Pharmacists are becoming more and more valuable.
So many new drugs are coming to the market and we have an aging population. Forty-million people are already on Medicare Part D and that number is projected to grow immensely over the next 10 years.
Rising demand has led to increases in PharmD schools and candidates. Current pharmacists have a lot to keep up with as the environment continues to grow and evolve.
With all of the growth and new pharmaceuticals coming to market, PharmDs are compensated nicely for their work. The median pharmacist salary is $128,170 according to the Bureau of Labor Statistics as of 2020.
The problem is that income has stagnated with the inflow of new PharmDs and colleges of pharmacy are rising their tuition rapidly.
Today, the average student loan debt for pharmacy graduates is $173,561, according to the American Association of Colleges of Pharmacy’s 2021 Graduating Student National Summary Report.
Pharmacists graduate with more student loans than anticipated
It takes about 4 years of pharmacy school to get a Doctor of Pharmacy (PharmD) after completing a 4-year bachelor’s program, so you want to be pretty committed to this career path in healthcare.
Higher living expenses, tuition increases each year, interest accruing on the loans, and leftover loans from undergrad push the cost of becoming a PharmD well above what was anticipated.
The average pharmacist we’ve worked with here at Student Loan Planner® has $212,804 in student debt for a pharmacy degree.
So is it financially worth it?
Pharmacist salary comparison
The average pharmacist salary is around $124,000 per year which is a very nice salary. But how does that compare to the average college graduate without an advanced degree?
According to a 2021 Bureau of Labor Statistics report, the median wage for a college graduate is about $74,776. Let’s assume that you could earn $124,000 plus a bonus, so becoming a Doctor of Pharmacy leads to an extra $58,000 in earnings per year by the averages.
Let’s also assume that $58,000 in extra income sustains throughout the entire 30-year career of a PharmD. That works out to an extra $1,740,000 in lifetime earnings for a PharmD degree compared to someone with a bachelor’s degree. That is a huge number!
Taking out $212,000 in loans to make an extra $1,740,000 tends to make financial sense on the surface, but remember that the extra earnings will be taxed.
If we assume a combined 40% tax rate for federal and state, then we can reduce that $1,740,000 in earnings down to about $1,044,000 in extra take home pay.
Now we’re talking about pharmacists having an extra $1,044,000 to pay off the $212,000 of student loan debt that made it possible for a pharmacist to earn that extra money.
Seems good on the surface, but those numbers are missing a few key facets:
1. These numbers don’t show that many PharmDs spend the first 20 to 25 years of their career saddled with loan payments.
2. The other piece of the equation is that the cost of paying back the loans will be higher than the actual loan balance.
3. 1 in 5 pharmacists are employed on a part-time schedule as a retail pharmacist or community pharmacist which means they’re not making the $124,000 median salary.
Let’s dive deeper into what repayment actually looks like for PharmDs.
Doctor of Pharmacy (PharmD) student loan repayment options
Here at Student Loan Planner®, we have done over 1,800 consults and advised on over $450,000,000 of student debt. Our experience shows that there are two optimal ways for pharmacists to pay off student loans. They just so happen to be on opposite ends of the spectrum. Let’s review the numbers when it comes to paying back loans for a pharmacy education.
Option 1 – Aggressive Pay Back: For people who owe 1.5 times their income or less (e.g. someone who makes $100,000 with loans at $150,000 or less), their best bet is to throw every dollar they can find to repay their loans quickly, within 10 years.
Option 2 – Pay the least amount possible: For people who owe more than twice their income (e.g. someone who makes $100,000 and owes $200,000 or more), the goal is to get on an income-driven repayment plan that will keep their payments low and maximize loan forgiveness whether it’s Public Service Loan Forgiveness (PSLF) or taxable loan forgiveness. This may limit career opportunities but provide more work-life balance.
PAYE vs. refinancing for pharmacists
Let’s say that Andrea has $210,000 in student loans at 6.8% interest rate. She has been a pharmacist for 3 years and was paying on IBR (income-based repayment).
Right now, she’s making $120,000 with a projected 3% increase in salary for the foreseeable future. She’s not married at the moment.
In almost all circumstances, IBR is going to end up costing pharmacists more money than they’d otherwise have to spend when paying back their loans.
Choosing PAYE or refinancing to a 10-year fixed rate will both cost less than that.
So let’s compare IBR vs PAYE vs refinancing to a 10-year fixed rate. IBR would be a 25-year plan.
As you can see IBR is by far the worst option. It’s going to end up costing Andrea nearly $120,000 more than PAYE and $140,000 more than refinancing.
She’d end up paying back her student loans in full at 6.8% over 20 more years on IBR. If you’re going to pay back your loans in full, you should refinance to get a lower rate and pay them back aggressively to save money on interest.
