupuncture and Naturopathic programs are complemented by other sorts of one or two year programs like nutrition or research and that's to sort of maybe orient someone in a particular direction like I was saying maybe going in supplement researcher consulting for the supplement companies you can pick up a master's degree and sort of further specialize your education so it's not unusual for the natural athlete colleges to also have some smaller one to two year master programs floating around.
Typical Tuition and Living Expenses
Travis: Cool Katelyn. So what would you say is the cost yearly in tuition fees living expenses for attending naturopathic school?
Katelyn: I would say about $30,0000 a year including here fees. I wouldn't say that would include all your books and medical equipment so maybe $30,000 to $35,000
Travis: So you said that does not include everything?
Katelyn: The school has this purchase of our medical equipment outside of our tuition. So as a good doctor, you need a stethoscope and the otoscope to look in someone's ears and so a lot of that equipment we're buying outside of schools tuitions.
Travis: OK.
Travis: So what would be like an all in cost if you included living expenses?
Katelyn: I'd say you're probably $45,000 to $50,000 depending on your lifestyle and you know what sort of support you have from your family your spouse.
Travis: So that's where it gets difficult for me because I've seen on average balance I was looking through some data just to see what the average naturopath had that we had worked within the. Looks like it's around 250 to 350 with an average kind of on the higher end of that. So I think that happens with the $50,000 debt times four. That's two hundred right. And then tack on accrued interest. Tack on loan fees tackle and just the various other things that come up and then you're kind of up at 250 to 300 kina almost immediately and then you have a few years after graduation where you're trying to figure things out you don't have a plan you're just kind of doing whatever. And then the interest continues to grow right. I wonder what you would say to this. I do wonder about the ethics of the schools themselves charging $200,000, $300,000 for a degree whose incomes are $60,000 to $80,000 a year. What do you think about that?
Katelyn: I think it's really difficult I think speaking with doctors who graduated maybe even 10 15 years ago the Upper Division graduate level costs of education have risen dramatically and I think what I think you've published on your website before too is that a lot of lenders make the interest rates higher for graduate school programs but also the schools know that they can really increase the maximum loans that people can withdraw to support these programs and so I think there's been a massive inflation in the cost in the last 10 to 20 years that's really put it a sort of untenable position right now where I do agree mathematically it does make a lot of sense and it's a real difficult dilemma to put yourself in when you're financially savvy and aware of these things but also highly passionate about the medicine and the ability to treat people in this way.
Katelyn: So it's kind of putting yourself in a hard position like myself where I'm halfway through the program I've seen the amount of debt that I've accumulated so far but I still really believe that this specialized subset of medicine is really beneficial for a lot of people and beneficial for myself and an ethical value aligning way that I want to live my life.
Personal Financial Setup
Travis: Now let's talk a little bit about your personal financial setup and you're talking a little bit about what you might be able to do to handle this debt burden when you graduate.
Travis: So you currently have a spouse right? And they make like $50,000 $60,000 year correct. OK. And I think you don't have a car payment which is good right. 2007 Honda Accord. That's pretty good. Paid off.
Katelyn: Downgraded before I started school. So at least was financially savvy enough to realize that wasn't going to make car payments with my student loan money.
Travis: How do you how do you and your spouse view finances jointly separately. Talk a little bit about that.
Katelyn: Definitely jointly.
Katelyn: We actually got engaged my first year of the program and had some honest conversations about you know I didn't want to put that debt on someone else and she's very supportive of this type of medicine because she's also seen a benefit herself in her sort of chronic health picture. And so she's highly supportive of the fact that I'm doing this out of passion and not because the dollars and cents really add up at the end of the day.
Katelyn: You know like I said she has a little bit of income and supports us in paying most of our sort of fixed living expenses mortgage gas stuff like that when I cover a lot of my school related expenses and just sort of eating out an occasional medical supply textbook type stuff with my own money.
Debt Payback Living in Oregon
Travis: Sure so. So when I dig into that a little bit more Oregon is bizarrely one of the only West Coast states that is not a community property state. So that has a little bit different rules in place for paying back your student loans on an income driven repayment program for your situation. You know a couple of the conversations that I would have with somebody who is not already married is how important is it to be legally married versus spiritually married. And that's like a personal decision.
