Engineering vs Medicine Money

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If you are in college, currently in the workforce, or desire to change career fields, lets analyze Engineering & Medicine. This post will examine the financial costs and profits from choosing either career; however, this post will not examine "satisfaction" for the given profession.

The cost of medical school has been out pacing inflation and is continuing to go up, up and up. If there was an market index-fund tracking medical tuition, I'd buy calls. According to the AMSA,

"With the recent downturn in the economy and the resultant tightening of federal and state budgets, funding for medical education has been compromised, particularly for public schools. This has provoked an array of responses including the rescinding of scholarships, record increases in tuition, as well as the institution of mid-year and retroactive tuition hikes."

"Over the past twenty years, median medical school tuition and fees have increased by 165% in private schools and by 312% in public schools."

Lets do a case study of Oregon Health Sciences University (OHSU),

You only know what you can afford until you know what you can sacrifice. The following explores in detail the cost of medical school.

Annual in-state tuition $30,277
Annual living expense~ $15,000 (my approximation)

Cost of Year 1 of Medical School (MS1): $45,277
Cost of Year 2 of Medical School (MS2): $45,277
Cost of Year 3 of Medical School (MS3): $45,277
Cost of Year 4 of Medical School (MS4): $45,277
Total cost : $181,108 (not including compounding interest)

Assuming an applicant will be undertaking financial aid for 2008,
Annual Subsidized Stafford Limit fixed at 6.8%: $8,500
Annual Unsubsidized Stafford Limit fixed at 6.8%: $32,000
Total Stafford Loans: $40,500

The difference in Stafford Loans and Medical Cost per year is $4,777. Lets assume you take out a Grad PLUS loan fixed at 8.5% to cover the differences. At this point, the only loans capitalizing interest are the GRAD PLUS & Unsubsidized Stafford loans.

Upon graduating medical school, the principal of $128K in unsub loans becomes $181,291. The original principal of $19,108 in GRAD PLUS loans turns into $23,529. The total interest accrued is $57,711. The compounding interest was calculated using my money chimp, seriously!

Total cost of Medical School including compound interest: $238,820



Residency

Graduation has finally arrived, so lets go buy a BMW. Wait! How does the salary post-graduation look? Lets say you'll be loving it like my friend porky the pig. I should let you be the judge.

Lets assume you match into a residency spot at OHSU for a higher paying specialty such as General Surgery. Most general surgery programs are 5 years in length, I'm adding PGY-6 for a one year fellowship, though fellowships can be two years in length. The fellowship will turn a General Surgeon into a Vascular Surgeon, or Cardiothoraic Surgeon & etc. The income earned for Post-Graduate education by Year (PGY) is

PGY-1	$45,600
PGY-2	$47,800
PGY-3	$50,000
PGY-4	$52,500
PGY-5	$55,100
PGY-6	$57,800

Does being a resident have perks? Here is one:

"The university provides residents/fellows an opportunity to participate in a limited retirement plan on a voluntary basis, and there is no employer contribution."

One of the benefits of working for an Engineering company is they will provide a match in the 401(k). I used to work as an Engineer and here is how it worked, they match 50% of the first 8% an employee contributes. If you make 100K, then you contribute 8K with the company freely giving you 4K into your retirement portfolio. The company also provided a pension, which was annually 3% of my salary.

Since OHSU does not provide a match, you are better off contributing to a ROTH IRA as opposed to a employer based 401(k) with limited funds to invest in. Anyways, here is the breakdown of the resident's salary assuming no pre-tax deduction for 401(k)

Net annual salary after Federal & State taxes

PGY-1	$31,622
PGY-2	$32,916
PGY-3	$34,189
PGY-4	$35,648
PGY-5	$37,165
PGY-6	$38,741

The monthly payments on the $238,820 with a 10 year repayment period of medical school debt is

Loan	Principal	Monthly Payment	Annual Payment
Stafford	$215,291	$2,478	$29,736
GRAD PLUS	$23,529	$292	$3,504
Total	$238,820	$2,770	$33,240

You can calculate your monthly student loan payments at finaid.