As for PAYE vs refinancing, the options look relatively close from an out-of-pocket cost, and here are the pros and cons for each option:
- Affordable monthly payments which will allow her to save, invest and put money toward other financial goals (pro).
- Has 20 years to save up for the taxes owed (pro).
- Loan balance will grow from $210,000 to $232,000 (con).
- It will take her six years longer to pay off versus refinancing (con).
- She’ll be out of debt in 10 years or less (pro).
- Total out-of-pocket cost is about $19,000 lower (pro).
- Once she refinances, the federal loan program benefits are gone for good (con).
- She’ll be stuck with $2,279 monthly payments for 10 years with little to no flexibility (con).
On the surface, it appears that refinancing would save Andrea the most money paying back her loans. However, if Andrea commits to those high refinancing payments, she’s less likely to build up her savings over those 10 years and she could end up in a worse-off position financially.
1. Andrea’s payments will be $1,400 per month lower on PAYE than refinancing in year one. That’s not including the tax bomb savings.
2. If Andrea sets aside $349 per month for the tax bomb and invests it for a 5% net annualized return on investment for 17 remaining years on PAYE, the projected taxes owed of $93,007 (assuming a 40% tax rate) will only cost her $71,196 ($349 per month x 12 months x 17 years). That means her investment growth will give her an extra $21,811 so that she doesn’t have to come up with that out of pocket.
3. When you add up the current year PAYE payment of $852 plus the tax bomb savings of $349, that equals $1,201 per month which is $1,078 less than her refinancing payment of $2,279. If she invested that $1,078 per month and earned 5% for 10 years, she’d have $167,394 in savings versus no savings (but would be debt-free).
4. If she invested that $1,078 monthly for the remaining 17 years on PAYE, she’d end up with $345,525 in savings plus have the $93,007 to pay the tax bomb. That would be a much nicer position than refinancing. If she refinanced and paid off her loan in 10 years then started investing the same amount as was her refinancing payment ($2,279) for 7 years at 5%, she’d end up with $228,649 not bad, but not the better option.
In other words, here’s where she could be in 17 years in each scenario:
- Refinancing. Free of student debt in 10 years with $228,649 saved up in 17 years.
- PAYE. Free of student debt in 17 years with $345,525 saved up.
PAYE would provide more payment flexibility, lower payments so he can save and invest for her other financial goals. The downside is that she’d have to get comfortable with the fact that her loans are going to grow. This is usually tough for people to wrap their head around but she’d actually end up $116,876 ahead in the end on PAYE versus refinancing.
That’s why saving alongside of PAYE is so important. Lower student loan payments isn’t a license to spend more money, the extra savings should be put towards something that will grow over time.
Is becoming a pharmacist worth the cost?
The purely financial answer is yes since the projected lifetime earnings of a Pharm.D. vs. the average college grad is $1,044,000 after taxes vs the $280,000 in cost of paying back student loans. This is assuming that employees would be engaged in full-time work and not part-time work like how one in five pharmacists are working today. That changes the equation. It could mean the difference between an ideal career with a good salary or working part-time as a pharmacy technician giving out prescription medicine at a retail pharmacy working night shifts.
We didn’t dive into what could happen if you get a full-time job at a nonprofit hospital or the VA, but then we’re talking even more savings going for Public Service Loan Forgiveness (PSLF).
Money aside, you really have to love it though. The reality is that most pharmacists will have to deal with student loans for 20 years despite any financial aid help and won’t necessarily be able to celebrate and enjoy that higher income until their loans are dealt with.
Making student loan payments will be a way of life during that time. It might get especially tight when the extra costs of getting married and raising kids comes around.
If pharmacists can keep that long term perspective, they’ll still have a nice long career with great earnings remaining after being student debt-free.
Just like any profession, Pharm.D. candidates/pharmacy students should only choose to pursue this path if they are all in and won’t let student loans make them regret their decision after projecting what life will look like 10 years after graduation.
Having a clear understanding of how loan repayment works and how to mitigate both the financial and psychological aspects of carrying that amount of debt are a must!
Pharmacists need a plan for student loan repayment
PharmDs can find a clear path to pay back their student loans despite how much their pharmacist salary is. A path that could not only save them significant money but help them understand the actions steps to get it done.
Student Loan Planner® has done over 1,800 student loan consults for clients with over $450,000,000 of student loans. We can help you figure out the optimal path in just 1 hour.
I work with borrowers who owe between $200,000-$400,000 in student loans, so that makes me the point person for most of our pharmacist student loan consults. Feel free to email me at [email protected] to ask any questions and learn more.
Our team can help anyone though, so feel free to choose the right consultant for you based on your individual circumstances.
Do you think your pharmacy salary has been worth all the student loan debt that comes with the education?