Travis: So a lot of people don't know that you can have the ceremony you can get married in front of friends and family and promise each other that you're going to love each other forever but then not turning that legal certificate which makes you legally married and then now you have to file married filing jointly or married filing separately tax returns. Right. So it's interesting it's really unique to each person what they say to that. So like I've had people that have said OK well then we're just not going to turn in that paper. So then that we don't have to worry we can do the PAYE or the revised PAYE plan.
Travis: Pay just based off of my income and not have tax penalties associated with that and other people have said you know I don't care if it was $20,000 a month extra to be married I would be married anyway legally and then I actually Caitlin had one case where I told people it was gonna cost them like $10,000 a year to be married and they went and got a strategic divorce.
Katelyn: I have some classmates who started this period married and after fully realizing that the implications have debated like maybe I should have gotten divorced or not gotten married at all and I certainly agree it's a highly personal choice.
Katelyn: It's something we made just like you said in the sense of what was right for us. But I know financially there's probably some benefits we. We gave up when we decided to combine incomes.
Travis: Not a massive amount. I'll say this. So you are expecting approximately $60,000 of income like when you graduate. Right. That's approximately equal to what your spouse has right now. Right. Isn't that right? Like your approximate incomes are about the same.
Katelyn: Yeah especially those first couple years after graduating.
Undergraduate Loans
Travis: Right. So as long as those income stay roughly the same. Then you could look into filing taxes separately instead of jointly. Now the first time you ever took out student loans ever was in 2010 when you started undergrad. 2005 2005. I take that back. So that's gonna make things a bit more complicated because 2005 means you don't have access to that pay as you earn program. If you took out the ones in 2005 right.
Katelyn: Yeah. I have two undergraduate loans remaining. Probably about $3,000 and sort of on a personal mission. My plan is to pay those off in the next six months or so just so that I can have wiped my slate clean of undergrad loans.
Loan Payback Methods
Travis: Sure. So there are two paths that you can take. You know you can pay this back in which case I generally tell people be as aggressive as possible paying back all of their debt or you want to be strategic and pay as little as possible and figure out how to pay as little as possible. OK. So the issue that I see with folks is if your debt to income ratio is below one point five to one then refinancing can make a lot of sense. So in other words if you have two hundred fifty thousand of debt to try to make that math easier on me you know it's about one hundred sixty six thousand dollars of income that you'd want to make as a household to pay back that loan.
Travis: So if you're below that then the forgiveness is the forgiveness path this is gonna look better now. When thinking about this with your your wife when you have to file taxes separately but you don't have access to the PAYE word plan that your only option to file in such a way that you exclude your spouse from having to make payments on your on your loan or basically have higher payments on your loan because of your spouse would be the IBR program and filings separately and doing the IBR program so that monthly payment on the IBR program for you I think would be around $500 a month.
Travis: Then for the revised pay as you earn program maybe be about $760 a month that's about a $250 a month difference. Now you would save some money in taxes by filing jointly instead of separately. So that's one thing that I'd ask is also you know how complicated do you want your life to be true. Very true. Right. What are your thoughts like would you rather call yourself a little bit more money and have a simpler life or jump through all the hoops.
Katelyn: Yeah I guess the question I have is part of me psychologically knows that the aggressive PAYE down of the loans is going to cost me more money but I can't help but think my stress levels for the 20 to 25 years the income-based repayment would take me would be much reduced if I hustled for it and I don't know where the income will lie out if my spouse continues to work five years or 10 years or 15 or 20 years after I graduate and how combined that might change our picture. But I certainly filed my own taxes every year and I've gotten pretty good about getting creative and so I'm not opposed to looking into a sort of filing separately for the sake of reducing a monthly minimum of payment.
Travis: Right. And you're on the on the financial independence kind of bandwagon right. Yes absolutely. You're interested in this movement. You like the idea of not having to work unless you wanted to. And it sounds like you found a career where you feel like you can do it regardless of the money because you just enjoy it right. Which is really amazing. I mean am I putting words in your mouth or is that accurate.
Katelyn: No. It's one of those if I had discovered maybe financial independence before I ever thought of applying to this program. There's a strong chance maybe it ended up in a different area but unfortunately, I found it in my second or third year as we found out that we were having to move out of our rental property and started looking into buying a house.