The annual student loan payments are more than the annual net salary of a resident. Hence, most resident go into forBEARance, which capitalizes interest and kicks your ass like a bear. Congress has recently passed into law a bill to restrict forbearance in order to reduce medical debt by stopping capitalization. This is one of the most jaundice bills to be introduced.

The following would be the cost of forbearing medical debt for 6 years

Loan	Starting Principal	Interest	Ending Principal
Stafford	$215,291	$104,196	$319,487
GRAD PLUS	$23,529	$14,858	$38,387
Total	$238,820	$119,054	$357,874

The transition from resident to attending physician brings a multiple increase in salary. The following are starting salaries,

Family Medicine: $158,307
Internal Medicine: $171,365
Hospitalist: $183,557
Emergency Medicine: $231,222
General Surgery: $289,410
Cardiology: $439,801


For a more detailed look of the salary of a Family Medicine doctor, look at Dr. Chan's post


Its going to take years to pay off the student debt. However, you are a militant individual willing to live in an apartment with a roommate driving a beater of a car. Buying a house is a great investment; however, I said live in an apartment because physicians have a tendency to leave their first job after 1-2 years. I'm not advocating a hard rule for an apartment, but crunch the numbers for worst and best case scenarios. Lets assume 20K for living expenses. A family doctor with an annual salary of $158,307 nets ~95K, after federal and state tax, in Oregon.

It will take the Family Doctor 4.8 years to pay $357,874. A General Surgeon with an annual income of $289,410 nets $161,450, after federal and state taxes, taking 2.5 years to pay back the same debt. Now I could be wrong, so you tell me how long it took you to pay back your medical debt and your situation.

After 10 year of medical training and $357,874 of debt, one may want to pursue a career with a sooner payout. Maybe being an Engineering, a lawyer or MBA student is better financially.

As an Engineer we were assigned a rank from 1 to 7. A rank of 1 is entry level and a rank of 7 is VP. It takes many years to get promoted up levels. Here is the number of years required with only a BS degree,

Salary	Level	Years Experience
50-84K	1	1
61-101K	2	2
76-127K	3	5
98-164K	4	9
123-205K	5	14
139-233K	6	20

For a master degree subtract one year and for a PhD subtract 3 years.

Assuming an Engineer works in Oregon as the scenario as the physician, the following is a breakdown of earnings. We will also assume 15K living expenses. The net salary is after a 8% deduction to a 401(k) in order to capture the 4% match by the company and after federal & state taxes and living expenses.

Year	Level	Salary	Net Salary	401(k)
1	1	$60,000	$25,000	$7,200
2	2	$69,000	$27,055	$15,840
3	2	$72,450	$28,907	$25,326
4	2	$76,073	$30,851	$35,721
5	2	$79,876	$32,893	$47,092
6	3	$91,857	$39,181	$60,469
7	3	$96,450	$41,520	$75,067
8	3	$101,272	$43,976	$90,973
9	3	$106,336	$46,555	$108,282
10	4	$118,033	$52,511	$127,860
11	4	$123,934	$55,516	$149,125
12	4	$130,131	$58,673	$172,197
13	4	$136,637	$61,985	$197,203

The cumulative net salary after 13 years is $544,623. The salary was calculated using generic formulas employed at my company. A standard increase of 5% is given for a high performer and 3% for a poor performer. The above table assumed 5% for all years. A promotion of 10% is given for levels 1-3 and 5.99% for level 4 on top of the standard increase. The 401(k) assumes a contribution of 8% with a 4% matching at a growth rate of 5%.

A General Surgeon by the end of 13 years, 10 years training plus 2.5 years repayment of debt, will have a net worth of zero while an Engineer will have a net worth of $544,623 with $197,203 in a 401(k).


Conclusion

If you are going to become a primary care physician (PCP), then becoming an Engineer will surpass or equal a PCP. The higher paying specialties with an annual salary of $300K and up will surpass an Engineer in the long run. This post has assumed frugality to reach these high yielding numbers. Additionally, capital gains and investments were not factored into this analysis. Investments outside one's own career is dependent upon a person's own business acumen and motivation, which is beyond the scope of this post. Another assumption of this post was the status of employment, which was assumed to be an employee. Business changes everything including tax structure, risk and reward. Business is the downfall and upside to medicine and Engineering, which will be the topic of the next post.