Katelyn: And so I really got the fear put into me about making such a big purchase in the middle of medical school and because of that found Mr. Money Mustache in like a lot of people was converted to him changed a lot of our financial habits. So I'm in this sort of in-between where I want to really free up my future so that I have some flexibility about what my work life looks like but also recognize that this is a program that has a significant debt load and not always the income to match it.
Bare Bones Monthly Expenses
Travis: So tell me what your bare bones monthly expenses would be to be happy paying utilities I'd say we're relatively frugal people.
Katelyn: We do have pets. I think I hear in the background yes keep the dog busy but I would say conservatively about $2,500 to $3,000 a month would cover all of our basic life needs and maybe leave us a little bit of cushion.
Travis: So let's do $3,000 and let's say that's $36,000 a year. So multiply that by twenty five. Right. Your famous 4%rule. Exactly. And for those that don't know the listeners don't know the 4%rule is this rule that is popularized by the financial independence movement a.k.a. the fire movement fire stands for financial independence retire early and the movement basically says that if you had twenty five times your expenses and investments then you are financially dependent.
Pursuing Financial Independence
Travis: You don't have to work unless you want to. Right. So your number based off of that conversation would be nine hundred thousand dollars. Now you have a lot of student loan debt or you will. So when you finish graduation do you bum rush the student loan debt and try to get rid of it as fast as you can and then work on financial independence or is there a different way. I'm wondering if you ever put a lot of thought into that. What are your thoughts on trying to pursue financial independence even though you made a decision that oh man if I could take that back. Like maybe at least I would have done a couple of things differently.
Katelyn: Yeah I sort of assumed when I started this program even not being aware of the fire movement that I would just pay them off as quickly as I humanly could. And then once I realized the amount of debt I was going to walk out with realized that maybe that wasn't even gonna be possible and so switched course to considering income-based repayment or REPAYE or public service loan forgiveness is the best options.
Katelyn: And then I think you know in learning about financial independence and the ability to sort of psychologically control my motivation to work and how many days a week and just having some ability to have flexibility around that as I get older that made me reconsider if I wanted to have 20 to 25 years of student loans accumulating debt just hanging over my head. And if that would maybe have some opportunity cost as far as investing in real estate and the ability to generate some passive income if I had this black cloud that followed me around everywhere I went. And so I would say now that my tendency is to look towards paying it off as aggressively as possible because I know that that doesn't make sense financially I also I guess they alternate depending on what the logic of the day is is it the psychological winners at the financial win.
529 Plan
Travis: Sure. Here's another question for you. You told me a little bit about a 529 plan that you're using to pay tuition. So tell me a little bit more about that.
Katelyn: Yeah. And so this wasn't something that I had access to in undergrad just with my family's background and so I always thought Oh that's great and I'll think about it for my kids.
Katelyn: And then I looked into it one day and realized that I could create a 529 plan but also make myself the beneficiary of it. And what I realized is that my spouse you know make sort of the average middle-class income but she is paying state income tax on it. And in the state that I live there's a contribution I believe of forty five hundred dollars that can be made where that would be not taxed by the state. And you know that maybe works out to being a negligible amount of money. But I thought you know maybe this is a good way to get me to reduce the number of loans that I'm taking.
Katelyn: Set up some savings goals and start paying chunks of my tuition at retirement so what we agreed on is routing a small piece of her paycheck every two weeks into this account. That means you in PAYE state income tax on it. Once we file our taxes at the end of the year it means that I have a couple hundred bucks accumulating small amounts of interest every month. And then when a new school term starts I go and I withdraw that money and pay my tuition five to eight hundred dollars of tuition paid means that same amount of money I don't have to take out on student loans and working on overall reducing the amount of loans I take out going forward.
Travis: So I have a highly irresponsible suggestion for you. So I actually think that that's a mistake to pay extra money on your tuition with the 529. OK here's why ran some numbers. If you open your own naturopathic office right you're going to have a lot of write offs you're going to write off probably rent maybe some other expenses with the property various insurance stuff. You have to keep just in case somebody slips and falls in front of the office right.
Travis: Probably Some form of other kinds of insurance perhaps maybe like I don't know if there's malpractice a naturopathic or not. Yes but the PAYE that you know just thinking about what your income would look like. Also, you could set up a for one case plan if you're the boss if you're not. Like if you were going to be an independent contractor then you could set up like a solo 401K or a SAP IRA and that's something you can contribute even more than the typical limit to a 401 k for an employee which is $19,0000 in 2019 a$19,000 limit for your 401 K your choices paying down your your student loans which even if you are really aggressive you'd have to pay like $5,000 a month to pay it off in five years. Right. Which is like you'd be probably more than your entire take home pay. Mm hmm. So realistically it would probably take you seven years to pay off your student loans. I think do you believe that or do you think that that's a little too aggressive not aggressive enough.
Katelyn: I think that's about right. I've I expect that you know if I went the aggressive route it could be as much as even 10 years depending on how my financial picture sorts out.
Travis: So could take a little while especially you know maybe you have some kids you know those I've heard a rumor that they're not cheap. You know you have kids and then all of a sudden you know maybe seven-year terms and a 10 at that point fast forward 10 years in your life and are you where you want to be financially. So with going. Like a revised PAYE route and just filing jointly for taxes. Then one benefit to that is you would benefit from your wife contributing to a retirement plan. So if you can both contribute the max to a 401 K like a traditional 401K cannot be $19,000 each. That's like $38,000 a year. That would you know a 10 year give you $380,000 of the principal country contributed and then probably more than that. Hopefully for investment returns.
Travis: That would get you at least part of the way to that nine hundred thousand right now. Here's something else to consider about that 529. The math that I was running just to see what the costs would look like shows that going for like a loan forgiveness strategy where you put the money aside for the tax bomb has got a projected cost that's like about $100,000 cheaper than paying it back straight up. That's in present value terms so that's like in today's dollars but that's a lot. One hundred thousand dollars is a lot of money.
Katelyn: Yeah especially if it's somewhere else gaining interest right.
Travis: In other words you know the cost in today's dollars that I came up with is about $140,000. If you discount all the cash flows and everything like that and you owe $246,000 you will when you graduate does our guess. So that means that the value of the present value of your payback since you'd be eligible to go for a loan forgiveness twenty-five year kind of strategy with a tax bomb that's maybe about 60 ish percent of what you actually owe. Well by paying a dollar what you're really doing is getting back 60 cents. True. Yeah right.
Travis: We have a very perverse loan system in the US that kind of encourages people to take out as much debt as possible. If you're going to finish your naturopathic degree then the 529 money would probably be better held back. And the reason I say that is because you could take out the loans and cover everything with loans and in fact you know the smart thing to do is as terrible as it sounds is actually to maximize your loans take out as much as you can and the 529 you can have yourself be the beneficiary when and if you have children. You can change that beneficiary from yourself to your child.
Travis: It depends on the state rules and everything but you probably could move that over to the name of the child and then say you have put away 15 thousand in a 529 by the time you have your first baby then that fifteen thousand would probably grow into over like 18 years. Enough money to pay. Couple years of undergrad at like. Or again Oregon State. Then you could protect your children from having to take out student loans at least from for undergrad and then for graduate school. You could say OK you're on your own after that but yeah you would also have been through this financial independence journey where you'd have so much more knowledge on how to achieve financial security that you could be sharing with your children.
Travis: Just an idea there that money that you're contributing to get that state tax break. You might be able to still do that and it might still make sense but it might make more sense to kind of hold that money back in the 529 to use for future generations rather than to use it for yourself.
Katelyn: Yeah I never really thought about it as maybe an investment that 10 or 15 years down the road pays even bigger dividends to it an expense that I might have to pay for my own kids.
Travis: Right because it grows tax-deferred and a lot of people don't know that you can make yourself the beneficiary but then change the beneficiary to someone who not even born yet and when they're born you can change it to them.
Katelyn: I also think a limitation I have now is that with the money I do contribute it goes into just the FDIC insured sort of money market account because I obviously don't want that money to lose value while it's sitting there between terms and so the sort of interest rate is highly conservative.
Katelyn: Whereas if I think about it as more of 10 to 15 years down the road I could change that allocation so that it has potentially a bigger opportunity to get interest at a higher rate.
Travis: So your retirement contributions might be like $1,500 a month each approximately right. That's $3,000. You're putting aside a month for retirement combined between you and your wife and then because you get a state income tax break and a federal tax break and you get lower student loan payments so you're probably looking at $2,000 a month in terms of take home pay. As far as what the impact of putting money for retirement would be. So you could do the 529 contributions to if you wanted to.
Travis: Then on top of that you know you have to prepare for the tax consequences of one forgiveness. So for your individual situation, I think that putting aside as little as a couple of hundred dollars a month would probably give you enough cushion to feel comfortable with being able to cover that tax bomb so speak which is not too bad. Now if you're trying to hit a $900,000 figure of assets you know your retirement contributions probably get you there in 10 years with about half of if you were contributing a couple of thousand dollars to a brokerage account you know like me VTSAX or something like that.
Travis: I'm going to have to throw it out there. I'm not a financial adviser, I can't provide investment advice but for entertainment purposes, the VTSAX is a total stock market index fund that has super low expense ratio and over a long period of time the expected return from stocks is higher than bonds and certainly higher than a savings account. You know you put that money aside over time and you could put two thousand a month in there and maybe you have more of a diverse portfolio than that but over time you could get up close to that $900,000 figure certainly as a couple in ten years time and it actually wouldn't be the craziest thing ever right.
Use Side Hustle Income to Pay Debt?
Katelyn: So do you think in the meantime I'm still in school I have a little bit of money coming in every month through various side hustle type income sources that that money should be allocated into a retirement account for myself as opposed to trying to pay my tuition down.
Travis: Yeah I mean I personally would say that but on a more general note for listeners who have credit cards, car loans, personal loans those kind of things student debt. If it's with the federal government is one of the very best kinds of debt that exists now. That said that's kind of like saying that stage 1 cancer is the very best kind of cancer. Like it's still not great. Right. Like you know it's still like cancer. You still hear that you're like oh my gosh you know even though it's super treatable super easy to deal with if you have the right plan in place right. The right treatment plan.
Travis: So it's kind of like that with student loan debt. If you have more federal student loan debt I almost don't care how big it is because of the fact that you have all these different programs you can use and different things you can do to mess around with it. The thing that really concerns me a lot is when somebody buys into the zero percent car loan myth that that's somehow a good deal. Right. They buy into the idea that leasing in car is a good idea. They have a house that's three and a half times their income. They have credit card debt they don't have an emergency fund all of that stuff for you Katelyn is luckily cleaned up right.
Importance of Emergency Funds
Katelyn: Yeah it's been a dedicated effort the last two to three years to get rid of all my consumer debt build a good emergency fund and then that's where I'm at now is sort of the position to realize where should I now allocate this money.
Travis: So I would say that you want to make sure you have a $10,000 emergency fund first before doing anything. And I think you might already have that right.
Katelyn: Yeah I believe we have about $8,000 so we're almost there. We'll be there in a matter of months if we made that a dedicated effort.
Travis: So I would say that's your first priority is get to the $10,000 That's kind of like a psychological victory to have that much security and short term cash savings. And once you're past that point you could really go either way with it. You can contribute to brokerage accounts or retirement accounts. Either one is fine right now you're not getting the student loan cut all your required payments because you're not making payments because you're still in school so and you're in a very low income tax bracket as well.
Travis: The benefit of contributing to retirement accounts right now is probably very limited. You know you could do Roth accounts probably right now even though once you start working you probably would want to switch to the pre-tax accounts. OK. So I think that it's OK to just get money pile all the way into assets right now. Once you get to $50,000 that's like your first big victory then you get to $100,000 and you're like wow I never thought we would get here. And then gradually you just work on building up assets in another crazy thing the best thing that could happen to you is that the stock market would crash in the next few years because then you could be putting away tons more money. Sounds great right.
Katelyn: Yeah. It's it's not a crash it's just a discount sale on everything.
Real Estate Options in Oregon
Travis: Exactly. So a lot of people don't realize that. So they sell everything after it's fallen 50% and they wait to get back in and tell their brother in law is bragging to them about how they double their money with Tesla and then you know everybody pops back in. This is like a vicious cycle. But to somebody who's an educated investor you know to hold on and buy more and market crashes. So you do that. And then in 10 years, I see no reason why you couldn't have $900,000 in assets with a 30 to 40% savings rate. You know if you could approach 50% of your take home pay like that to be ideal. But if you had a very very high savings rate and dedicated yourself to growing your investment pile of retirement plus brokerage assets and having no consumer debt of any other kinds. And another thing too is avoiding an expensive real estate mistake in Oregon. So I wonder what would you say the rents are like in mortgages. Is like out there and where you live it's high.
Katelyn: It's taken a huge swing in the increasing costs in the last 10 years. Then think when I first moved here it's paying $700 a month for a two bedroom one bath.
Katelyn: And that was in 2010 and now it's pretty typical to spend $1,200 or $1,500 for the same type of place. The mortgages arguably maybe are a little cheaper. Right now we're paying about $1,400. But we also moved to one of the suburbs of Portland that isn't as desirable as some of the hipper areas of town. But definitely the fifteen hundred mark I'd say is typical for most people looking at like a two bedroom one bath type setup.
Travis: See you own your own house.
Katelyn: My wife bought it and I wasn't involved in any sort of portion of the sale obviously with my student loan debt no income.
Katelyn: The mortgage broker basically said it's better to just have you know on the paperwork at all. So I guess it's best gift I could ask for it.
Travis: Yeah if there's any of the ability to house hack that would be huge. I don't think there sounds like there is but if you can get creative at all. I mean it might even just be you know if you decide to have kids then just not upgrading to the bigger house like everybody tends to do. I was talking to Rob one of my consultant partners and he told me that the average spending for a family that has children increases by 40%. Wow. That's just crazy. He said it's mostly because people go out buy a bigger house they buy the bigger van that they view as safer that's newer. All these things but so that's good that you own the house already. You don't have that giant mortgage that you're going to take on a forward looking basis. Mm hmm. Do you know if you have equity in it or is it heavily mortgages right now?
Katelyn: We do. We do have equity in it already. I mean Portland being a booming market, in general, I think we had equity just from when we made the offer to win the sale closed.
Katelyn: We picked up probably $10,000 easily. We also bought in a real sweet spot in the market with my school schedule. I was really tied up during the fall when we were looking and we ended up looking the week between Christmas and New Year's. We had a realtor who was a real champ and started to come out with us and look at houses that we bought in kind of the sleepy as part of the year when if you're willing to move your family to a different house during that time you're highly motivated to sell. And we got really lucky with a big family where this house was way too small for them.
Katelyn: They were bursting at the seams wanted out quickly and we were able to kind of make a move on the House and probably have $30,000 of equity in the last two years and also been quite a bit of our own remodeling and addressing some major issues that they had let slide.
Travis: Yeah. So I mean if you wanted to get to financial independence sooner than I would look into some weird ideas for utilizing the fact that you have this nice house. Anything from Airbnb to maybe you have. I don't know if you have any land at all. That may be having some tiny house people hanging out for a little bit. I don't know maybe this is too crazy. Katelyn what do you think.
Katelyn: No I'm super interested in it.
Katelyn: I'm sort of like a lot of people who discover financial independence I'm the gung ho spouse and have got a spouse who definitely supports me and has made a lot of changes in their own respect but doesn't get as nuts about it as I do and so we do have a about a quarter acre lot which is definitely bigger than most in this area. And we've debated about is it worthwhile to try and look into like a home equity line of credit and build a little garage apartment type thing or I don't know if my spouse would be on board for renting out to someone else just because of the comfort that comes with walking around your own house and being not having to deal with roommates anymore. But yeah it is worthwhile to maybe consider some options for the amount of space that we have.
Have Your Tax Bomb Ready
Travis: Yeah and ultimately it's just how bad do you want to get to that number. You know how bad do you want more to be optional right. A couple more questions for you here. The difference with people who have a bunch of student loans going for financial independence versus people who don't have any student debt is if you're going to go for student loan debt like pay off and financial independence at the same time then having a tax bomb ready to go is kind of what you need to feel secure.
Travis: So if your number is $900,00 if you have student loan debt you have a tax bomb is projected to be like a $150,000 let's say then if in ten years if you could hit half of that in the tax bond accounts of $75,000 that $75,000 will probably grow into $150,000 a ten year timeframe or you could be more conservative and say like $100,000 would grow into that $150,000 you need to figure out what that number is. And then you add that on top of the $900,000 that you need to be financially independent. So maybe your financial independence number instead of being $900,000 maybe it's $900,000 plus $100,000 for the tax bond.
Katelyn: Yeah I recognize that maybe having you know the financial independence sets us up for a lot of success when we stick to it and maybe thinking about the fact that I could get the $900,000 into a whether it's 401k or a brokerage account maybe that sort of negates the negative feelings I have about this black cloud of accumulating student loan debt that follows me around for 25 years where that could potentially outweigh the negative factors of going for forgiveness.
Travis: Yeah because if you had $900,000 assets and $300,000 in student loan debt would you be stressed.
Katelyn: I think I'd feel I'd sleep better at night knowing that if push came to shove I had a source to tap into and could know that at least those things balance each other out in the direction of positive net worth.
Travis: You could write a check right?
Katelyn: Yeah absolutely.
Travis: I mean at the end of the day like that would be amazing to be able to literally cut a check and be done with your debt. I think that if you had that amount of assets life would feel differently so for you. I think that rather than focus on a traditional PAYE down my debt kind of mindset I think the path instead can be how do we minimize our adjusted gross income. How do we get a max savings rate that we possibly can by living an alternative lifestyle right?
Katelyn: Yeah I think just getting more creative than I was before I started school.
Working Part time and Paying Down Debt
Travis: Another thing to it. If you want to kind of benefit a little bit now from having flexible hours working was enjoying life more. That's possible too. If you never want to retire completely from your career in the next say 10 to 20 years you are OK and working doing some level of paid work is a naturopath or acupuncturist whenever you're going to do. Then you could work say 20 hours a week and your payments are always based on your income.
Katelyn: Right. Yeah and that's what I'm really motivated by I think the retire early part of the fire movement assumes the gung ho get over the debt as quickly as possible and have this 4% rule sorted out and then never work again. And I really I do love my intended profession and the school that I'm going to and feel strongly about it and so ultimately for me it would look more like having the ability to set my work hours and work sporadically as you said maybe only 20 hours a week and the ability to take time off without worrying about the income stream as much.
Travis: And a lot of people don't think that they can do part-time work because of their student loan debt.
Travis: So. So nothing could be further from the truth is there are there opportunities is a naturopath to work part-time.
Katelyn: Absolutely. I mean we talked about a lot of the difficulties of being an entrepreneur and maybe owning your own practice or being a sort of self-employed independent contractor.
Katelyn: But I think the flip side of that is that you can really have a lot of control over the number of patients that you see the days that you work. The times you know that you're making yourself available but also just with advances in technology things like telemedicine has gotten into the natural realm as well so it's not unusual to work remotely work from home or even get into sort of more passive things like writing or supplement company advising or consulting different types of jobs where you're working for maybe a shorter period of time each week.
Travis: Now let me ask you one more question, Katelyn.
Would you do Anything Differently?
Travis: What would you do differently if you could go back in time before accepting your offer of acceptance to the natural gas program and then what would you tell somebody who is thinking about doing this path. Like what things should they consider? Are there other alternatives to being not the doctor?
Katelyn: Before starting I think anyone should take a good hard look at the numbers. I think we talked a bit about the income potential versus the amount of debt that you accumulate. I thought that I had a good handle of that when I started and I really was kind of naïve about it.
Katelyn: So whether that's talking with current doctors understanding what their actual take home income looks like once they factor in all their expenses and then also what their student loan picture looks like because it is rapidly increasing with each sort of graduating class so using practicing doctors as a good resource for how your income might look in your area or the subspecialty of medicine you see yourself practicing and then coming into the program in the best position of financial strength I think is what I would recommend is you know like you talked about making sure credit card debt high interest car loans things like that are addressed and paid off with the money that you had from the previous job as opposed to having to take your financial aid money that's already coming at sometimes a 7% interest rate and then turning around and paying that towards a 15 to 20 to 25% credit card every month. And so getting yourself in that position of strength so that any expenses you do have are minimal and aren't accumulating interest in their own right.
Contact Us
Travis: Awesome. Katelyn thanks so much for being on the show. If you're a listener out there who wants to give some ideas for future podcast episodes, make comments, Insults, jokes, send them to podcast@studentloanplanner.com if you want to get a time to book for yourself for getting a student loan plan. Go to studentloanplanner.com/help to read more about how we could potentially help you.
Travis: So Katelyn thanks so much again for being on the show and teaching us more about the naturopathic world.
Katelyn: Thanks, Travis.
Travis: Thank you for listening to today's show. If you know that you need a custom student loan plan you can schedule one today at studentloanplanner.com/c/book. You can find the show notes for today's episode at studentloanplanner.com/ the number of the episode. And finally, if you'd like the podcast leave us a review or share it with someone who owes more than you have a great week.
